Infosys used to be held up as a stellar example of high performance and good corporate governance. Events over the past few months, culminating with the exit of CEO Vishal Sikka, have left an impression that the company is past its prime.
In many ways, Infosys has outdone Tata Sons’ handling of Cyrus Mistry. In the Tata Sons case, while the performance of former chairman Mistry and the ethics employed to get him out were issues of controversy, voting power was solidly on the side of the Tata Trusts. Mistry, after all, held only 18 per cent in Tata Sons. In the case of Infosys, N R Narayana Murthy and a bunch of founders, owning no more than 12.75 per cent, have ousted Sikka despite the support of the board, and have steam-rolled their way back into power.
Scripted attacks
With hindsight now, one can see the assaults on Sikka and the company board by former chairman Murthy were well-scripted. In February, Murthy went at Sikka on his being allowed a huge 55 per cent hike in annual compensation. Then, there was the issue of acquiring the Israeli software company, Panaya, at what was alleged to be an over-inflated price of $200 million; poor corporate governance was questioned, and then this June the founders threatened to dump their entire Infosys stock in protest.
After three years at the helm as the first ‘non-founding’ CEO of the company, Sikka quit. “I have decided to leave because the distractions, the very public noise around us, have created an untenable atmosphere,” he wrote in his 18 August resignation letter. The Infy board stood behind Sikka and attacked the former chairman saying: “Mr Murthy preferred his diktat to prevail with no place or tolerance for the outcomes of shareholder democracy.”
But, despite the board clarifying that Murthy would play no administrative role, by Thursday 24 August, the founders were back with Nandan Nilekani appointed non-executive chairman and most of the earlier board members — chairman R Seshasayee, and independent directors Jeffrey Lehman and John Etchemendy — quitting.
Was it poor performance and deteriorating corporate governance that forced Sikka out? Or was it Murthy and the founders suffering pangs of exclusion, and the itch to return? No one can deny the contribution of Murthy, who built Infosys from nothing in 1981 to a giant in two decades working as CEO of the company till 2002. He was the father of IT services outsourcing in India. Nilekani, then, took over as CEO and Murthy continued in different roles as chairman and chief mentor, stepped down in 2011, but returned as executive chairman and again stepped down in 2014.
It’s difficult letting go
It is obvious Murthy has had problems of letting go the giant he had built. Since 2014 when he stepped down, and Sikka took control, at every turn one can see the nuance in Murthy’s public criticisms: “I can do it better.”
Has he been fair to Sikka? Before he stepped down, the public perception was Sikka had infused a new focus into Infosys despite a tough market. There was dirty linen, no doubt, like the murky `25-crore payout to CFO Rajiv Bansal, which Murthy insinuated was ‘hush money’.
But, on performance, Sikka has done well. Attrition fell from 24 per cent to 17 per cent in two years. Revenue per employee grew for six quarters in a row. New automation and innovation, which Sikka brought into transform Infosys, contributed 8.3 per cent to revenue in the last quarter. And, total sales crossed the $10-billion mark for FY17, a 54 per cent increase over three years. On the day of Sikka’s exit, Infosys shares plunged 13 per cent in intraday trade, the lowest in three years.
Investors support Nilekani
If Sikka’s departure was abrupt, the speed at which Nilekani was installed was equally astounding. How did a small but powerful cabal with just 12.75 equity holding bust a fairly entrenched CEO and company board?
Within three days of Sikka stepping down, 12 institutional investors wrote to Infosys chairman Seshasayee and co-chairman Ravi Venkatesan to get Nilekani back at the helm. These included the top nine mutual funds and three large insurance companies. These investors panicked at the looming crisis of leadership. The script worked well. A simulated crisis, perhaps initiated by the founders, brought the key investors on their side.
After the tumult, the new man, Nilekani, has assured he will work for all investors and provide strong leadership. However, the jury is still out whether what has happened and how it happened will benefit Infosys in the long term.
The author can be contacted at gurbir1@gmail.com