Shares of MphasiS, the software firm owned by Hewlett Packard (HP), suffered their biggestever fall on Friday after outraged investors questioned the company’s corporate governance standards after it cut prices on contracts awarded to its parent. Bangalore-based MphasiS shares fell 28 per cent, the worst performance since its listing in 1994, to ` 449.30. The company unveiled its results showing a 20 per cent fall in net profit for the first quarter and an 8 per cent fall in sales. The results, according to many analysts, could be attributed to the price cuts given to its parent HP on select contracts.
MphasiS’ performance is now peripheral to the central issue of the shocking collapse in its governance standards. Post this result, the harm done to not only MphasiS’ but also HP’s reputation is likely to be long lasting, CLSA analysts, Nimish Joshi, Bhavtosh Vajpayee and Arati Mishra said in a scathing report (Economic Times dated 26 February 2011).
i. What has fundamentally gone wrong with governance practices in the company?
ii. What was the performance of the company’s share price in the stock market during the period the news item came and subsequent to that for two to three months?
iii. Was the company able to handle the crisis effectively? If so, what strategy was used?