Wipro barred from World Bank contracts

“Wipro discloses vendor status with World Bank”. That’s the headline of the release issued to the Bombay Stock Exchange. But for Satyam’s run-in with the World Bank, few would have opened the attachment. Its contents are a shocker The World Bank has declared Wipro ‘ineligible’, in June 2007, to bid for direct contracts for four years ending in 2011. Ineligible is a mild term for a ban, which is what it is. Wipro’s disclosure shows a can of worms waiting to be prised open in several parts of corporate India. Why did it take Wipro 18 months to reveal this?
The release says revised disclosure policies. If Wipro has revised its disclosure policies, then it should let its investors know of that. Sebi certainly has not amended the listing agreement which deals with disclosure policies. That agreement (clause 49) requires companies to make material disclosures.

Did Wipro’s board know of this and did not insist that this be revealed to shareholders. Perhaps, the World Bank has chosen to reveal names of contractors who have been banned by it.

Why did the World Bank ban Wipro? Wipro had made an ADS offering in 2000, in which it had offered what seems like a preferential allotment of securities to employees and certain customers. It says Wipro representatives (note the word, choosing to distance itself from its employees’ actions) offered the World Bank, through its Chief Information Officer and a senior staff member, shares. These two people directed the offer to their family and friends, who purchased 1750 shares for $72,000 at the IPO price. Those who got shares under this scheme apparently signed a statement that their purchase did not violate any ethics or conflict of interest policies of their company.

That may be the case, but offering shares transparently to a vendor is one matter, offering it selectively to two employees isn’t. Wipro’s statement that revenues from the World Bank till date are insignificant is irrelevant. That its inability to get future business from the World Bank does not affect its performance is not the point. What matters is, if the World Bank was really such an irrelevant customer, why did Wipro go out of its way to allot shares to two employees, risking its reputation.

It is no secret that in lucrative IT contracts, especially government contracts and in specific geographies, below the table payments are often sought and given. One would expect companies like Wipro to have a strict policy, to desist from such temptations. This is indeed a sad development, one that will further dent the world’s confidence in Indian IT companies. Wipro has hidden a material event from shareholders. It chose to reveal this perhaps in the backdrop of the backlash on Satyam’s ban by the World Bank.

Wipro is still a far better company than Satyam, one would imagine. It has to apologise to its shareholders for this development and for hiding it. No hint of that in the release. It also says a majority of shares were sold to its employees, who were the rest allotted to? What are the other skeletons that are going to tumble out of the IT industry’s closets? Should we curse Satyam or should we thank it for the scrutiny that they are being subject to?

Here is the Bombay Stock Exchange filing.

Update: Here’s what seems to have prompted the Wipro disclosure. The World Bank has released this statement on their global website. They are naming all contractors barred by the World Bank’s corporate procurement program. Satyam, Wipro and Megasoft Consultants (apparently a subsidiary of listed company Megasoft).

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