Cognizant President Resigns, Company Probes Possible Improper Payments In India
Cognizant is investigating whether it violated the U.S. Foreign Corrupt Practices Act (FCPA) as company President Gordon Coburn resigns after two decades with the solution provider.
The Teaneck, N.J.-based company, No. 7 on the CRN Solution Provider 500, has launched an internal probe into whether certain payments relating to facilities in India were made improperly and in possible violation of the FCPA or other laws, according to a filing with the U.S. Securities and Exchange Commission (SEC) Friday. The probe is currently focused on a small number of company-owned facilities.
The investigation is being conducted under the oversight of Cognizant's Audit Committee, Cognizant said, and is receiving the assistance of outside counsel. Cognizant has voluntarily notified the U.S. Department of Justice (DOJ) and SEC about the investigation, and the company said it is fully cooperating with both agencies.
Cognizant said it is unable to predict what, if any, action might be taken by the DOJ, SEC or other governmental authorities in connection with the investigation. Similarly, Cognizant said it's unsure how the probe will affect the company's operational results, cash flows or financial position.
Wall Street reacted very unfavorably to the news, sending Cognizant's stock plummeting by 16.6 percent Friday morning to $45.85 per share. That's the lowest price the stock has traded since September 2014.
Cognizant also announced Friday that Coburn stepped down Tuesday as the company's president after more than four years in the role. Coburn joined Cognizant in 1996 as the company's senior director of group finance and operations and worked his way up the ranks, spending many years as the company's chief financial officer.
Cognizant did not immediately respond to questions from CRN regarding what, if any, connection exists between Coburn's resignation and the probe around possible improper payments. Although Cognizant is headquartered in the United States, nearly three-quarters of the company's 221,700 global employees are based in India, according to an SEC filing.
Coburn is being replaced by Raj Mehta, who has served as CEO of Cognizant's IT Services division since December 2013. In connection with Mehta's appointment, his base salary has been increased from $538,500 to $650,000, Cognizant said in an SEC filing, with Mehta's target annual cash incentive award remaining at 85 percent of his base salary.
’Raj is a proven leader with strong client relationships forged over 20 years with the Company,’ Francisco D’Souza, Cognizant's Chief Executive Officer, said in a statement. ’He has a deep understanding of new technologies and new delivery models, and their potential to fundamentally transform businesses."
Mehta joined Cognizant in 1997, and has led the company's industry vertical and geographic market operations on a global basis, as well as taking responsibility for the company's sales, business development and client relationship management organizations.
’Over the past year, we have designed and introduced a new operating model to support our strategic vision and growth," Mehta said in a statement. "I look forward to working with our clients, our associates, and our business partners to take the company to the next level.’
Cognizant's sales climbed by 9.2 percent in the most recent quarter to $3.37 billion, though the company's net income plummeted by nearly 40 percent to $252.4 million since the company repatriated $1.2 billion of cash from India to the United States.