Infosys must act with urgency: Experts as stock tank

Nikhila Natarajan-


As Infosys (NYSE: INFY) reels from the onslaught of a whistleblower complaint alleging “unethical practices” by the companys Chief Executive Officer (CEO) Salil Parekh and Chief Financial Officer (CFO) Nilanjan Roy, crisis communications experts are recommending the firm must act with a “sense of urgency” with respect to at least two critical audiences — investors and employees — for effective damage control at a time when Infosys reputation is on the line in full view of its global stakeholders.

Infosys ADRs have dropped 12 per cent to $9.26 after the whistleblower complaint hit the market, alleging “unethical practices” by the company’s executives.

Headlines like these are flooding the Wall Street Journal’s stock pages hours before Asian markets open on October 22: “The Schall Law Firm Announces it is Investigating Claims Against Infosys Limited and Encourages Investors with Losses in Excess of $100,000 to Contact the Firm”

“Parekh and Roy have been resorting to unethical practices for many quarters, as evident from their e-mails and voice recordings of their conversations,” the whistleblowers, who go by the signature ‘Ethical Employees’, wrote in a two-page letter to the Bengaluru-based IT firm’s board of directors on September 20.

IANS has accessed a copy of this letter.

Infosys Chief Executive Officer Salil Parekh allegedly referred to independent directors D. Sundaram and D.N. Prahlad as “Madrasis”, a term commonly used in North India to take a swipe at South Indians.

“Whistleblower complaints are complex. There’s a lot that you (the firm) don’t know immediately and will have to find out. But while you do that, it’s important for the company to act on the complaint with a sense of urgency”, crisis communications expert and managing partner at Beacon Advisors Hud Englehart told IANS.

“It’s nearly impossible to know how accurate the claims are, but Wall Street usually sells first and asks questions later. One of the things we like to do is look at a stock’s valuation to get a sense of whether the risk is priced in. In the case of Infosys, it might not be,” Baird analyst David Koning is quoted as saying, in Barron’s.

Englehart said Infosys must first “calm the street” and make sure investors “know everything that the firm is doing to address the complaint.” It’s equally important that the firm be clear about what information is still in the process of being found out. “The other key audience is the workforce because that is likely the same community where the whistleblowers come from”.

“They will certainly have questions and the company must deal with that on priority,” Englehart said.

Michelle Wucker echoes a similar sentiment of urgency in her book The Gray Rhino. Wucker uses the metaphor in the title to flesh out “highly probable, high impact yet neglected threats”.

“The sooner we deal with them, the lower the cost. The challenge, after a trampling, is to avoid overreacting and keep from under-reacting. It all comes down to how leaders and communities asses risk and value security and whether leaders are willing to risk political capital to do the right thing when they know they are more than likely not to benefit.”

“But in the end,” Englehart writes in The Handbook of Strategic Public Relations, “crisis outcomes are determined by how companies behaveeby what they do, how they do it and when they do it. When behaviour doesn’t line up with the story (message), companies have to be prepared to suffer the consequences.”

In multiple corporate crisis case studies that IANS has reviewed, internal investigations have been a far second to bringing in external parties. Internal investigations, crisis experts told IANS, often smack of “nepotism”.

An Infosys spokesperson told IANS New York that the whistleblower complaint “will be dealt with in accordance with the company’s whistleblower policy.” IANS is awaiting a reply from Infosys on whether “the investigation” referred to in the whistleblower policy will be an internal one or external people will be involved.

This is the operative paragraph in the Infosys whistleblower policy which related the “investigation” of the complaint: “All reports under this Policy will be promptly and appropriately investigated, and all information disclosed during the course of the investigation will remain confidential, except as necessary to conduct the investigation and take any remedial action, in accordance with applicable law.

“Everyone working for or with the Company has a duty to cooperate in the investigation of reports of violations. Failure to cooperate in an investigation, or deliberately providing false information during an investigation, can be the basis for disciplinary action, including termination of employment.

“If, at the conclusion of its investigation, the Company determines that a violation has occurred, the Company will take effective remedial action commensurate with the nature of the offence. This action may include disciplinary action against the accused party, up to and including termination. Reasonable and necessary steps will also be taken to prevent any further violations of Company policy.”

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