5 things to know about ‘hush’ money

Black money is a commonly used term for money received without paying taxes applicable in cash. Blood diamonds are known for their origin in war zones. Similarly, hush money is a term used to pay an employee or a contractor to remain silent over their departure. Infosys, the second biggest Indian software services exporter, is currently witnessing a boardroom battle where founders are accusing the board of paying ‘hush money’ to a former CFO on his departure.

Here are pointers that explain the concept of hush money:

1)   What is hush money

By definition, hush money is money paid to one person or party in order to prevent them from divulging embarrassing or discreditable information. The individual who pays hush money buys the silence of the other individual. In other words, it is a form of bribery.

2)   Why are we talking about it now

The term ‘hush money’ is used widely in various situations. But when it comes to the corporate world, there is only one meaning. The person who receives hush money is being silenced so that sensitive information that could damage a company is not exposed. But why is there so much talk about hush money all of a sudden? This is because the term has been trending like wildfire on the internet for the past few days. And the reason is NR Narayana Murthy, the founder of Infosys.

3)   Impact of hush money on shareholders

The impact of hush money on shareholders can be deeply negative. If the news gets out that the company has been paying hush money to hide some information, investors suspect that something is wrong. Due to this, they tend to withdraw their investments. Shareholders do not want to back companies that don’t follow sound practices of corporate governance.

4)   The Infosys saga

During a recent interview, Narayana Murthy publicly questioned the practice of large severance packages to departing employees. In particular, he hinted that ex-CFO Rajiv Bansal may have been paid hush money. Earlier, Infosys had agreed to pay Rajiv Bansal a sum of Rs 17.38 crore as severance pay.

According to him this was completely unnecessary as eminent former CFOs like Mohandas Pai and V Balakrishnan did not take any severance pay at all. This raised questions of suppressing information that was harmful to the company.

5)   Is it all bad

In response to Narayana Murthy’s allegations, Infosys chairman Seshasayee said that the concerns raised over Bansal’s severance pay was valid. But terming it as hush money was ‘deeply disturbing’. He said that no hush money was paid to the ex-CFO. When it comes to the question of large hike in compensation to company CEO Vishal Sikka, many believe that pay packages themselves do not prove weak corporate governance. This is because the package consists of a large variable pay component that is based on performance. And since shareholders had already approved this hike, the board feels that no policies have been violated.

Going by the media reports, this debate is not going to end any time soon. So if you are a shareholder of Infosys, it is better to stay updated with the current proceedings.