STEER CLEAR: Phaneesh Murthy resigned as Infosys' head of global sales ostensibly to prepare for the sexual harassment lawsuit

The corporate governance scandal that has ravaged the US in the past year is now threatening to scald India's model infotech company-Infosys Technologies Ltd. The company and its US-based former head of global sales and marketing division, Phaneesh Murthy, have found themselves at the receiving end of a legal suit alleging wrongful termination and sexual harassment filed by former employee Reka Maximovitch.

The suit, in conformity with laws in California where the company is locally based, does not mention the amount Maximovitch, who is of Bulgarian origin, has claimed in damages. Informed sources say that the amount could run into millions of dollars. The former executive assistant to Murthy has alleged that between October 1999 and December 2000, Murthy repeatedly pressured the 30-something Maximovitch to have sexual relationship with him.

Controversy

LIST OF CHARGES « Harassment and constant pressure that ultimately forced Maximovitch into a sexual relationship with Murthy. « Creating a hostile work environment and wrongful termination of employment. « Stalking and intentional infliction of emotional distress.

An Oakland resident, Maximovitch in her eight-page suit claims she eventually succumbed to pressure. "In fear of losing her job and of being unable to obtain other employment, the plaintiff capitulated to his incessant advances and had a single, unfortunate, sexual experience with Murthy, which she immediately regretted," the suit alleges. This relationship seemingly assumed an on-and-off mode, which Maximovitch attributes to constant pressure, and "she unwillingly resumed a sexual relationship with Murthy which, due to his continual threats and pressures, she continued for a period of months".

"Phaneesh has performed outstandingly. We're sorry that he has resigned." N.R. Narayana Murthy, Chairman, Infosys

"Phaneesh's contribution in driving the sales in the US market is immense." Nandan Nilekani, CEO and Managing Director, Infosys

According to the suit, filed in Alameda County Superior Court in Oakland on December 17, 2001, refusal to sustain the relationship eventually led to her being fired from the job in December 2000. Maximovitch alleges that thereafter Murthy started to "stalk" her and traced her to her new job as executive assistant to the CEO of a venture finance company. It further alleges that Murthy called the company and offered to have Infosys buy it. While no deal was ever made, Maximovitch took out two restraining orders between January and June 2001 against Murthy.

Maximovitch accuses Murthy of sexual harassment, stalking-including forcing his way into her car-and intentional infliction of emotional distress and charged Infosys with wrongly firing her and creating a hostile working milieu. She has claimed the maximum amount for sexual harassment, punitive damages from Infosys as well as legal fees.

With the stakes quite high, both sides have restrained from disclosing information. While, Maximovitch's attorney has released a copy of the complaint, Infosys officials have been tight-lipped about any details on the subject. An Infosys spokesperson talking to India Today from Fremont, California, even declined to reveal the company's deadline-inquiries disclosed that it has been set for August 19-for filing a reply to the notice. "There are many steps in the process and we will follow the rules laid down in the US courts," he said.

Under the Alameda County laws, the judge would set a trial date only after all parties had filed their response. Legal sources feel that the course of the battle would be determined by the kind of resolution that Infosys would move in court. Company officials were not willing to share details, but did not rule out an Alternative Dispute Resolution, a euphemism for an out-of-court settlement.

With the legal battle still unfolding, the controversy has claimed its first victim in Phaneesh Murthy, the highest paid Infosys executive earning $400,000 (Rs 1.96 crore) a year-even higher than company Chairman N.R. Narayana Murthy. Infosys, which has for the first time faced such a charge, has hired top-notch Palo Alto-based legal firm Wilson Sonsini Goodrich Rosati to defend itself.

The 38-year-old infotech imam has turned incommunicado and has left home for a vacation with his family. India Today's repeated attempts to contact him were unsuccessful. It is learnt that Murthy was served the notice last month at the Fremont office. A month later he tendered his resignation, which has since been accepted by the Infosys Board. The high-profile executive had pioneered the Infosys success story in the US and was recently appointed CEO of Progeon, an Infosys business process spin-off in Fremont.

Infosys CEO and Managing Director Nandan Nilekani said Phaneesh Murthy-known as the other Murthy in Infosys-resigned to defend a suit alleging sexual harassment filed against him and the company. The Nasdaq-listed company, after announcing Murthy's resignation from the board of directors, also said he had cited as the reason for his resignation "the need for personal time to devote attention to pursue the successful defence of a recent law suit" against him and the company.

Nilekani says the matter is subjudice so he won't be able to say much on the subject other than that Infosys had appointed Basab Pradhan, regional manager and vice-president (sales), to replace Murthy. But the managing director lauded Murthy for revving up Infosys' sales figures in the US.

For the Indian software industry, the scandal has come at a most inopportune moment as it struggles to stay afloat in a contracting US market. "The current situation with Infosys could have the unnecessary impact of diluting some of the impressive achievements," says Akhtar Badshah, executive director of the Seattle-based Digital Partners. "Given the current corporate scandals that are rocking American businesses lately, something like this is going to further show that all is not well in the hi-tech industry."

Infosys has a well-documented policy on sexual harassment and has a grievance resolution body headed by former National Law School of India University professor Pooja Kaushik. Maximovitch chose to ignore the internal redressal mechanism and approached the courts directly. Reasons Vasanthi Srinivasan, professor of organisational behaviour and human resource management at the Indian Institute of Management, Bangalore: "When you are a global company, you need to check if there are internal mechanisms in place. How do you handle cultural differences to the extent of sensitivity? Most sexual harassment law suits tend to favour the woman complainant." She goes on to add that managers of companies that have a global footprint need to be extra-sensitive and aware of how they lead when it comes to dealing with a mixed group of people.

Analysts, however, are unanimous in their belief that the developments would not affect the revenue stream of Infosys. But the events do look set to dent its consistent claims for setting the benchmark for corporate governance in India. To its credit, Infosys by not holding back Murthy even though the charges against him are yet to be established will mitigate some of the negative perceptions. Addressing a seminar on corporate governance in London last week, Narayana Murthy had said CEOs should not hesitate to disclose risk factors. "When in doubt, disclose," he said, before adding, "Building confidence and trust requires an environment where there is a premium on transparency, fairness and judgement."

Prophetic words these.

-with Stephen David in Bangalore