The Securities and Exchange Commission for years has been very aggressive in bringing lawsuits against companies that don't play by the rules. It's time for the SEC to direct that aggressiveness towards Infosys.
I don't know whether the SEC is looking at Infosys, but I do know that if it's not, it should be. Jay Palmer's civil lawsuit alleging that Infosys has engaged in visa and tax fraud, and the U.S. government's criminal investigation of the company's visa-related activity, are likely to change Infosys forever. No one should be surprised if criminal indictments are on the horizon. But the U.S. government still needs to be all over this case on the civil side, as well. And the SEC is just the body to do it.
By submitting a report to the SEC, a company affirms that the contents of the report are truthful and accurate. If the SEC were to find that not to be the case, one might expect that it would take some very hard-nosed action. In its 2010-2011 Annual Report (Form 20-F) submitted to the SEC, Infosys made this declaration:
Our Audit Committee has also adopted a Whistleblower Policy wherein it has established procedures for receiving, retaining and treating complaints received, and procedures for the confidential, anonymous submission by employees of complaints regarding questionable accounting or auditing matters, conduct which results in a violation of law by Infosys or in a substantial mismanagement of company resources. Under this policy, our employees are encouraged to report questionable accounting matters, any reporting of fraudulent financial information to our shareholders, the government or the financial markets any conduct that results in a violation of law by Infosys to our management (on an anonymous basis, if employees so desire). Under this policy, we have prohibited discrimination, retaliation or harassment of any kind against any employee who, based on the employee's reasonable belief that such conduct or practices have occurred or are occurring, reports that information or participates in an investigation.
Uh-oh. It's going to be very, very difficult to argue that Palmer, who followed the Whistleblower Policy in good faith, has not been subjected to any kind of discrimination, retaliation or harassment. Since Palmer filed the lawsuit, Infosys has kept him on the bench, and won't assign him to a project. As a result, he has lost tens of thousands of dollars in compensation, and he's watching his skills atrophy while Infosys has gone on a hiring spree in the United States. Throw in the verbal abuse he has endured from Infosys managers, along with the fact that he has been isolated from the normal company engagement that all employees have a right to expect, and the pattern of retaliation and harassment is glaring. I wouldn't be surprised if the SEC doesn't take too kindly to that.
Infosys made a similar declaration, meanwhile, in its 2010-2011 Annual Report to shareholders:
We have established a mechanism for employees to report concerns about unethical behavior, actual or suspected fraud, or violation of our code of conduct or ethics policy. It also provides for adequate safeguards against victimization of employees who avail of the mechanism, and also allows direct access to the Chairperson of the audit committee in exceptional cases. We further affirm that no employee has been denied access to the audit committee.
The CEO and CFO certification, which is signed by CEO S. Gopalakrishnan and CFO V. Balakrishnan, and is contained in the Annual Report to shareholders, includes this statement:
We affirm that we have not denied any personnel access to the audit committee of the Company (in respect of matters involving alleged misconduct) and we have provided protection to whistleblowers from unfair termination and other unfair or prejudicial employment practices.
If Infosys is found to have subjected Palmer to unfair employment practices, it's hard to imagine that the company's shareholders won't feel betrayed. All I know is that if I were an Infosys shareholder under those circumstances, I'd be the first in line to file a shareholder lawsuit against the company.