Infosys has called out the actions of “activist shareholders” as one of the risk factors with the potential to hamper its strategic priorities and impact its share price adversely. In a regulatory filing with the US Securities and Exchange Commission, Infosys said such activities had the power to interfere with its plan of action and add to cost of operations. The company in its 20-F filing did not hesitate in raising concerns about such activism, stating, “Responding to actions by activist shareholders can divert the attention of our board of directors, management and our employees and disrupt our operations. Such activities could interfere with our ability to execute our strategic plan.”
While the filing did not mention any names, it comes in the wake of the company’s senior management facing some adverse public remarks from its co-founder NR Narayana Murthy, from time to time. Murthy had raised several corporate governance issues with the company, especially on the revised compensation paid to the CEO Vishal Sikka and chief operating officer UB Pravin Rao, turning the pressure on the management. Murthy had also questioned the rationale of high severance package paid to the former chief financial officer, Rajiv Bansal.
On the steep hike in compensation to Infosys leaders, Murthy in a letter, earlier this year had said, “Giving 60-70% increase in compensation for a top-level person (even including performance-based variable pay) when the compensation for most of the employees in the company was increased by just 6-8% is, in my opinion, not proper. This is grossly unfair to the majority of the Infosys employees.”
It may be noted that the annual report of FY16 did not have any mention of shareholder activism, but the company chose to mention it during a year when founders and the management did not get along too well. The Infosys filing with SEC added, “This may also require us to incur significant legal fees and public relations costs. The perceived uncertainties as to our future direction could affect client and investor sentiment, resulting in volatility in the price of our securities.”
Infosys, in response to a query from FE on the reference of activist shareholders as a risk factor, said, “Our industry is undergoing a significant transformation. Over the past year, there have been specific instances of companies in our industry, seeing active participation and discussion with shareholders and stakeholders. We would like to categorically state that ‘activist shareholders’ called out as a risk in our Form 20F does not refer to any particular group of investors or individuals.”
The IT major in its filing also noted that its coverage in the media has the potential to impact investor confidence, harming its reputation. “Media coverage and public scrutiny of our business practices, policies and actions has increased dramatically over the past twelve months, particularly negative and in some cases, inaccurate posts or comments in the media, including through the use of social media… Any unfavorable publicity may also adversely impact investor confidence and affect the price of our equity shares and ADSs.”