Developments at Infosys and the Tata group have brought to fore issues of corporate governance and accountability. Both must come out of their self-imposed shroud of secrecy and start communicating to shareholders and public
The developments at the Tata and Infosys groups are not only a matter of concern from the point of view of the future prospects of these two IT giants, but more so from the angle of corporate governance and accountability.
In a surprise boardroom coup on October 24, 2016, Nitin Nohria, Dean of Harvard Business School (HBS), along with other Tata Sons directors voted to oust Cyrus Mistry as the chairman of Tata Sons.
John C Coffee, director at the Centre on Corporate Governance at Columbia law School said, “A dean or university president cannot be an adequate independent director on the board of a company that is a major donor. Tata is a very major donor to HBS and its dean is thereby compromised. Moreover, to raise ethical questions about corporate governance in the context of Nohria’s connection with Ajay Piramal as well as his brother-in-law Amit Chandra (of Bain Capital India) who were brought on the board of Tata Sons, just before Mistry’s sacking, is only very logical”.
Further, of the over 50 companies under the group’s umbrella, only Tata Consultancy Services and Tata Motors JlR are doing well. Mistry reportedly wanted to set right matters by taking bold, if uncomfortable decisions that would have diminished Tata’s legacy.
Be that as it may, the reason for the removal of a chairman, who was appointed with much fanfare, as was done in Tata group, need to be clearly spelt out so that his failings/misdemeanours are identified and accountability be fixed. The need for transparency of this high stature company, even if it is in the private sector, cannot be over emphasised.
On the other hand, the allegations against Infosys’ board raise much suspicion of breach of corporate governance and serious lack of transparency. As alleged, the Israeli software company, Panaya, was purchased at a mark-up much above the valuation of the company and despite the opposition of the then chief financial officer (CFO). Also, the reason for the mark-up was reportedly not explained/recorded anywhere. Further, there are hints at insider trading.
Issues also include the huge severance packages given to two outgoing employees, including the then CFO, as well as the stratospheric compensation awarded to Sikka. All of this still remain shrouded in mystery.
The company got a clean chit from an independent investigation done by Mumbai-headquartered law firm Cyril Amarchand Mangaldas. The same law firm has been hired to engage with shareholders, including the founders, on governance lapses. Infosys has maintained that it complied with fiduciary duties and adopted good governance norms. It also said that the acquisition was made at a price within the band recommended by Deutsche Bank, the third party valuer.
All said and done, there comes to fore the problem of inadequate corporate communication. Firms which talk of corporate social responsibility, and claim the high ground of ethics, have to communicate in a different way to society.
The two companies obviously have so far failed miserably in this respect. They must, sooner than later come out of the self-imposed shroud of secrecy and start communicating to shareholders and public clearly and transparently on all their outstanding issues of corporate governance.
(The writer is a commentator on contemporary issues)
