Panaya deal: Infosys board urgently needs to provide answers

The moment of truth is here

Infosys’ decision to probe the charges made by a whistleblower regarding the acquisition of Israeli technology company Panaya is welcome. In fact, doubts over governance ethics in Infosys have reached a point where stakeholders need the company’s board to provide convincing explanations on the controversies raised by the company’s founders a couple of weeks ago. The whistle-blower’s letter, sent over the weekend to the Securities and Exchange Board of India and selected newspapers, suggests that there is more to the acquisition of Panaya and Chief Financial Officer Rajiv Bansal's departure than meets even the uninterested eye. The founders, led by former Chief Mentor N R Narayana Murthy, had initially flagged their suspicions of the unusually high severance packages to Mr Bansal and a former compliance officer David Kennedy, as well as Chief Executive Officer Vishal Sikka’s increased salary package. The question of Mr Sikka’s salary appears to have receded once it became clear that it contained a significant degree of variable, performance-linked pay, but the controversy surrounding Mr Bansal’s severance pay and its links to the Panaya deal, the IT major’s second-largest acquisition, has grown. 

No explanations were provided by the board on why the company committed to pay Mr Bansal Rs 17.38 crore (so far, Rs 5.2 crore has been paid) when he stepped down in October 2015, considering his annual earnings in the previous financial year had been Rs 4.72 crore and when the company had not paid severance packages to previous departing finance heads. The fact that the company chose to report Mr Bansal’s resignation many months later, in the annual report, does not enhance its claims to transparency. The board, filled with corporate stalwarts, also chose to change the severance pay rules of its management team only after the issue came to light last week and ahead of Mr Sikka’s address to shareholders. Independent director Rupa Kudva merely spoke of “lessons learnt”. From the board chairman, R Seshasayee, there have been expostulations of innocence that encouraged two founders to call for his resignation. From Jeffrey Lehman, head of the remuneration and nominations committee, there has been no public explanation. Indeed, the role of the entire board comes into question if the reporting around the whistle-blowers’ revelations is to be believed. Mr Bansal’s purported walk-out from a board meeting in February 2015, when members were asked to approve the Panaya deal, appears to lend some weight to Mr Murthy’s suggestion that his severance package may have been “hush money”. 

Certainly, explanations are required as to why Infosys paid $200 million for a company that had been valued at $162 million a month before by an investor who had bought a 12.3 per cent stake. Also, was any link between Hasso Plattner, co-founder of SAP and an 8.33 per cent shareholder in Panaya, and Mr Sikka, a former member of SAP’s executive board, disclosed and discussed? This is important, since the enhanced purchase price boosted Mr Plattner’s earnings by $17 million. Corporate boards in India have scarcely distinguished themselves in recent years, and Infosys seems to be hewing to that trend. Speaking to Infosys employees on Monday, Mr Sikka reiterated there were “no wrongdoings” in the acquisition of Panaya and the company would defend itself against the allegations. His performance so far suggests that he has been an asset for India’s second-largest IT services firm, which explains why the stock price has not suffered since the controversies erupted. But it will take more robust disclosures to convince clients and employees of the company’s governance norms. An inquiry is a good place to begin.