| Ambit puts Infy in the dock over governance |
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Bangalore, 27 March A new report has raised serious questions on the corporate governance standards at Infosys, saying board independence at India’s second- largest information technology ( IT) services firm might be the weakest among Tier- I entities. The report, published by brokerage firm Ambit Capital Research, also says the promoters hold disproportionately high board representation with respect to their total shareholding in the Bangalorebased company. “While N R Narayana Murthy, S D Shibulal and SGopalakrishnan together hold around 10 per cent in the company, they represent 23 per cent of the voting rights on the board. With the highest promoter representation and the lowest proportion of independent directors, Infosys’ board independence appears to be the weakest among Tier- I firms,” Ankur Rudra and Nitin Jain said in the report. The report, titled ‘ The underbelly of Indian IT — the ugly, the bad and not so good’ hasn’t spared a few other IT companies, either. While it categorised the accounting and corporate governance standards at Geodesic, Educomp Solutions and Financial Technologies (FT) as ‘ ugly’, these at Rolta India and MCX have been categorised as ‘ bad’. Tech Mahindra/ Satyam, Infosys and KPIT Technologies have been classified as ‘ not so good’. “While some of these companies (such as FT, Educomp and Geodesic) are already understood by the market for what they are, others ( such as Rolta, MCX, Infosys, Tech Mahindra and KPIT) are yet to be discounted appropriately by investors,” it said. When contacted, Infosys said it did not want to comment on the report. While FT also declined comment, Tech Mahindra said the company had not seen the report and so was unable to respond. A senior Educomp official said: “ We completely reject the opinion put out in this report, that too on an accounting practice the company discontinued alittle more than two years ago. We will go through this report and take necessary action against what seems to be an ill- researched and motivated piece to mislead investors.” Turn to Page 19 > DISPROPORTIONATE POWERS Comparison of promoter shareholding and board representation at key tech firms Promoter Non- independent Promoter representation directors on Company shareholding on the board the board Infosys 15.9% 23.1% 46.2% TCS 73.9% 9.1% 45.5% Wipro 73.5% 7.7% 23.1% HCL Tech 61.8% 20.0% 20.0% Source: Ambit Capital Research |
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| Ambit puts Infy... |
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While talking about Infosys, the report says the company has been regarded as a paradigm of corporate governance in India ever since its initial public offering in 1993. “ While this image has earned Infosys goodwill from investors, clients and employees, there are signs these high corporate governance standards are fraying. Murthy’s entry into Infosys in an executive capacity ( even after the firm’s well- articulated policy of executives retiring at the age of 60), bringing with him his son as an executive assistant, higher promoter representation at the board and peculiar guidance pattern resulting in high volatility in share price — none of this gels with Infosys’ image of a leader in corporate governance,” it adds. Infosys co- founder Murthy returned to the company as executive chairman in June last year, junking his retirement after what he claimed was a crisis call made to him by the board. This, he said, was done to seek his help in bailing out the company, which was steadily losing its lustre. However, he joined the company with a pre- condition to bring his Harvard- educated son, Rohan Murty, as his executive assistant. This was accommodated by the board. The Ambit report says the entry of Murthy, as well as his son, amounts to breach of corporate policies. “ Infosys has historically followed a wellarticulated policy of executive retirement at the age of 60, with Murthy himself being a strong proponent of the policy. Similarly, all the founders have time and again mentioned about not letting a family manage the business. More surprising was Rohan Murty’s entry into Infosys as the senior Murthy’s executive assistant.” Infosys is known for introducing some of the global best corporate governance practices, including giving quarterly (it has discontinued the practice now) and annual revenue growth guidance, among other things. The Ambit report, however, says Infosys has lately been following a peculiar guidance pattern, which is leading to extreme volatility. “There has been a pattern in Infosys’ guidance and outlook over the past three years. It sets alower expectation in the fourth quarter of a year and overdelivers in the following quarters, causing extreme share price volatility,” it notes. “Indeed, Infosys has repeated this pattern yet again by indicating on March 12 that it will settle at the lower end of the guidance for 2013- 14 and giving a weaker outlook for the first half of 2014- 15,” it adds. In 2012, brokerage CLSA had written an open letter to Infosys voicing investors’ concerns. |
| Banks get another year to adhere to Basel- III capital norms |
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Mumbai, 27 March The Reserve Bank of India ( RBI) on Thursday gave banks another year to implement Basel- III capital regulations. With this, the deadline now stands at March 31, 2019. However, the central bank has set tough norms for non- equity capital ( additional tier- I capital, or AT1) instruments. The permanent write- down of losses, dividend/ coupon payment from a particular year’s profit and a bar on using reserves for coupon payments will make capital- raising through these instruments costly. Also, banks might have to offer higher interest ( coupon) on AT1 instruments to attract investors, bankers said. In a statement, RBI said the revised deadline would align the implementation of Basel- III norms in India to the deadline agreed globally ( January 2019). “Of late, industry- wide concerns were expressed about the potential stress on the asset quality and the consequential impact on the performance/ profitability of banks. This might necessitate some lead time for banks to raise capital within the internationallyagreed timeline for full rollout of Basel- III capital regulations,” RBI said. The capital conservation buffer will be implemented from March 31, 2016, against the scheduled March 31, 2016. |
| MCX summons board on |
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Mumbai, 27 March Multi Commodity Exchange (MCX), the country’s largest bourse in this segment, plans to change its norms to enable transfer of shares of a shareholder declared ‘ not fit and proper’ by the regulator to an escrow account. If the said shareholder doesn’t sell these shares as directed by the regulator in a reasonable while, the exchange will auction these and remit the proceeds to the owner, said a source close to the exchange’s board. To change the rules in this regard, MCX has called a board meeting on the coming Wednesday to consider an alteration of its Memorandum of Association and Articles of the Exchange. At present, there are no such norms, even in the Forward Contracts Regulation Act or in the rules governing commodity exchanges. The issue emerged after Financial Technologies ( FTIL) was declared by the Forward Markets Commission ( FMC) to be ‘ not fit and proper’ to hold any equity above two per cent in MCX. FTIL holds 26 per cent. The Jignesh Shah- controlled FTIL has already initiated a move to sell its stake in the bourse. It has got 10 offers from leading domestic and global exchanges, beside other investors. The sale process, according to the company source, is expected to be completed in six to eight weeks. FMC had told MCX two days earlier that there would be adverse consequences for it if FTIL had not cut its stake as directed by April 30. It has already stopped approving any new contracts of MCX, to build pressure. The issue of asking a shareholder to pare stake became tricky after FMC told the high court here that it had not directed FTIL to sell stake, as it lacked the legal power to do so; however, it was the regulator’s conclusion that FTIL should sell stake. Hence, FMC had been forcing MCX to ensure FTIL complied. FTIL has also challenged the FMC order before the HC. To avoid all such complications in future, MCX decided on the said amendment. A source said, “ The MCX plan is important forthe future and even the statute book should be amended in this regard.” escrowproposal Meant to obviate FTIL- like complications in the future; any equity holder declared unfit to have shares will have these put into the proposed account File photo of MCX office, Mumbai. |
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