Murthy said moral weakness and incompetence of the chairman of the board are the main reasons behind corporate scams.
Whistle-blowing should not be an act of vengeance by 'disgruntled' employees and the whistle-blower should have data and proof to substantiate his/her claims against a company, Infosys’ co-founder and former chairman N R Narayana Murthy said at a convention organised by the All India Management Association on Monday.
Murthy said he was not in favour of companies conducting an internal probe into whistle-blower allegations through external law firms.
“That is like the accused investigating the case and sitting in judgment,” he said.
He said the best way to deal with whistle-blower complaints is to get them probed by an external committee or by the Securities and Exchange Board of India (Sebi), and have the details of the enquiry published on company websites.
If a company is found guilty, he said, “The markets regulator must blacklist the board members and officials, and the shareholders must vote them out.”
Oddly enough, Infosys, the company Murthy co-founded with six others in 1981, has seen several whistle-blower complaints in the past years, including allegations of wrongdoing by the then chief executive officer (CEO) and management in two of the acquisitions, decision to sell the acquired entities, and even allegations of breach of corporate governance standards and ethics against the current management led by CEO Salil Parekh.
Murthy has been highly critical of the way the Bengaluru-based company has been dealing with cases of governance deficit.
He had also demanded the report of the external law firm appointed to look into the alleged breach of corporate governance standards by the then CEO.
The Infosys co-founder also condoned offering legal protection to whistle-blowers, who, he said, continue to face “harassment and social stigma”.
Murthy, who is also a former chairman of a Sebi-appointed committee on corporate governance, said moral weakness and incompetence of the chairman of the board are the main reasons behind corporate scams.
“When the CEO becomes more powerful than the board and the chairman operates at the behest of the CEO, such things happen,” he said.
According to Murthy, the biggest challenge in corporate governance is the agency cost or the cost incurred by the management to meet the shareholders’ objectives.
In professionally managed companies, he said the management can push weak boards to extract unjustifiable compensation for themselves and use the company’s resources for personal benefits.
Besides, the payment of large severance packages to buy silence of outgoing executives has to be prevented by the board.
Interestingly, Murthy in the past was also critical of high severance package doled out to former executives, including ex-chief financial officer Rajiv Bansal.
Photograph: Bobby Yip/Reuters