Tell Us When The Whistle Blows

Bad news must take the elevator and good news can take the sta­irs—this Infosys corporate governance credo from its founding days played out dramatically this week as jittery investors reacting to a whistleblower accusation sent its share price into a tailspin, lopping off $7 billion in market value over a day. For Infosys, the anonymous allegations of unethical accounting practices have disrupted a relatively stable two-year run since a board wrangle in 2017.

The market reaction aside, there’s been a fair deal of discussion regarding these allegations. “Creative financial techniques are often used to report numbers in a way that comfort shareholders and the street. A classic example of this is companies having to report numbers under new umbrella terms like cloud and digital,” wrote Sanchit Vir Gogia of Greyhound Research in a recent note.

Gogia doesn’t reckon it is malpractice, but rather that it reflects the conundrum that Indian IT companies have been facing for a while now—adapting to new technologies, while still having to rely on traditional outsourcing contracts. “The industry must show restraint and wait for the company to report the outcomes of its due diligence process,” he wrote.

Infosys must tackle these allegations with more transparency than it did previously, Gogia points out. In 2017, the company’s investigation into the allegations of corporate governance lapses didn’t find anything amiss, but it didn’t make the inquiry reports public. It’s not binding on the company to do so, experts point out, but that would have helped clear the air.

[Outlook India]

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Analyst:

Sanchit Vir Gogia: Sanchit is the Chief Analyst, Founder & CEO of Greyhound Research, a Global, Award-Winning, Technology & Innovation Research & Advisory firm. To read more about him, click here.

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