Fortune Institute of International Business New Delhi

What if she was your daughter, Mr. Murthy? An analysis of Infosys’ response in sexual harassment cases This case was written by Asst. Prof. Arun Sangwan (Fortune Institute of International Business). Disclaimer regarding the intent and usage: It is intended to be used as the basis for class discussion rather than to illustrate either an effective or an ineffective handling of a management situation. The case was compiled from published sources. © 2015, Arun Sangwan No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

What if she was your daughter, Mr. Murthy? An analysis of Infosys’ response in sexual harassment cases

The moral values, ethical codes and laws that guide our choices in normal times, are even more important to help us navigate the confusing and disorienting time of a disaster - Sheri Fink

Disturbing statements from the Chairman and Chief-mentor

Bangalore, May 11, 2003 – Infosys called for a press conference. It was Sunday afternoon, and

the press had been summoned at a short notice. It was to share the latest development in the

case of wrongful termination and sexual harassment filed by Ms. Reka Maximovich, an ex-

employee, against Phaneesh Murthy, the former Head of Global Sales and board member of

Infosys, and Infosys. The development was that Infosys had reached an out-of-court settlement

with Ms. Maximovich on April 25, 2003.

The gravity of the situation can be judged from the fact that N.R. Narayana Murthy, the

chairman and chief mentor took upon himself to present the facts, and address the questions

from the media representatives. He was accompanied by Nandan M. Nilekani, the company's

CEO, President and Managing Director, S. Gopalakrishnan, the COO, and Mohandas Pai, the

CFO, amongst others.

Murthy, in his opening remarks, mentioned the reasons for Infosys to opt for an out-of-court

settlement. Perhaps unwittingly, he made a significant admission, when he said, “The first one

(reason for opting for out-of-court settlement) is the allegations in the law suit were serious. The

alleged harm to the plaintiff was also serious …” (“Infosys Press Conference”, 2003).

The very fact that the allegations and alleged harm to the plaintiff was serious, even if these

were allegations at this stage, presented Infosys with necessary and sufficient reason to pursue

truth and justice, and not take the route of an out-of-court settlement.

Mentioning the second reason, Murthy said, “Second, there was a risk to the company as under

the California law, the company might have been found to be automatically liable for the

conduct of Mr. Phaneesh...” (“Infosys Press Conference”, 2003).

From this statement, it seems that the company was at a significant risk in the lawsuit, and

feared an adverse judgement. Something made them vulnerable to large punitive damages

under the law. Perhaps, it was the inadequacies of the company’s internal systems meant for

prohibition, prevention, and redressal in cases of sexual harassment. Incidentally, California has

not only created statutes on sexual harassment that are amongst the strictest in United States,

but it applies the statutes in equal measure.

Mentioning the third reason, Murthy said, “The distraction to the company was likely to be

significant in the months ahead, especially as the trials start. In addition, the law suit was

draining management time and attention” (“Infosys Press Conference”, 2003). It is notable that

the company considered the pursuit of truth and justice ‘distracting’ and ‘draining’

management time and attention. Such choice of words makes the chairman and chief mentor’s

lack of sensitivity on sexual harassment, evident.

When Murthy was asked about the original compensation amount that was sought by Ms. Reka

Maximovich, he said, “...every negotiation always starts with a certain number, and then thanks

to the extraordinary negotiating skills of Nithyananda, our legal counsel, and our other lawyers

…” (“Infosys Press Conference”, 2003). In a case in which the allegations and the alleged harm

to the plaintiff were serious, Murthy sounded as if Infosys have successfully negotiated a large

IT contract with a client.

In another context, Murthy said, “…it (settlement) has been done very smartly by the CEO, the

COO, the CFO... that it does not impact the earnings per share, or the guidance of the earnings

per share of the company. I think that to me is the most important thing” (“Infosys Press

Conference”, 2003). Murthy’s admiration for the negotiation skills of his team is evident. Above

all, his relief is evident. Lastly, he reveals what he considered was of prime importance in the

situation. While, other equally startling statements made by him in this press conference can be

quoted here but the above should suffice for now.

The person that made these statements –

A brief profile of N.R. Narayana Murthy is presented here. He is the founder of Infosys. He was

Infosys Chairman and Chief mentor from 1981 to 2011. He served as the CEO from 1981 to

2002. And, he served as the Chairman Emeritus from August 2011 to May 2013.

He is the recipient of the Légion d'honneur by the French government, the Commander of the

Order of the British Empire (CBE) by the British government, and the Padma Vibhushan by the

Government of India.

He served on the boards of Cornell University, Wharton School, Graduate School of Business at

Stanford University etc., and as the Chairman of IIM, Ahmedabad. The Economist ranked him

among the 10 most admired global business leaders in 2005. In 2012, Fortune magazine listed

him as one of the ‘12 Greatest Entrepreneurs of Our Time’. In 2014, he made it to CNBC’s list of

25 global business leaders who made ‘the maximum impact on society during the last 25 years’.

The backdrop of the case –

The case was registered at the Alameda County Courthouse in Oakland on December 17, 2001.

According to the court papers filed by Ms. Maximovich as soon as she started working for

Phaneesh Murthy, ‘Murthy (Phaneesh) began subjecting the plaintiff to an ongoing campaign of

sexual harassment and pressured her to engage in a sexual relationship with him’ (“Story

behind Phaneesh's resignation”, 2002). And, she alleged that Phaneesh threatened to fire her if

she did not comply. It deserves a mention that the HR head of Fremont, California reported to

Phaneesh at that time (Jayashankar & Ramnath, 2013)

According to the papers filed by her – fearful of being fired, she yielded to his demands

unwillingly but regretted it immediately. At that point, she decided not to return to work.

Thereafter Phaneesh assured her that he would restrict their relationship to a professional

level, and persuaded her to return. And, while things were normal for a brief period but

thereafter the events repeated. She alleged that after a certain point, she refused to return to

work, and was "constructively terminated by Infosys and Murthy (Phaneesh)” (“Story behind

Phaneesh's resignation”, 2002).

As per the filings made by her, thereafter Phaneesh ‘began to call the plaintiff at home or her

new place of employment or even at her parents' house’ (“Story behind Phaneesh's

resignation”, 2002). The filings mention that she sought restraining orders against Phaneesh on

twice during Jan-June 2002, and that he had violated the first order.

It can be said that the out-of-court settlement ensured that the truth – whether Phaneesh was

guilty or innocent – will never be known. Indeed, if he as well as Infosys were guilty as charged,

they managed to escape punitive action and or damages. Seen in a broader context, that is a

telling commentary on the corporate social responsibility claims of the corporate.

Needless to say, such settlements are commonplace in many countries and the rules of the

game encourage it. Hence, at this stage, one should be able to comprehend the effects that

sexual harassment has on its victims.

Scars on victims psychological, emotional, and physical well-being

Sexual harassment at the workplace often has a long-term debilitating effect on the victims,

and depends on the severity of the trauma one experiences. It has to be understood that what

may appear as an insignificant incident of harassment, unfortunately to some, its consequences

may be devastating for the victim. And, it can be as destructive for those who witness it or are

in knowledge of it happening to a colleague but are not in a position to prevent it for several

reasons.

Some studies uncovered that the victim may experience serious psychological, emotional

disorders, and physical consequences. It may range from mild to severe anxiety and or

depression, lowered self-esteem, feelings of shame or guilt, development of mistrust, fear and

insecurity, inability to concentrate, palpitations, nausea, sleeping and eating disorders, weight

gain or loss, sexual dysfunction etc. Many individuals exhibit Post-Traumatic Stress Disorder or

PSTD, with reports that some may harbor thoughts of suicide, and attempt suicide.

Other studies reported significant damage to the private life of the victims. The national study

in United Kingdom brought out that the victims private life suffers from ‘tension in relationships

(24%), feeling hostility towards others after experiencing sexual harassment (14%), withdrawal

from contact with other people (9%), emotional detachment from those who are normally

meaningful in your life (5)%, and becoming repulsed by or afraid of touch (5%)’ (Davidson &

Earnshaw, 1990).

If the harassed woman does not submit to the perpetrator or dares to complain, she faces the

prospects of being subjected to unpleasant and hostile working conditions so as to force her

into either submission or leaving the job, denial of opportunities for advancement in her career,

or being fired. And, women have reported of vilification of their reputation and character, and

being publically sexualized or objectified in what appears as a systematic institutional reprisal

against their ‘rebellion’. Such institutional backlash serves to reinforce the stereotypes of

women as sex objects amongst male colleagues. All of the aforesaid reasons discourage the

harassed persons from pursuing formal strategies in such cases. Only 4, 5, 7 and 9 percentages

of the victims opted for formal strategies in Netherland, United Kingdom, Luxemburg, and

Germany respectively as can be seen in Table 1. Table 1 presents an overview of the types of

responses of harassed persons as per various quantitative national surveys done in 6 countries

in Europe.

Across the Atlantic, as per Equal Rights Advocates, a US national civil rights organization, the

victims collectively lose millions of dollars in wages and close to a million hours in unpaid leave

each annum, in the United States alone. Another study highlighted that a majority of the

victims experienced worse circumstances and negative outcomes after complaining of

harassment through formal channels (Adams-Roy & Barling, 1998).

Having understood the effects of, and the responses of the harassed persons to sexual

harassment, we revert to the case at hand. The case can be better understood with a sufficient

background on the company. Hence, the next section focusses on the journey of Infosys since

its inception in 1981.

Table 1

Overview of responses of harassed persons

Austria Germany Luxemburg Netherland Sweden UK

Non-interventionist response Ignored the behavior

33%

51%

38%

42%

30%

Personal Response Told the harasser to stop/ confronted him Physically resisted/ pushed harasser away Threatened to file a complaint Walked away/ Avoided the harasser Tried to keep the work relationship good/ dealt with it with humor

18% 16% 33% 18%

38% 27% 46% 40%

22% 21%

45% 18% 6%

55% 38%

42% 28%

Informal Strategies Spoke with colleagues Spoke with Partner/ friends

31% 26%

34% 77%

73%

Formal Strategies Spoke with confidential counsellor Told supervisor/ personnel manager Filed a complaint

4% -

9%

4% 7%

3% 28% 4%

-

25% 5%

Note. From “Responses to harassing behavior base on national studies”, Retrieved 2014, July 01 from http://www.un.org/womenwatch/osagi/pdf/shworkpl.pdf Copyright © 1998 by European Commission.

The journey of Infosys: Glory, and Blemishes

In its 34 year journey (1981-2015), Infosys has emerged as a significant global player in

software, software services, other associated information technology (IT) services that include

IT consulting, and IT Enabled Services (ITES) such as KPOs, BPOs etc.

In the financial year 2014-15, that ended on March 31, 2015, the consolidated revenues of

Infosys stood at US $8,711 million or INR 53,319 crores. In its annual report for the year, Infosys

reported that it has 100 development centers and a head count of 176,187. As of December

2014, Infosys reported having 448,000 shareholders (“Letter to shareholders”, 2015). Its market

capitalization is nearly US$ 36.4 billion.

The head office of Infosys is in Bangalore, India. The success of the IT, and ITES industries along

with an environment that favors startups contributed to Bangalore earning its title – Silicon

Valley of India.

The narrative that follows is an integral part of the entrepreneurial folklore in India. In early

1981, a group of engineers sat in a Mumbai apartment discussing plans of setting up a firm for

developing software applications, and providing associated services to clients in United States,

and elsewhere in the world. The apartment was home to one of them, N.R. Narayana Murthy.

After many deliberations that continued over the next few months, Infosys was registered as

Infosys Consultants Private Limited on June 2, 1981. As the saying goes, the rest is history.

While Murthy is the founder of Infosys, the co-founders are Nandan M Nilekani, S.

Gopalakrishnan, S.D. Shibulal, K. Dinesh, N.S. Raghavan, and Ashok Arora. The profiles of the co-

founders are presented in the next section.

Some of the significant events in the journey of Infosys from its inception in 1981 to 2015 are

presented in Table 2. As can be seen in table 2, Infosys crossed US $100 million in revenues in

1999, and got listed on NASDAQ. In 2000, Infosys crossed US $200 million in revenues. In 2001,

Murthy figured amongst 25 most influential businessmen around the world in a survey by Time

Magazine and CNN. And, in 2002, Infosys touched US $500 million in revenues. Now, how did

Infosys grow at such a brisk pace during these years?

Infosys like other players in offshoring-outsourcing industry delivered projects, and services

reliably, and at a fraction of the cost incurred in the developed world. So, a firm operating in

the developed world that adopted the offshoring-outsourcing strategy, significantly lowered its

cost structure. This allowed the firm pricing flexibility as compared to its rivals, and higher

profitability. As the benefits of the business model became apparent to the West, a tsunami of

large deals reached Indian shores. In India, millions of jobs were created. The employees in the

West came to dread being ‘Bangalored’. In fact, Dictionary.com defines ‘Bangalored’ as one

losing his or her job due to outsourcing, and in particular outsourcing to India.

Such was the impact of offshoring on his domestic constituency that the US President Barack

Obama implored the American Companies to 'Say no to Bangalore and yes to Buffalo' in 2009.

On May 4, 2009, Obama announced the end of tax incentives to US companies that created

jobs overseas (“Say no to Bangalore”, 2009). Keeping the sensitivity of his constituency in mind,

Obama avoided visiting Bangalore during his visit to India in November, 2010.

Infosys was one of the biggest gainers in the offshoring-outsourcing tsunami that reached the

Indian shores. Narayana Murthy and his team had succeeded in building an organization that

was hungry for success, was agile, and above all was responsive to customer needs. To the

world, Murthy was Infosys, and Infosys was Murthy.

On Obama’s shunning Bangalore during his visit, Murthy said, “There was no need for the Indian

IT industry to be apologetic or shy about US outsourcing curbs…” (“No need to be apologetic”,

2010). Such is his stature, and the respect he commands in India but not limited to India that

when he speaks, none other needs to speak, whether it is IT industry or any other industry.

Hence, Murthy’s statements and actions in the sexual harassment case assume significance.

Table 2

Infosys since 1981

Year Significant event(s) in history of Infosys

1981 Infosys is founded Acquires first client Data Basics Corporation, New York

1987 First international office in Boston, US

1993 Goes public

1994 Begins development center at Fremont, US

1995 First European office in UK, GDC at Toronto and Mangalore.

1997 Office in Toronto, Canada

1999 US$ 100 million annual revenues. NASDAQ listing. Offices in Germany, Sweden, Belgium, Australia, and two development centers in US

2000 US$ 200 million annual revenues. Offices in France, Hong Kong, a GDC in Canada and UK, and 3 centers in US

2001 Offices in UAE and Argentina, and a development center in Japan Murthy among Time Magazine/CNN's 25 most influential businessmen in the world Rated Best Employer by Business World/Hewitt

2002 US$ 500 million annual revenues. Nilekani takes over as CEO from Murthy, who is now Chairman and Chief Mentor Offices in the Netherlands, Singapore and Switzerland. Launches Progeon - BPO services Institution of The Wharton Infosys Business Transformation Awards

2003 Successful listing of its sponsored secondary ADR on Nasdaq Establish subsidiaries in China and Australia

2004 US$ 1 billion annual revenues Launch Infosys Consulting Inc.

2005 Records the largest international equity offering of US$ 1 billion from India Selected to the Global MAKE Hall of Fame

2006 $2 billion in revenues, and exceeds 50000 head count. Murthy retires, continues as Chairman and Chief Mentor of Infosys

2007 Kris Gopalakrishnan, COO, takes over as CEO. Nilekani is Co-Chairman of the Board of Directors

2008 US$ $ 4 billion in revenues Annual net profits cross US$ 1 billion

2009 Debuts as member of The Global Dow. Exceeds 100,000 head count.

2010 US$ 5 billion in revenues

2011 K.V. Kamath becomes chairman S.D. Shibulal, COO, takes over as the CEO and MD from Kris Gopalakrishnan

2012 NYSE listing Forbes ranks Infosys among most innovative companies in the world Infosys among top 25 performers in Caring for Climate Initiative

2013 Listing on NYSE Euronext London and Paris markets Infosys presented with ‘2013 Environmental Tracking Carbon Ranking Leader’ award

2014 Dr. Vishal Sikka become the CEO and MD, taking over from S.D. Shibulal

Note. Adapted from “History”, Retrieved 2015, July 01 from http://www.infosys.com/about/Pages/history.aspx Copyright © 2015 by Infosys Ltd.

Murthy and his team had first met each other at Patni Computer Services (PCS). In PCS, Murthy

headed the software division, Raghavan held a senior position in customer service, and the rest

were in software development. At the time, PCS was the second largest software exporter in

India, after TCS, a Tata company. Its founder was the late Narendra K. Patni, who is considered

as the pioneer of India’s IT revolution. He was an alumnus of Massachusetts Institute of

Technology (MIT) and had a Master’s degree in Business Administration from MIT Sloan School

of Management. It was Narendra Patni who invented the offshoring-outsourcing business

model. It changed rules of the game for ever, and resulted in a multi-billion dollar IT offshoring

industry (Shivapriya, 2012). Corporations as IBM, Accenture, Cap Gemini etc. adopted the

model to deliver services to their clients.

Troubles mount for Infosys –

In 2002, Narendra Patni in an interview to the ET Corporate Dossier leveled two grave charges

against Murthy and team. Referring to their sudden exit from PCS, he said, “one fine day, all

seven of them came and handed in their resignations” (“Murthy to Patni, with love”, 2002). He

was upset at the manner in which the seven executed their concerted exodus. It was certain to

disrupt PCS operations. Also in the interview, he charged Murthy and others of ‘walking away

with (Patni) customers’ (“Murthy to Patni, with love”, 2002). In the context, Narendra seemed

to have hinted at an act of sabotage or subterfuge.

On October 18, 2002, The Economic Times, India’s leading business daily, published the

contents of his letter that refuted all charges against the founding team. In the letter, Murthy

mentions that he submitted his resignation letter at PCS on December 29, 1980. Further, he

said, “I ended up leaving the company on March 18, 1982 – about 14 months and 20 days after

I tendered my resignation to GK Patni” (“Murthy to Patni, with love”, 2002).

Regarding Patni’s charge of their taking away a PCS customer, Murthy says, “The aforesaid

customer had already decided to start its own captive software company… Moreover by then, it

was nearly six months since I had resigned from PCS. Therefore, it is absolutely untrue that we

took away PCS' customer” (“Murthy to Patni, with love”, 2002).

Murthy’s choice of the word – resigned – serves to confuse than clarify. He fails to mention that

he had not been relieved by PCS till March 18, 1982. Till then, pursuing a customer of PCS

cannot be justified even if the customer had decided move away from PCS. Would Infosys allow

its employees to pursue Infosys customers for their startups or a new employer, while they

waited to be relieved from Infosys, after submitting their resignations?

The year did not turn out well for Infosys. First, Infosys came to know of the sexual harassment

case, and then were the charges made by Narendra Patni.

Then, in early October 2003, Infosys had to announce a second lawsuit pertaining to sexual

harassment had been filed against Infosys, and Phaneesh Murthy. It was filed by Ms. Jennifer

Griffith, a former employee of Infosys. Jennifer alleged that ‘he tried to get intimate with her

and her refusal to play up to him got her bad ratings for her performance while at Infosys’

(“Phaneesh dubs second sexual harassment case garbage”, 2003).

Then, Forbes India reported that ‘...a CEO of Infosys’ BPO business was accused of sending out

apparently funny, but sexual explicit mails to colleagues, including some women colleagues’

(Jayashankar & Ramnath, 2013). As per the report, one of the women employees filed a

complaint against him. It is mentioned that, ‘Eventually, the CEO in question was let off with a

hefty fine. Chairman NR Murthy is said to have censured the person saying that a senior leader

had to be careful not to do such stupid things’ (Jayashankar & Ramnath, 2013).

Murthy was worried. While in 2001, Infosys was rated Best Employer by Business

World/Hewitt, the spectacular performance of Infosys was getting overshadowed by the bad

press the aforesaid cases generated. And, it all started with the other Murthy.

The other Murthy

Phaneesh Murthy, the alumnus of the prestigious Indian Institute of Technology (IIT) and Indian

Institute of Management (IIM), was widely acknowledged as having played a major role in the

rapid rise of Infosys in the 1990s till 2002. He was made the Head of Global Sales in the mid-

1990s. In 2000, he was elevated as a board member. Owing to his rise and growing influence in

Infosys, many referred to him as ‘the other Murthy’. It is widely reported that Narayana Murthy

referred to Phaneesh Murthy as his brother. He had a glorious career and reputation until the

harassment cases were filed.

He rebuilt his career again. In 2003, iGate acquired his venture Quintant Services which was a

Business Services Provisioning company. And, he was appointed as the CEO of, and a member

of the Board of directors of iGATE Global Solutions (iGS). iGS was iGate’s offshore services

subsidiary. In 2008, he was appointed as the CEO for iGATE Corporation (Nasdaq: IGTE). Then

the story repeated itself, and he was fired from iGate on May 20, 2013 under similar

circumstances. Araceli Roiz, the head of iGate Investor Relations filed a similar case against him,

and iGate. The law firm, Aiman-Smith & Marcy that had represented the earlier two plaintiffs,

represented Roiz. On May 23, 2013, in an official press release, the firm claimed that Roiz was

pregnant with Phaneesh Murthy’s child. The press release stated, ‘…when he discovered this,

Mr. Murthy pressured Ms. Roiz to have an abortion. When she refused, he told her to leave the

company, quietly, to protect his position as CEO.’ (Jayashankar & Ramnath, 2013).

At this stage, the profiles of the co-founders of Infosys are presented.

Profiles of the co-founders

Nandan Nilekani served as a director on the board from 1981 to July 2009. He held positions as

Chairman and Co-chairman of the board, CEO and Managing Director, President etc. at Infosys.

He served as the Chairman of the Unique Identification Authority of India (UIDAI). He was

named ‘Corporate Citizen of the Year’ at the Asia Business Leaders Award, 2004. In 2005, he

received the prestigious Joseph Schumpeter prize for innovative services in economy, economic

sciences, and politics. In 2006, he was awarded one of India's highest civilian honors, the Padma

Bhushan. The Time magazine listed him as one of the 100 most influential people in the world

in 2006 and 2009.

S. Gopalakrishnan held several responsibilities over the years at Infosys. He was the Vice

Chairman of Infosys from 2011 to 2014. He was the Chief Executive Officer and Managing

Director of Infosys from 2007 to 2011. He was selected as one of the winners of the 2nd Asian

Corporate Director Recognition Awards by Corporate Governance Asia in 2011. He served as

one of the co-chairs of the World Economic Forum in Davos in January 2014. In January 2011,

the Government of India awarded him the Padma Bhushan, the country’s third highest civilian

honor. He serves on the Board of Governors of Indian Institute of Technology, Madras, and

Indian Institute of Management, Bangalore.

S.D. Shibulal served as the Chief Executive Officer and Managing Director of Infosys from 2011

to 2014, and Chief Operating Officer from 2007 - 2011. He is a member of the World Economic

Forum’s Global Agenda Council on Emerging Multinationals and the Co-chair of the

Confederation of Indian Industries (CII) National Committee on IT, ITES and e-Commerce. He is

a member of the Board of Trustees of Boston University. He is also a member of the

Metropolitan College Dean’s Advisory Board of Boston University.

K. Dinesh served as the Member of the Board of Infosys from 1981 – 2011. In 2011, he retired

as the Head of Quality, Information Systems and the Communication Design Group. During

Dinesh's tenure as Head of Quality, the company's software quality processes achieved world-

class benchmarks, including CMM Level 5 in 1999.

N.S. Raghavan served as the member of the Board from 1981 – 2000. He served in various

management positions and retired as the Deputy Managing Director in 2000. He is currently the

chairman of the advisory council of the N S Raghavan Centre for Entrepreneurial Learning at the

Indian Institute of Management, Bangalore.

Ashok Arora served as the Member of the Board of Infosys from 1986 – 1989.

The rich entrepreneurial spirit and talent that Infosys possessed created huge wealth. Most of

the founding team members entered the Forbes billionaires list around a decade back. Table 3

presents the Forbes 2015 ranking and estimated wealth of the founding team.

Table 3

Founders and co-founders on the billionaire list

S.No. Name of Infosys founder or co-founder

Forbes 2015 Ranking Wealth calculated real-time as of August 19, 2015

1 Narayana Murthy and family #894 US $ 2.1 billion

2 S. Gopalakrishnan and family #1044 US $ 1.85 billion

3 Nandan Nilekani and his family #1105 US $ 1.72 billion

4 K.Dinesh and family #1500 US $ 1.28 billion

5 S.D. Shibulal and family #1605 US $ 1.14 billion Note. Adapted from “The Richest People On The Planet 2015”, The world’s Billionaires, Forbes. (2015, March 2).

Retrieved 2015, August 16 from http://www.forbes.com/billionaires/ Copyright © 2015 by Forbes.

Infosys’s response in the sexual harassment case

All the press releases, and the transcript of the Infosys press meet on May 11, 2003 are

available on the Newsroom on the Infosys portal. At the time of the incident, Phaneesh was the

Head of Global sales and a director of the company till he resigned on July 22, 2002. Nandan

Nilekani had taken over as the CEO in March 2002. Nandan served as the company's CEO,

President and Managing Director at the time of this press meet. In the meet, Nandan

mentioned that Phaneesh shared with him the likelihood of a sexual harassment suit being filed

against him for the first time in January, 2002. And, that Phaneesh told him that the ‘he was

innocent, and charge was without merit, and the company was not at risk’ (“Infosys Press

Conference”, 2003). Nandan told Phaneesh to inform him as soon as the charges were actually

served. And, it was in July, 2002 that Phaneesh informed him that the charges were served.

A point to ponder – It points out that for the first six months, Nandan, chose not to initiate any

action, even after he was informed by Phaneesh. Nandan gives an impression that since the

company did not seem at risk, he decided to wait and not act proactively.

Nandan said that it was on July 10th night that Phaneesh shared the details with him. It was

then that he realized the ‘seriousness and gravity of the situation’ (“Infosys Press Conference”,

2003). Thereafter, Nandan informed the chairman and other board members and a series of

consultations took place with the lawyers etc., which led to Phaneesh resigning on July 22,

2002. Under the settlement with Phaneesh, Infosys retained the right to sue him for his

conduct and that he did not contribute anything to settlement with Reka Maximovich, and paid

him severance dues of US $570,000.

On being asked by a correspondent whether Infosys will bring whoever is culpable to book in

this case, Narayana Murthy explained that “…there is no need for us to waste those precious

resources on an activity that does not bring much value to the company, which does not bring

much value to customers, which does not bring much value to the investors of the company,

nobody is a winner.” (“Infosys Press Conference”, 2003). He explained that the decision to sue

Phaneesh would be taken later. And, it would based on management’s judgement of the costs

in terms of time, and cost to company, and the benefits.

Some points to ponder are – a. Infosys never sued Phaneesh, b. Murthy reveals that the only

stakeholders that matter are the company, customers, and investors, the rest he ignores, c. he

seems to believe that the pursuit of truth and justice is wastage of resources, and d. the

decision to sue Phaneesh is not based on doing what is right but a cost-benefit analysis.

In the press meet, Murthy was asked to disclose the original amount sought by the plaintiff. The

settlement with Reka was reached for US $3 million, and going by precedence, the amount was

considered to be low. In the context, Murthy said, “…I personally congratulate Nandan, Kris,

Mohan, Nithya and others for getting the corporation out of such a mess, such an issue, in a

manner that it does not matter materially to the guidance of the corporation” (“Infosys Press

Conference”, 2003). When asked if Reka would proceed against the accused, Murthy said, “It is

a composite settlement, which means Reka would not have any claims either against the

company or against Mr. Phaneesh Murthy.” (“Infosys Press Conference”, 2003).

A point to ponder –Infosys could have limited the scope of the settlement to protecting itself.

Hence, it seems peculiar that Infosys chose to also protect Phaneesh even when he refused to

contribute anything to the settlement.

As per Forbes India, only one board member, Senator Larry Pressler, pressed for an

investigation to determine if Phaneesh was guilty or not. He advocated that Phaneesh be

suspended until then, and if his guilt was established, he should bear the consequences

(Jayashankar & Ramnath, 2013). If what is reported is true, Pressler was overruled by the board.

Phaneesh’s makes serious charges on Infosys

After the Infosys press conference on May 11, 2003, in a matter of hours, Phaneesh hit back

with three serious charges against Infosys. One, he said that as the out-of-court settlement with

Reka Maximovich was not his preferred course of action, therefore he did not contribute

anything to the settlement. Thereby, he implied that while he wanted to fight the battle in the

court, Infosys denied him the chance to do so.

Two, he accused Infosys for opting for the settlement because of their upcoming American

Depository Receipts (ADR) issue. He said, "Settlement is one way of handling an issue, and that

is the route that has been taken. From an Infosys point of view, there may be arguments to

close this chapter early, particularly when they are going for an ADR issue with considerable

sums at stake," (“I would not have liked a settlement: Phaneesh”, 2003).

Three, he accused Infosys of retaliatory tactics because he filed a case against Infosys to release

certain shares to him.

On May 12, 2003 i.e. the next day, in a press release Infosys refuted his charges. One section of

the release denies his first charge that he was an unwilling party to the settlement. It reads as

follows, ‘In the settlement discussions, Infosys had made it clear that it was willing to settle

with Reka, without Phaneesh.’ (“Infosys’ clarifications on Mr. Phaneesh Murthy’s responses”,

2003). It goes on to mention that Infosys had laid down 3 conditions for Phaneesh to participate

in the settlement. Further, it reads, ‘Initially, Phaneesh refused to participate in the settlement

on these terms. When Infosys confirmed to him that the company was anyway going ahead

with the settlement alone...’ (“Infosys’ clarifications on Mr. Phaneesh Murthy’s responses”,

2003). On the charge of settling the matter because of its ADR, it states, ‘...Infosys settled the

matter as it believed it was in the best interests of the company to do so...’ (“Infosys’

clarifications on Mr. Phaneesh Murthy’s responses”, 2003). It also denied his third charge.

While, we may not know whom to believe, there are two facts that Infosys cannot deny. First,

while it retained the right Infosys never sued Phaneesh. Maybe, it feared the battle may turn

ugly. After all, Phaneesh was an insider – the other Murthy. Second, the composite settlement

ensured that Reka would not sue Phaneesh. In short, the truth will never be known. However, it

arouses one’s curiosity what was the ADR issue that Phaneesh referred to.

The timing of ADR issue – July 16-25, 2003

At that point, Infosys had only 3.2% of its stock listed on NASDAQ. It could be considered almost

an illiquid stock. It is a fact that no market constituent chases after, and wants to own or trade

in illiquid stocks – whether you classify them as institutional and individual investors, or as

large, medium, and small investors, or as long, medium and short term investors. Even the

positional or swing traders, and day traders do not trade in illiquid stocks. Why?

There are many issues. Entering as well as exiting an illiquid stock is near impossible. Any entry

or exit, howsoever insignificant results in the stock price fluctuating wildly. If caught on the

wrong side of the price movement, the future traders do not find enough volumes to square up

their trades. In case of options, the positions are wiped out. Illiquid stocks are highly susceptible

to price-rigging too. In brief, it increases the holders’ risk manifold.

It was a step in the right direction that would unlock the real value of the stock. The proposed

sponsored secondary ADR program was an apt way to increase the liquidity without raising

more capital or diluting the shareholding. The domestic shares held by shareholders in India

would convert to ADRs, and be sold in US equity markets. Liquidity would attract large and

long-term investors, and the stock price would rise. The founding team and their families stood

to make large gains from the move. Can the timeline of the proposed ADR support Phaneesh’s

assertion? Table 4 presents the timeline events associated with ADR issue and settlement with

Reka Maximovich. One can observe the uncanny nearness of events.

Table 4

Timelines of ADR and settlement with Reka Maximovich

March 2001 Indian Government issued initial guidelines for ADR program

November 2002 RBI, the central bank released operating guidelines

December 2002 Infosys board had approved of the ADR program

December 2002 Infosys applies for approvals from FIPB as laid down by RBI

January, 2003 Infosys secured approvals from FIPB, no other approvals needed from Government of India

January, 2003 Infosys filed for registration process with SEC

February, 2003 Infosys convenes an extraordinary general meeting (EGM) for shareholder approval for the proposed ADR

April 25, 2003 Infosys arrives at the settlement with Reka Maximovich, the day the depositions in the case were to begin

May 11, 2003 Infosys announces settlement with Reka Maximovich

May 30, 2003 Infosys makes payment to Reka (it has 35 days to make the payment)

June 2, 2003 Reka withdraws her lawsuit

July, 2003 Intensive marketing efforts for the ADR begin

July 16-25, 2003 ADR offer commenced on July 16, and ended on July 25

In July 2003, multiple management teams engaged in marketing efforts through the book

runners for the ADR – Citigroup, Goldman Sachs, and Merrill Lynch (Horne, 2003). The

marketing period for the ADR was July 16-25, 2003. It would have been embarrassing for

Infosys during that time, to be confronted with facts that would have emerged related to the

aforesaid case if depositions began on April 25, 2003. Perhaps, the settlement was to preempt

this possibility.

Infosys raised US $256 million pre-greenshoe at closing with 2.605 million shared being

successfully converted to 5.21 million ADRs. As per FinanceAsia ‘Including Murthy, the

company’s 16 directors as a group sold 802,538 shares pre-greenshoe and will see their

combined stake drop from 23.9% to 22.8%.’ (Horne, 2003).

Settlement in the case filed by Jennifer Griffith

While in the first case, it was Infosys who settled with, and paid the amount to the plaintiff

(Reka Maximovich) without Phaneesh participating in the settlement, in the second case it was

Phaneesh who settled with, and paid the amount to the plaintiff (Jennifer Griffith) without

Infosys participating in the settlement. In the first lawsuit, the settlement released Phaneesh

from all claims and liabilities from Reka, in the second lawsuit, the settlement released Infosys

from all claims and liabilities from Jennifer. In both cases, the insurers contributed a significant

amount towards the settlement. The second settlement was reportedly arrived at for US

$800,000.

Is Infosys response any different in 2014?

In November 2014, a group of women employees from Infosys emailed Business Standard, a

leading business daily, appealing for help to secure justice. The email stated, ‘We had filed a

sexual harassment complaint against (name withheld). Even though, the charges were serious,

the board had not taken action and is hushing up the whole case...’ (“Infosys women employees

accuse senior executive”, 2014). Some points to ponder are –

a. Not one but a group of women employees filed a complaint of what they termed as serious

sexual harassment charges against a senior executive. It makes Infosys’ claims of strengthening

its processes ring hollow. Did this senior executive have no fear of prosecution?

b. Can there be a more serious charge than the board of directors being accused of hushing up

the matter?

c. That this group of women employees is forced to seek help from a news-daily for putting

pressure on Infosys speaks of their desperate situation.

d. Seen in a larger context, these brave-heart women acted as whistle-blowers.

In this case, the Infosys spokesperson said, “…each case is thoroughly and expeditiously

investigated. Swift and appropriate actions are taken in all such cases. Keeping in view the

privacy aspects we do not share particulars ..." (“Infosys women employees accuse senior

executive”, 2014).

It is sad that none who matters at Infosys has chosen to speak on this incident. In his book – A

better India, A better world, Murthy says, ‘Whenever there is an accusation against a person,

he or she must not be allowed to hold any office until proven innocent.’ (Murthy, 2009). Here

the accusation has been against the Infosys board.

Concluding remarks – Blood money

“They are boys, they make mistakes”, said an Indian politician in his speech. The sentence has

been translated from Hindi. He was expressing his concerns on a court’s verdict to hang the

accused who the court found guilty of multiple gruesome cases of rape.

What is the difference between sexual harassment of a woman on the street and say, in the

boardroom? The consequences of sexual harassment at the workplace are serious. Is the

boardroom-act more pardonable than the street-act? Why should an offender on the street not

be allowed to get away by paying a fine each time, like those in the boardroom?

Unfortunately, the context is seen as different. Out-of-court settlement in sexual harassment

cases is legal in many countries. The rules of the game encourage it. It is convenient for the

firm, the society, the justice system and needless to say, for those high profile accused who are

guilty. The innocent amongst the accused are denied the chance to defend their honor. The

settlements are negotiated as the firm would negotiate contracts with clients.

The firm and or the offender pays ‘blood-money’ to the victim. He walks away free. Another

woman is traumatized at the same, or a new workplace. And thereby, the equilibrium in the

firm and the society is preserved. At worst, it is minimally disturbed. It does not matter if the

victim suffers severe and irrevocable psychological, emotional and physical damage, and her or

his professional and private life lies in tatters.

The argument for system-preservation is evident in Murthy’s statements. In the overarching

context of how Infosys was able to arrive at a low settlement amount with Reka Maximovich,

Murthy said, “This litigation with the plaintiff is behind us... The fact of the matter is, it has been

done very smartly by the CEO, the COO, the CFO, and the chief legal counsel of the company in a

manner that it does not impact the earnings per share, or the guidance of the earnings per

share of the company. I think that to me is the most important thing” (“Infosys Press

Conference, 2003). What if any of the women in one of the aforesaid cases was personally

related to anyone on the Infosys board?

The Government of India under the leadership of the current Prime Minister, Mr. Narendra

Modi must be lauded for its programme ‘Beti Bachao, Beti Padhao’. Translated to English, it

means ‘Save girl child, Educate girl child’. The slogan is not complete as it does not address the

respect for, and dignity of the women. Hence, ‘Beti Bachao, Beti Padhao aur karo Beti ka

Sammaan’ which means ‘Save girl child, Educate girl child, and Respect the girl child and

women’ should complete the slogan.

An internet search does not return a letter of apology or a statement issued jointly by the

Infosys board members and or the management, in any of these cases. Highest standards of

ethical behavior need to be established from the Silicon Valley in California to the Silicon Valley

of India, and across industries and across the globe. Else, what may be needed is, as Broc

Romanek said, "On the whole, I think these 'governance by gunpoint' settlements are a good

thing because they can help to motivate other companies that need a kick in the pants" (Plitch,

2005).

While settlements are legal but is this practice ethical or unethical is the question.

What if she was your daughter, Mr. Murthy?

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