Wipro's Turn in the Hot Seat

Posted by: Steve Hamm on January 12

News of Satyam’s financial scandal gave way today to a report from Wipro that it had been censured by the World Bank—which sent its stock down 8% in trading. It turned out that worries about Wipro were overblown. The World Bank’s decision to make Wipro ineligible for contracts for four years was actually made in mid-2007. It concerned infractions committed not by Wipro but by World Bank employees who violated policy by accepting “friends and family” shares when Wipro went public on the New York Stock Exchange in 2000. Still, the Wipro incident shows that as a result of the Satyam blowup, Indian companies are going to have to be squeaky clean or risk getting a drubbing on the stock market.

Wipro argues that it did nothing wrong and doesn’t deserve the beating its stock took. It argues that when it offered stock to high-ranking employees of some of its customers at IPO time, it was doing what many US companies did during IPOs in those days—which is true. It required people it offered the stock to to sign declarations that they were not breaking company ethics policies. Three people connected with the World Bank signed the declarations. “We took the declarations at face value,” says Suresh Senapaty, CFO of Wipro technologies. World Bank officials came to Wipro in 2007 and said the deals had violated their ethics policy, but agreed to keep the matter private. They came back to Wipro on Sunday and said their new policy was to make all such matters public.

So, is Wipro blameless? I’d say no. Even though the offer it made to employees of customers was commonplace in the tech industry at the time, that doesn’t make it right. When you give an employee of a customer an opportunity to buy shares at the IPO price, you’re essentially giving them a discount. And a discount is a gift. It’s one thing to give a customer a bottle of scotch or a free golf outing. But the opportunity to reap a cash windfall off of stock is another thing. It wasn’t and isn’t illegal. But it sure smells like a bribe. Wipro has a reputation as one of the most ethical companies in the Indian tech industry. So this incident puts a black smudge on its name. Hopefully, this incident will make what seems to be a very clean company even more careful about how it conducts business.

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