iGate sacks Murthy over undisclosed relationship

MUMBAI/BANGALORE Tue May 21, 2013 9:53pm IST

1 of 3. Phaneesh Murthy, president and CEO of iGate, poses during the World Economic Forum (WEF) in Davos in this January 26, 2013 file photo. iGate Corp said it had sacked Murthy for not disclosing a relationship with a subordinate after investigating one of India's best-known IT executives for sexual harassment.

Credit: Reuters/Denis Balibouse/Files

Stocks

   

MUMBAI/BANGALORE (Reuters) - IT outsourcing company iGate Corp(IGTE.O) sacked Chief Executive Phaneesh Murthy after a company sexual harassment investigation revealed that he had not disclosed a relationship with a subordinate.

Shares of the company fell 13 percent on the Nasdaq after the removal of Murthy, who led several initiatives to improve the company's performance such as charging clients for business results instead of man hours, the billing method more commonly used by IT outsourcing firms.

Murthy, one of the industry's best-known executives, was forced to quit India's second-biggest software services exporter Infosys Ltd(INFY.NS) in 2002, following a sexual harassment lawsuit, which was settled out of court.

Speaking to reporters after iGate announced his departure, Murthy said he had informed the company chairman about his relationship with the female employee a few weeks ago.

IGate said its investigation showed Murthy had violated company policy by failing to report his relationship with the employee. Murthy did not violate iGate's harassment policy, the company said in a statement.

"The board's decision was made as a result of an investigation by outside legal counsel, engaged by the board, of the facts and circumstances surrounding a relationship Mr Murthy had with a subordinate employee and a claim of sexual harassment," iGate said in a statement dated May 20.

A company spokesman did not respond to requests for further information. Murthy was replaced with immediate effect by interim CEO Gerhard Watzinger, the company said in the statement.

Fremont, California-based iGate and other smaller IT outsourcing services providers compete with other heavyweights such as Tata Consultancy Services(TCS.NS), Wipro(WIPR.NS) and Infosys on price to win market share.

"(The) development should negatively impact the company's brand and may negatively impact growth prospects given the stature of Mr Murthy and his involvement in marketing the company's vision to clients/prospects," Noble Financial analyst Vince Colicchio said.

In recent months, the company had issued advertisements in international media mocking the IT outsourcing sector's traditional billing model.

Murthy's billing strategy is meant to appeal to clients with less-certain budgets in a tough economy.

Frederic Giron, principal analyst at Forrester Research, said Murthy's departure did not necessarily mean the company would abandon the changes he had spearheaded.

"While it is still unclear if initiatives ... will survive under a new leadership, I would assume so, since the transformation has been under way for about two years," he said.

Murthy was a rising star at Infosys and was seen by many as on track to be the company's first non-founder chief executive before the sexual harassment lawsuit abruptly ended his tenure.

After leaving Infosys, Murthy founded a company that was bought by iGate. In 2011, he teamed up with buyout firm Apax Partners for iGate's $1.2 billion purchase of much-bigger Indian rival Patni Computer Systems.

iGate shares, and revenue, have more than quadrupled since Murthy joined the company in mid-2003, according to Reuters data. The stock has gained 4 percent in 2013, lagging the S&P 500 IT consultancy subindex, which is up 8.8 percent.

The company's stock fell to $14.25 Tuesday on the Nasdaq, its lowest in 18 months.

(Additional reporting by Patturaja Murugaboopathy and Sayantani Ghosh in BANGALORE; Editing by Miral Fahmy and Saumyadeb Chakrabarty)

FILED UNDER:

Politics

REUTERS SHOWCASE

Fund Raising

Fund Raising

Flipkart raises $700 million in fresh funding.   Full Article 

Reforms Push

Reforms Push

Modi may order insurance, coal reforms if vote delayed - officials.  Full Article 

Reuters Exclusive

Reuters Exclusive

India looks to sway Americans with nuclear power insurance plan  Full Article 

To Boost Growth

To Boost Growth

Crank up public spending to revive growth - chief economic adviser.   Full Article 

Bold Steps

Bold Steps

SpiceJet rescue plan marks bold bet on Indian aviation recovery.   Full Article 

New Airline

New Airline

Tata, Singapore Air venture Vistara to take off on Jan 9.  Full Article 

Online Sales

Online Sales

Knock knock. Who's there? Amazon's best-selling holiday author.  Full Article 

Hacking Attack

Hacking Attack

N.Korea says did not hack Sony, wants joint probe with U.S.  Full Article 

Reuters Poll

Reuters Poll

BSE Sensex to hit 32,980 by December 2015  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage