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Whistleblowers Exposed Infosys Amoral Acts

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Whistleblowers Exposed Infosys Amoral Acts

The leading IT Company of India, Infosys has been under pressure as the company’s audit team is focusing on the anonymous whistleblower’s complaints alleging unethical practices. The chairman Nandan Nilekani in his statement to the stock exchange today, said that the CEO and CFO have been rescued from the matter to ensure independent investigation against the top executives.

The company’s shares have been affected negatively by the news and are constantly getting slumped.

The whistleblower’s group calling themselves the “ethical employees” sent copies of the letter to the Board of Infosys along with the international organization of US Securities and Exchange Commission (SEC). In the letter, the group stated that Infosys is taking ‘unethical’ steps to boost short-term revenue and profits and the complainants have emails and voice recordings to substantiate the claims.

The group alleges that CEO Salil Parekh is bypassing reviews and approvals for large deals. “He (Parekh) directs them to make wrong assumptions to show margins.

CFO is compliant and he prevents us from showing in board presentations large deal issues. Several billion-dollar deals of the last few quarters have nil margin,” the letter states. “Please ask auditors to check deal proposals, margins, undisclosed upfront commitments made & revenue recognition,” the letter stated.

The company is examining the charges made by the whistleblowers on Sunday night and the audit committee is pursuing the process following the company’s whistleblowers’ policy.

The whistleblower’s complaint letter added that the complainants were asked to not fully recognise visa costs in the quarter and were pressured to not immediately recognise $50 million in reversals in a contract, ““In large contracts like Verizon, Intel, JVs in Japan, ABN AMRO acquisition, revenue recognition matters are forced, which are not as per accounting standards.

The letter added that the CEO and CFO Nilanjan Roy were pressuring the finance team to show more profits in their treasury management ‘by taking risks and making changes to policies. They ask us not to make key disclosures in 20F and annual report and to share only good and incomplete information with investors and analysts. This is a regulatory issue. We have mails and voice records and will share during the investigation.”

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In a nutshell, the allegations include that company bypassed appropriate review and approval processes on the large deals with negligible margin, it suppressed the information related to these deals from auditors and board members. The revenue and cost recognition in large deals was not adhered to accounting standards to improve near term profitability, along with pressure from the CEO and CFO on the treasury to boost the income by taking higher risks.

The audit committee of the board chaired by D Sundaram is working with complaints the whole panel also comprises independent members Roopa Kudva and Punita Kumar Sinha.

The company chairman Nandan Nilekani stated “We are providing an update on the steps taken in response to the anonymous whistleblower complaints (“Complaints”) that the Company disclosed on October 21st, 2019. One Board member received two anonymous complaints on September 30, 2019 one dated September 20, 2019, titled “Disturbing unethical practices” and the second undated with the title, “Whistleblower Complaint.” Pursuant to our whistleblower practise, we have placed both Complaints before the Audit Committee on October 10, 2019, and before the non-executive members of the Board on October 11, 2019. These Complaints are being dealt with objectively. The updated whistleblower complaint largely deals with allegations relating to the CEO’s international travel to the US and Mumbai.”

The statement further included, “Additionally, on October 16, 2019, the Company was made aware of a letter dated October 3, 2019, which was purportedly written to the Office of Whistleblower protection program, Washington D.C. This letter refers to the September 20, 2019 complaint, and emails and voice recordings in support of the allegations. Although we have not been provided with any of the emails or voice recordings, we will ensure that the generalized allegations are investigated to the fullest extent. Additionally, to ensure independence in these investigations the CEO and CFO have been rescued from this matter.

Post the Board Meeting of October 11, 2019, the Audit Committee began consultation with the independent internal auditors (Ernst &Young) on terms of reference for their prima facie investigation. The Audit Committee has now retained the law firm of Shardul Amarchand Mangaldas & Co. (October 21, 2019), to conduct an independent investigation. The Board, in consultation with the Audit Committee, will take such steps as may be appropriate based on the outcome of the investigation.”

“Because the investigation is ongoing, there will be no further comment so that investigation may be conducted thoroughly and objectively. At the appropriate time, we will provide a summary of the results of the investigation. The Board is committed to uphold the highest standard of corporate governance and protect the interests of all stakeholders,” the statement by chairman Nilesh ended with a remark on ensuring corporate governance.

Infosys deputy CFO Jayesh Sanghrajka resigned this month. In the past, the company has faced a whistleblower complaint was during the tenure of former CEO Vishal Sikka who left in 2017. He left after a tussle over corporate governance with Infosys founder NR Narayana Murthy. This led to the return of cofounder Nandan Nilekani as the non-executive chairman in 2017.

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