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Corporate May 24, 2013

Why iGate may have to pay the price for Phaneesh Murthy’s ‘predatory behavior’

By Firstbiz Staff

Firing Phaneesh Murthy may not absolve outsourcing company iGate of its liabilities as Araceli Roiz plans to take legal action not only against "sexual predator" Murthy but also iGate since his actions as CEO are equivalent to the actions of the company.

"Under California law, because Mr Murthy was an officer and director of iGate, his actions were the actions of iGate, and iGate too is liable for the acts of Mr Murthy," Roiz's lawyer Aiman-Smith said in a statement.

According to Roiz' statement, Murthy abused his position of power to force her into a relationship that ultimately resulted in pregnancy, said a report in the Economic Times. Once Murthy found out about her pregnancy, he forced her to have an abortion. But when Roiz refused, he harassed her to leave the organisation.

Reuters

Reuters

"The CEO of any company, as Mr Murthy was here, has tremendous economic and personal power over his subordinates. Thus, Ms Roiz was dependent on her continued employment for her basic living expenses and, further, Mr Murthy conditioned her further employment and career advancement opportunities on her entering into a relationship with him which, eventually and reluctantly, she did. When she tried to extricate herself from the relationship, he reduced her responsibilities, threatened her continued employment, and pressured her to continue the relationship," the law firm said.

According to reports, Roiz realised that she was pregnant in March. Only when Roiz refused to do an abortion and informed Murthy that she would seek legal representation, did he inform the company's board of his relationship. Little wonder that Murthy went on a selling spree when it came to his stocks just two months before the board decided to sack him.Murthy sold 104,459 shares on March 6 at a price of $18.88 a share taking home a neat $1.97 million. A month later on April 19, Murthy again sold 40,000 shares at $17.1 apiece totaling to $684,000. ( Read more here)

Taking into account the above mentioned facts, it is surprising that the iGate investigation into the matter did not reveal a case of sexual harassment. Murthy was fired only on grounds that he failed to disclose his relationship with a subordinate. According to Roiz's lawyer, a thorough, impartial investigation would have definitely found Murthy guilty of violating the company's sexual harassment policy.

The negligence by the company reflects badly on iGate as it appointed Murthy as CEO only 18 months after he was booted from Infosys on sexual harassment charges by two women employees. Clearly, iGate is now paying the price for betting too much on the charisma of Phaneesh Murthy.

"Because he was a chief executive, it brings up an aspect called 'alter ego', where his actions are equivalent to the actions of the company. Also, because he was known to have a history of this kind of behaviour, it brings up another aspect called 'negligent hiring', where they (management/board) put him in a position where his actions could affect other employees," the Economic Times reported, quoting Barbara J Fick, associate professor of law at the University of Notre Dame.

The Phaneesh Murthy episode should be a lesson for India Inc. No matter how good the talent, a stain like this will always leave a mark. Next time corporates should think twice before hiring someone with a dodgy character to lead their company.

by Firstbiz Staff

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