Infosys – What Next ? - The India Saga



Infosys – What Next ?

A quiet truce has yet to descend on the iconic IT company, Infosys , despite the resignation of chief executive…

Infosys – What Next ?

A quiet truce has yet to descend on the iconic IT company, Infosys , despite the resignation of chief executive Vishal Sikka following a series of bruising battles with venerated founder and promoter, N. R. Narayanamurthy. Friction and uncertainty prevails for several reasons. First, Vishal Sikka remains in the company in executive vice chairman. Second, investors and shareholders are agitated over the enormous loss in wealth due to the steep fall in company share prices after SikkaÂs resignation. And third, there is no clarity as yet over the next chief executive or even the prospects of a search committee for a new person to take over the reins of the company. The presence of U.B. Pravin Rao in SikkaÂs place is not reassuring despite his being a long time presence in the company. 

The Infosys saga is being compared to a similar corporate dispute but involving a much larger industrial house, the Tatas.  It was less than a year ago that Tata Sons removed the first non-family member to be appointed chairman from the top post of the business house. In Infosys  similarly, it was the first non-promoter chief executive who had to resign due to persistent criticism from the promoters.  Interestingly, in both these cases the appointments had been made by the very same persons who later argued strongly for the exit of these individuals.

In the case of the Tatas, it was considered a legacy issue of an organization that had been set up at the turn of the century. The sweeping changes initiated by Cyrus Mistry after being made chairman were not palatable to those who had run this large business house for decades. Ultimately, an insider, the chief of TCS was appointed in his place, in the hope that an insider would follow the cultural norms of the organization.

There is a similar pattern to the ongoing war of attrition in Infosys. But with a significant difference. In the case of Tatas, most members of the company board supported Ratan Tata. In the case of Infosys, the board has not only come out strongly in defence of Vishal Sikka but actually castigated Narayanamurthy for this role. There is no doubt that Murthy is the most high profile and renowned of the seven founders of the iconic IT company. For the board to thus come out aggressively against him means that the provocation was considered beyond acceptable limits.

There are legacy issues as well in Infosys. The promoters were chagrined by the shifts in culture. The frugal lifestyle of the founder promoters had shifted to one where corporate jets were used while soaring salaries for the top executive and hefty severance packages for exiting employees became a norm. The biggest bugbear was the acquisition of a company with which Sikka was reported to have had ties a long time ago. In deference to criticism from Murthy, the board held back the severance package and set up an external committee to enquire into the corporate acquisition. But this was not enough for Murthy who continued a sustained attack via the media. The last straws were his inability to accept the committeeÂs decision that the acquisition was above board and a message hinting at SikkaÂs lack of capability.

Along with SikkaÂs resignation came a detailed statement by the Infosys board squarely placing the entire blame for the situation on Narayanamurthy. The fact is, that this is a major watershed in the annals of corporate India. This is the first time that a board has taken such a strong stance against a promoter. In similar situations abroad, boards have united to support management against promoters, but this has taken place for the first time in this country.

The question is, what is the way forward for the company as well as for the future of good corporate governance in the country. Infosys like other Indian IT companies, is already battling global headwinds that are not propitious. The main lure of Indian IT professionals was their low cost and this attraction may be lost if the Trump administration has its way. Another key issue of artificial intelligence taking away jobs is also looming large over the IT sector globally. To tackle this challenge, Sikka is reported to have created a new division and a new revenue stream for Infosys which was expanding rapidly. It seems there are no two opinions on the fact that he has left the company in a better financial condition than when he joined it.

His resignation, however, has meant that share value has fallen considerably at one fell blow. While the media highlights the losses to the wealthy promoters,  it is ultimately ordinary shareholders who are suffering huge losses on their investments. For Infosys, therefore, this bruising battle has taken a toll in many ways.

As for good corporate governance, an issue repeatedly highlighted by Narayanamurthy, it has to be seen how the role of promoters needs to be viewed in future. It cannot be argued that promoters of companies should not have a right to raise issues that are pertinent with the management and the board. But if they seek to have a say in every decision, it would be wise for them to remain on the boards of these concerns and ensure their views are taken into account. Staying out of the company and then taking the battle to the media, cannot be considered good corporate governance by any stretch of imagination. Also in case there is need to ensure that the management continues to follow the same culture of the company as laid down by the founders, then the selection of chief executives needs to be carried out with this aspect in mind. When Vishal Sikka was appointed, the selection was reportedly meant to transform the company to tackle the changes in an evolving global scenario. And for this purpose, Sikka was considered the right candidate. A doctorate in artificial intelligence surely had the right credentials for the top executive to deal with the issue of automation in the IT industry. 

These qualifications, however, were not enough as the criticism is that he did not follow the path of  moderation which is at the core of the culture of Infosys. Since this issue has become paramount in the debate, it should have been considered as being of prime importance while appointing a successor to run the company. In fact, succession planning needs to be taken with greater seriousness in corporate India, given the weightage given to culture by many concerns. However, having made the appointment, the board should have supported Sikka in a more consistent manner rather than waiting for his departure to issue a statement critical of Narayanamurthy.  And the promoters need to be advised that  their advice can continue to be given but not while they remain aloof from the company. Promoters are not ordinary shareholders and as such have greater responsibility. Their words carry weightage with the media, shareholders and investors. It now devolves on them to take an active role in trying to revive the image of this iconic company which was once widely known for its excellent corporate governance.

(The Views are Personal)