Pai urges investors to question Infosys' cap allocation policy
"Capital allocation is very important. Institutional investors should raise those questions. They have a duty...Institutional investors should raise questions on governance because it concerns the company's reputation," Pai told PTI in an interview.
Infosys' former CFO, T V Mohandas Pai today exhorted institutional investors to raise questions about the huge cash pile on the company's books and governance issues, as investors have an obligation to protect their investment.
"Capital allocation is very important. Institutional investors should raise those questions. They have a duty...Institutional investors should raise questions on governance because it concerns the company's reputation," Pai told PTI in an interview.
Infosys had liquid assets, including cash and cash equivalents and investments worth Rs 35,697 crore (about $5.25 billion) on its books at the end of December 2016.
He asserted that founders, who hold 13 per cent stake in the Bengaluru-based company, had raised these questions like any other investor would.
"The founders are investors like anybody else. They hold 13 per cent stake. They have every right to question the Board... Since the largest shareholder has sought clarification, they must also seek detailed clarification," he said.
Pai, along with former colleague V Balakrishnan, had sought a $1.8 billion buyback in 2014 just as CEO Vishal Sikka was taking over.
"We had raised the issue. We hope that other institutional investors will also raise their voice because the institutional investors have an obligation to protect their investment," he said.
Pai explained that shareholders all over the world ask questions about capital allocation when growth slows down for listed companies, that have too much cash on books.
"All over the world, for listed companies when growth slows down and there is too much cash, shareholders will ask what are they doing with the cash...About capital allocations. Most Boards around the world will respond with a buyback to show confidence in the company and stabilise the stock price," he said.
Pai expressed hope that institutional investors who have a "fiduciary responsibility" to their unit holders, will also ask the same questions, as has been in the case of Cognizant.
Last week, Cognizant's Board approved a plan to return $3.4 billion to shareholders over the next two years through share buybacks and dividend, following investor activism.
"Why can't Infosys do something like Cognizant has done. That is very important for shareholders. I hope they ask him that at a time when growth is slowing down," he said.
He said that while reports of the rift would not impact the company's performance but there is "some reputational damage because of this" and pointed out that the board "has to remedy this situation".
Over the last few days, Infosys has come under fire from founders like N R Narayana Murthy who have publicly raised concerns on alleged corporate governance lapses at Infosys.
Infosys, however, has denied the allegations and said that its board is fully aligned with the strategic direction of Sikka and is very "appreciative of the initiatives taken by him in pursuance of this transformation".
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.
RECOMMENDED STORIES
Senior Citizen Latest FD Rates: Know what major banks like SBI, PNB, Canara Bank, HDFC Bank, ICICI Bank are providing on fixed deposits
Gratuity Calculator: Rs 38,000 as last-drawn basic salary, 5 years and 5 months of service; what will be gratuity amount?
Top 5 Small Cap Mutual Funds with best SIP returns in 1 year: See how Rs 25,000 monthly investment has grown in each scheme
Top 7 SBI Mutual Funds With Best SIP Returns in 1 Year: Rs 25,000 monthly SIP investment in No.1 fund has jumped to Rs 3,58,404
01:14 PM IST