SEBI must blacklist board members, officials found guilty of governance deficit: Narayana Murthy

03:44 PM Sep 21, 2020 | Team Udayavani |

Bengaluru: Infosys co-founder N R Narayana Murthy on Monday suggested that market regulator Sebi must blacklist board members and officials found guilty of governance deficit, and the compensation paid to them be recovered.


Murthy also asserted that shareholders must also be provided access to full details of the investigation carried out after any whistleblower complaint unless it contains information that could provide advantage to competitors.

Speaking at an All India Management Association (AIMA) event on corporate governance, Murthy said if an investigation into a whistleblower complaint concludes that the board and the officers of the company did not perform their fiduciary duties and contributed to a governance deficit by omission or commission, they are just asked to resign.

“Securities and Exchange Board of India (Sebi) must blacklist these board members and officers. The shareholders must vote them out. In addition, the shareholders must claw back 100 per cent of the compensation or the fee received by the board and the officers during the tenure of the incident – i.e. the date when the incident occurred to the time the investigation is complete – reported by the whistleblower,” he said.

He noted that whistleblowing should not be an act of revenge by a disgruntled employee, and the whistleblower must substantiate his or her complaint with data and facts.


Stating that a corporation must provide total protection to whistleblowers against vendetta by the bosses, Murthy said an important duty of a board is protecting and enhancing the reputation of the company and discharging its fiduciary responsibilities.

“Therefore, addressing a whistleblower complaint in a transparent and trust-enhancing manner is a must. If the complaint is against a middle or a low level employee, an internal committee consisting of senior employees not connected with the accused and committed to total fairness and transparency, should be sufficient,” he said.

Murthy added that if the complaint is against any member of the board including the chairman or the CEO, the tendency of most Indian boards is to investigate such complaints themselves assisted by an outside law firm, pay them and obfuscate the issue.

“This is not a good idea because you cannot be the judge, the jury and the defendant,” he said.

He said the boards of some globally-reputed companies totally recuse themselves from the investigation of the complaint in such situations and top ten shareholders and highly-respected individuals from the society are brought in to investigate the whistleblower”s complaint.

Stating that transparency is an important tenet of good governance, Murthy said a shareholder has an unalienable right of access to every piece of information concerning an investigation.

“The full details of the investigation should be provided on the website of the company so that every shareholder has access to it. The investigating committee or its experts should provide every document of the investigation and answer every question,” he said.

Murthy added that the only two exceptions to this rule are that there should not be any selective disclosure provided to any one set of shareholders, and that any business information that provides a competitive advantage to the company vis-à-vis its competitors in the marketplace cannot be disclosed to any shareholder.

Interestingly, Infosys – in October last year – had informed stock exchanges of having received anonymous whistleblower complaints alleging certain unethical practices by the top management.

It then started a probe into the matter and roped in external investigators. Later, the company had said the audit committee had found no evidence of financial impropriety or executive misconduct, giving a clean chit to the top management.

In 2017, Infosys had witnessed a protracted stand-off between its high profile founders and the previous management over allegations of governance lapses and issues relating to severance package doled out to former executives, including ex-CFO Rajiv Bansal.

After the tussle, the then CEO Vishal Sikka quit followed by some board members. Infosys co-founder Nandan Nilekani was then brought in as Chairman to steer the company, and Salil Parekh was appointed as the CEO in January 2018.

Murthy, delivering the keynote, said corporate governance levels in India have improved considerably in the last three decades but there have been a few instances of serious governance deficits during the last five years.

He noted that the primary functions of a corporate board include ensuring a robust quality growth of both the top line and the bottom line of the company, protecting and enhancing the reputation of the company as well as reviewing, critiquing and improving the strategy presented by the management.

He added that the Board needs to recommend a fair and performance-based compensation to the CXOs and other officers of the company after consulting key, knowledgeable shareholders and create a succession plan for the CXOs and key officers of the company.

The board also needs to identify risks and take timely action to mitigate them, put in place systems of information, control, checks and balances, and make sure that they are working and ensuring full compliance of regulations required by every statutory authority of the land.

Murthy pointed out that managerial remuneration has to be a fair multiple of the compensation of the lowest level employee in the company and said if the lowest paid employee”s remuneration was Rs 2-3 lakh a year, the CEO remuneration should be Rs 70-80 lakh.


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