Infosys warns of risks from ‘activist shareholders’ in SEC filing
13 Jun 2017
Infosys Ltd has flagged ''activist shareholders'' who divert attention of the company's board and management, as well as negative media coverage over the past twelve months, as risk factors in its annual filing to the US Securities and Exchange Commission.
Infosys warned that actions by activist shareholders could affect the company and devalue its stock. Although the company has not named any names, it is widely perceived that some moves by its founders clearly fall in the area of activism.
The Bengaluru-headquartered company has been involved in a bruising battle over corporate governance with its iconic founder N R Narayana Murthy, who has publicly castigated the company for falling standards and excessive remuneration for some executives.
''Actions of activist shareholders may adversely affect our ability to execute our strategic priorities, and could impact the trading value of our securities,'' Infosys said, listing this as one of the risk factors in its 20-F document, which was filed on Monday. The document is a filing with the US Securities and Exchange Commission. This is the first time that Infosys has called actions of any of its shareholders a risk factor.
''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,'' the risk factor statement continued.
While Infosys has previously highlighted the potential impact of negative media attention, the updated risk factor is far more pointed.
''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,'' the company said.
An Infosys spokesperson was at pains to stress that the company was not referring to its promoters as activist shareholders: ''Our industry is undergoing 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 leading to corporate actions. This is the reason we have chosen to highlight this risk factor in our disclosures. We would like to categorically state that 'activist shareholders' called out as a risk in our Form 20-F does not refer to any particular group of investors or individuals,'' the spokesperson said.
Infosys's founders together hold 12.75 per cent equity in the company.
Led by N R Narayana Murthy, they have publicly expressed their disenchantment against some of the decisions by the current board, twice in public, since February this year. In February, Murthy lambasted non-executive chairman R Seshsayee and the head of nomination and remuneration committee, Jeffrey Lehman, over the board's decision to give a generous Rs17.38 crore in severance money to its former chief financial officer Rajiv Bansal.
In April, Murthy again chided the Infosys board's decision to award a higher salary to its current chief operating officer, U B Pravin Rao.
Only five of the seven original co-founders - Murthy, Nandan Nilekani, S D Shibulal, Kris Gopalakrishnan and K Dinesh - are categorised as promoters of the company.
Whoever it is aimed at, Infosys' move to mention activist shareholders is a deviation from what its rivals have done. Neither Wipro Ltd nor the Nasdaq-listed Cognizant Technology Solutions Corp, which actually saw one of its activist shareholder write a strongly-worded letter to the management last year, has classified actions by its shareholders as a risk factor.
