Rajkamal Rao

Whistleblowers’ complaints could cost Infosys dearly

Rajkamal Rao | Updated on October 28, 2019

Infosys is overseen by regulators in both India and the US   -  REUTERS

Complaints of ethical violations are taken more at face value now than they were before. Unless proved innocent — quickly — Infosys may lose valuable business

Even as recently as two decades ago, the whistleblower emails against Infosys would have elicited no more than a yawn. But in the world we live in today, the complaint presents a direct threat to Infosys.

Twenty years ago, corporate boards could count on a fundamental principle of fairness: the presumption of innocence. When a complaint surfaced, the business press could be relied on not to rush to judgment or print damaging stories without sufficient evidence. This cover gave boards the time to assemble a crisis committee, mount a legal response, and manage public opinion.

But in the world of #MeToo, where decades-long careers of famous celebrities can vanish overnight with just a tweet, judgment standards have reversed. The norm today is that if a complaint exists at all, the accused is presumed guilty in the court of public opinion until proven otherwise.

And then, there’s the court of law. Infosys’ legal defence strategy has to carefully straddle a fine line, because it is overseen by regulators in both India and the US, two countries where the corporate governance and accounting standards are different.

Civil cases in both countries take time to be resolved, and even if Infosys settles by paying a fine without admission any wrongdoing, the damage to its brand is likely to be harsh. Infosys is especially vulnerable, because it has always made a big deal about ethics, carrying it as a badge of honour and using it as a product and service differentiator.

US scrutiny

It is not entirely clear if the whistleblower group originally intended to complain to the Securities and Exchange Commission, the US regulator. Here, Infosys may be kicking itself for not being responsive enough. Media reports say that the group sent the first email to the board on Monday, September 30, but for three business days, nothing happened. It is hard to imagine how someone at the company sat for nearly 72 hours on an important complaint alleging ethical violations. The standard practice in such cases is to immediately acknowledge receipt of the email and have a senior member of the board assure the group that a formal response is forthcoming.

In 2010, the US expanded protections for whistleblowers and broadened the prohibitions against retaliation. Here, Infosys may have a little more breathing room, because even the SEC admits that the law does not specifically state to what extent anti-retaliation protections apply to individuals or conduct outside of the US, or if they do at all. Regardless, and in order to uphold its public image, Infosys should refrain from aggressively confronting the whistleblowers.

Decoding the complaints

Some of the whistleblower complaints border on being petty. It is perfectly legal for the CEO to not fully agree with the members of his board. Nor is it inappropriate for him to say that some make “silly points.” The charge against the CEO spending half his work-week in Mumbai is also silly. Mumbai may be Salil Parekh’s home town, but the city is also India’s business and financial capital. Regulators tend to be deferential to CEOs in such matters.

All of which brings us to two vital questions. Who are these whistleblowers? And what is their motive? If the motive is to genuinely address securities violations — if they have really occurred — this complaint may continue to haunt Infosys.

But in a world where everyone has an opinion and is able to express it at warp-speed, the threat to Infosys with its customer base, 70 per cent of whom are in the US, is a lot more serious. American clients are uncomfortable with doing business with companies that are in the SEC’s crosshairs. Infosys has a huge public relations task ahead.

The writer is Managing Director, Rao Advisors LLC, Texas

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Published on October 25, 2019
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