UPDATE 9th July 9.00 p.m: OnMobile sent out a press release much after close of business hours on 9th July saying CEO and MD Arvind Rao had resigned due to certain "weaknesses in some processes" that had taken place under his tenure. Perplexingly, the release also goes on to state that the same "weaknesses" did not cause any losses to the company due to the presence of "strong alternate controls". The full text of the press release is appended at the end of this article
In just a few hours, OnMobile, India’s pioneering and largest provider of mobile value added services, will put out an important update to Indian stock exchanges. It will be based on the outcome of a crucial board meeting that is likely to deal with a raft of controversies that have dogged the firm since last year.
The OnMobile board, under the chairmanship of H.H Haight, the CEO of Argo Capital, a global venture capital investor and OnMobile’s largest shareholder, will decide on the outcome a special audit carried out by KPMG to probe allegations of misappropriation of funds by its founder and CEO Arvind Rao. The board is also likely to discuss the ongoing search for an outsider as CEO of its Indian operations and business. Once the appointment is finalised, the new CEO is expected report directly to the board.
Whether the board is quickly able to bring a sense of stability to OnMobile’s operations remain to be seen. Since June, a board sub-committee had been entrusted with the task of running daily operations, after the charismatic Arvind Rao was asked to focus only on international operations.
Insiders say that the trouble erupted in March this year, when the board received a letter written by the company’s CFO, Amit Rastogi and co-signed by Mouli Raman, its co-founder and CTO. The letter pointed out certain financial irregularities on the company’s books, in all totalling approximately Rs 12 crore, before going on to raise serious questions about CEO Arvind Rao’s involvement in the matter.
The very next month, Rastogi would resign from the company, barely three months after joining it.
Even before this controversy broke, Rao’s own performance was already under a cloud. In December, the very same month in which Rajesh Moorti, OnMobile’s CFO since 2006, also resigned, Rao was asked by the board to step down as chairman and Haight took over the role.
The very next month, two of its independent directors, both highly respected – Sridhar Iyengar, the former CEO of KPMG India and Professor J.R Varma, a professor of finance at the Indian Institute of Management, Ahmedabad – would resign voluntarily from its board.
The churn didn’t end there. It also included key people from the company’s senior management, including Sandhya Gupta, its mergers and acquisitions head and Sanjay Bhambri, the head of its APAC and Middle-East business. Sanjay Uppal, its COO, was reassigned to a short-term advisory role involving only the US market. OnMobile says that was because Uppal wanted to relocate to the US for personal reasons.
The story was first broken by ET Now
on June 28 when it reported that Rao was under investigation by the OnMobile board and that KPMG had been appointed to conduct a special audit of its accounts. Subsequently OnMobile denied
that Rao was under any kind of investigation.
Nervous investors, however, punished the company’s stock, pushing it down to less than half its value from December last year. At around Rs 400 crore, its current market capitalization is significantly lesser than its annual revenue of Rs 638 crore for the last year.
None of this is pretty news for OnMobile’s existing shareholders, including its largest - Argo Capital. It is expected that Argo’s CEO Haight will move to put the house in order and look to pull the company out of its downward spiral.
In response to Forbes India’s queries, including that of the letter written to the board, Rajesh Kunnath, the company’s current CFO and spokesperson said in an emailed statement on Saturday, “At OnMobile, we do board-initiated reviews of our corporate governance procedures on an ongoing basis. (The) board is deliberating on a report from one such review and we will have an update next week.” (Additional reporting by NS Ramnath)
FULL TEXT OF ONMOBILE PRESS RELEASE DATED 9TH JULY:ONMOBILE UPDATESBangalore, India – July 9, 2012: As previously reported, OnMobile a leader in mobile VAS has been going through a review, of its corporate governance procedures. Based on a recently concluded special review completed by our legal advisors, Amarchand Mangaldas & Suresh A. Shroff, Advocates duly supported by KPMG, the Board of Directors today took on record the report submitted and noted that the review had identified weaknesses in some processes. The Company has initiated steps to rectify all the weaknesses.While the review has identified some weaknesses, strong alternate controls have ensured that the Company did not suffer any loss. Recognizing that these weaknesses took place during his tenure, Mr. Arvind Rao, has submitted his resignation from the position as Managing Director and CEO with immediate effect and the Board has accepted the same. The Company recognizes his valuable contribution as one of its founding promoters.Mouli Raman, Co—founder and Executive Director will take on the role of interim Managing Director. The Company has also initiated a search for a new CEO.Mr. H H Haight, Chairman of the Board, speaking after the Board meeting said “I respect Arvind’s decision. Arvind has contributed greatly to OnMobile’s growth. As a company we are committed to upholding the highest corporate governance standards and we seek the continued support of all the stake holders to help OnMobile realize its true potential.”