(Adds analyst's comment, share movement)
By Sumeet Chatterjee and Harichandan Arakali
MUMBAI/BANGALORE May 21 IT outsourcing company
iGate Corp 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 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
Fremont, California-based iGate and other smaller IT
outsourcing services providers compete with Indian heavyweights
such as Tata Consultancy Services, Wipro 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
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