Setback for Infosys

But all IT firms should address larger picture

Infosys has agreed to pay $34 million (Rs 208 crore at the current exchange rate), the largest amount ever in a US visa case, for a civil settlement of the US government’s claims of visa violations by the firm. Though this has enabled Infosys to assert that there are no criminal charges or court rulings against it, this final denouement of US investigations that began two years ago will lower the firm’s public standing. As there has at least been shoddy paperwork relating to visas, there has undoubtedly been a deficit in management, if not in leadership. The company’s reputation for superior governance is also likely to take a beating. Infosys has been considered an icon of good governance among Indian companies, promoting the belief that companies founded and run by professionals are governed by higher standards than those founded by traditional Indian business families. This had enabled it to reap a governance premium. The latest development comes close on the heels of N R Narayana Murthy inducting his son as his assistant on his return to executive leadership, which also provoked comments that governance standards in Infosys were not what they used to be.

The US legal action is likely to further strengthen public opinion, at a time of high unemployment, against information technology (IT) outsourcing — which is seen to take away jobs from locals. The settlement will also strengthen the hands of those who are urging Congressmen to pass into law a new immigration Bill, which will make it more difficult and costly for outsourcers to leverage their cost advantage by bringing in knowledge workers on work visas. Outsourcing firms across the board can be expected to live with regulators breathing down their necks more on compliance with immigration rules.

This development should also be seen in the context of the recent deterioration in the US-India trade relationship. Currently, two of the best performing Indian export sectors in the US that have made inroads into that market, pharmaceuticals and IT, are facing regulatory hurdles that put them on the wrong side of the law. The climate of opinion in Washington, DC, has turned against India on economic issues; even an investigation is being launched by US legislators into Indian trade practices. This is unprecedented for the recent past – especially for India, which is accustomed to doors opening for its interests in Washington – but is in fact not unusual in times of domestic recession in many countries, including the US. In the relatively distant past, similar attention was paid to, say, Japanese car makers when they began to dominate the US market. This is one more reason why the Indian IT industry should behave maturely — and, like the Japanese automobile firms, draw the right lessons by getting its act together.