Vishal Sikka's exist and massive erosion of shareholder value

The price of Infosys Technologies' stock last week plummeted 10 per cent to Rs 923, thanks to the unsurprising exit of Vishal Sikka as the chief executive and managing director of the company. Worse, since his exit has been shrouded in controversies, the confidence that Sikka had built up in the stock since his appointment three years ago has also thinned significantly.

The exit was indeed inevitable and that is clear from the fairly incisive questions raised by co-founder N R Narayana Murthy – now in the public domain. The questions dwell upon Sikka, the board’s conduct, the Panaya acquisition, and the severance package given to former chief financial officer Rajiv Bansal. The governance issues raised by Murthy give an impression that the board had not acted fairly on the whistleblower report highlighting malpractices during Sikka’s regime.

In questioning the processes followed by the company’s board, Murthy represents himself and "some well-meaning shareholders" who consider the findings of the independent investigation dubious.

But these dole-outs might not be enough to reverse the crisis. The overhang on the stock will persist unless the fundamental issues are tackled well. There are several aspects to what could evolve going forward. First, in the immediate term, there will be legal fallouts. US-based firms like Rosen Legal and Bronstein and Gewirtz & Grossman have initiated an investigation of potential securities claims on behalf of Infosys shareholders (ADR is 16.69 per cent of total outstanding shareholding).These draw from the allegations that Infosys might have issued materially misleading business information to the investing public.