Infosys in self contradiction that may have a devastating effect on the company

For a long time, Infosys has been a well respected corporate entity. Even when it faced business difficulties it never lost its respect amongst the Indian public. However, the recent controversy involving payment of a severance pay of $868250/- to Mr David Kennedy, former Chief Compliance official, (Refer article here) immediately after paying R 17.92 crores to another executive Rajiv Bansal who left recently as CFO (See article here) .

In a discussion on TV, Mr Narayana Murthy who has raised a serious objection to the payment of high severance pay to senior executives leaving the company indicated that the reason why the Board seems to have made the payment of severance pay to a person who left voluntarily immediately after a good pay hike could be because he had access to valuable confidential information. It also means that if the money had not been paid, there was a risk of sensitive confidential information about the Company being made public to the detriment of the business interests of the Company.

This statement of Mr Narayana Murthy has opened a legal issue that there was apparently an ulterior reason why such large severance pay was paid. If there was any threat that the information would be leaked, then it would have amounted to “Black Mail” and criminal action could have been taken on the outgoing employees. If they had not demanded but the company was gracious enough to pay the large severance pay, it prima facie opens the possibility that this was “hush money” paid to ensure that these people keep their mouths shut. If so what they could have revealed could be considered as damaging to the members of the Board or to the CEO.

Shareholders of the Company now have a ground to urge action by Company Law Board to make an enquiry on the incident and try to get proper clarification from the management.

While the Company may justify its action as a “Contract” negotiated with the “Outgoing employee”, there is a serious doubt as to the motives behind the decision and it is likely to leave a severe dent on the share holder confidence on the Company and its management.

Even SEBI and Stock Exchanges may issue notices to the Company to disclose the details of the Board decision which approved the severance pay and the logic for determining the quantum.

Naavi