Whistleblower case: Infosys writes to clients as allegations reveal dissent

Analysts say relation with clients is good, but allegations reveal internal dissent
Infosys has written to clients, apprising them of the developing situation on whistle-blower allegations and subsequent investigations by the company and regulators, said sources in the company.

Analysts said the relationship of the Bengaluru-headquartered information technology (IT) major with its clients was unlikely to be affected by the recent developments, but the complaints of the whistle-blowers reflected internal dissent in the company.

“From the point of view of clients this will have little or no impact,” said Peter Bendor-Samuel, founder and chief executive officer (CEO) of global IT outsourcing consultancy firm Everest Group, adding: “They don’t care about accounting practices and where the CEO is travelling. Their experience with Infosys has been good and that is what they care about.”

He added current whistle-blower allegations were reflective of the internal dissent in the company and this did not augur well for Infosys. “Internal wounds can be clearly perceived from the non-accounting portions of the whistle-blowers’ letter,” said Bendor-Samuel, adding: “Protracted infighting distracts the IT firm from the heavy lifting of transformation which it must continue to push through if it has to emerge as a leader in this new market.” 

An anonymous group called Ethical Employees, in a letter on September 20, alleged that Infosys’ current management was taking “unethical” steps to inflate short-term revenue and profit. It also flagged concerns about several zero-margins deals, which were closed by the current management “flouting norms”. 

The letter was made public last Monday, after which Infosys’ stock price was badly hit, though it has recovered a bit in the last trading session. The IT major is currently facing investigations from the Securities and Exchange Board of India and the US SEC, apart from class-action suits from some US-based law firms.

Global analysts said some of the allegations made by the whistle-blowers were petty and accounting for large deals was often complicated, with no one correct method. Infosys CEO Salil Parekh was still highly regarded by clients. 

Hansa Iyengar, senior analyst at London-based Ovum Research, said, “Salil Parekh has brought in a clear vision for Infosys and his efforts have made the company a stronger player, backed by steady growth across the business. As of now, Parekh continues to be the CEO of Infosys and there is no indication that he is leaving the company.” Big deal accounting is complex and there are several legitimate approaches to take,” said Bendor-Samuel, adding, “It would not be surprising if the new leadership changed the approach and some members of the existing accounting and finance teams disagreed. This would not, however, make the new treatment wrong.” 

The whistle-blowers had also written about the CEO being absent from the company headquarters and made unpleasant remarks about the board. “Let’s not make a mountain out of a molehill; let investigations take their course,” said Iyengar of Ovum Research.

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