Not long ago, two corporate entities were cited by funds and investors at conferences and in scholarly essays, held up as illustrative examples of standards of corporate governance. They were from contrasting backgrounds. One was a diversified old-world group founded by the legendary Jamsetji Nusserwanji Tata, and the other, Infosys, a new world enterprise set up by a band of tech professionals with no surname to boast of. Much water has flown under the idyllic bridge of ethical consciousness and over the raft of expectations. A deluge of leaked ‘secrets’, the release of private conversations and washing of dirty linen in public domain have stained, if not tarred, individual and institutional reputations. Call it the curse of time, the jinx of stardom both Tata Sons and Infosys have had to wrestle with strife, speculation and loss of reputation.
Last October, the shareholders of Tata companies and the public at large witnessed a rather ugly spat between Cyrus Mistry, the then chairman of Tata Sons, and Ratan Tata, the grand patriarch of the House of Tatas. Questions ranged from proprietary rights to propriety—many of the issues taken up for litigation in different courts. Since then, Ratan Tata has asserted his will, brought in N Chandrasekaran from Tata Consultancy Services to head the group. Ten months later, the pages have been turned and many questions raised have been left behind.
This week, Vishal Sikka said Tata to Infosys. There are dissimilarities and then there are similarities. Cyrus Mistry was already inside the Tata Sons and his family owned a stake in the empire. Sikka came from the outside as a professional into an enterprise set up by professionals. Both faltered in installing confidence as they managed change.In a blog, written in hurt and bitterness, Sikka referred to “false, baseless, malicious and increasingly personal attacks”, and said, “I have decided to leave because the distractions, the very public noise around us, have created an untenable atmosphere.” Unnamed but unmistakable, the reference was to the founder N R Narayana Murthy. Adding its share of drizzle, the Infosys board said, “Mr Murthy’s continuous assault is the primary reason that the CEO, Dr Vishal Sikka, has resigned despite strong board support.”
The saga has stirred public opinion raising the spectre of professionals being done in by the founder. It could be argued that the professionals were let down by those who chose them. Indeed, both Mistry and Sikka were praised for potential—Mistry’s choice was described by Tata as “far sighted”, and Sikka’s “illustrious track record” Murthy said made him an “ideal choice”. It could also be argued that founders/promoters saw reason for course correction. Doubtless, the ugliness could have been avoided, but such is the game of thrones—Murthy who owns barely 3.4 per cent leveraged his reputation against that of the board.
What is striking though is the penchant for seductive stereotyping. And theories are galore—from the ‘formers’ unwilling to let go, to dynastic aspirations, to allusions of a desire for a ‘comeback’. It bears mention that there is nothing improper or illegitimate for a founder or a promoter to reclaim the right to nurture or nurse the enterprise. The Ford family returned to manage Ford Motors. The story of the return of Steve Jobs to Apple and the success that followed is now immortalised on celluloid by Hollywood. The landscape in Europe and the US is littered with battle-scarred professionals and disempowered promoters.
The answer to whether professional management is better than founder/promoter management is scarcely binary. It is vital, however, to seek binary responses to questions involving corporate governance in listed companies with large diverse public ownership. What is particularly relevant is the context of the legacy—where as Murthy asserts, the founders strove to make Infosys the best-governed company in India. What is the issue at stake in the battle at Infosys? Sikka has been at pains to list achievements. A third, or over 800 words of his 2,400-word blog, is devoted to the change that he engendered at Infosys—these include the growth in revenues, operating margins, per employee revenue, qualitative change in client base, visits by clients, increased dividend payout etc.
Murthy, in a letter, states upfront that the issue is not performance. He puts it explicitly: “My problem is with governance at Infosys.” Murthy asked the Infosys board to answer his questions and respond to issues raised by an anonymous whistleblower. He has sought a response to accusations by the whistleblower against the Chair, the Chair of the Audit Committee, the Chair of the Remunerations Committee, some independent directors, auditors and others of being involved in what Murthy dubs “a deplorable set of events”. In what is virtually a 3,300-word no confidence motion against the board, Murthy has sought answers on the acquisition of Panaya, reasons why the then CFO Rajiv Bansal objected to the acquisition, valuation of the acquisition, conflict of interest and benefits through the acquisition to someone within the company, due diligence on ultimate beneficial owners of Panaya, compensation in severance agreements post acquisition and so on.
The Infosys board maintains it has “thoroughly investigated each anonymous allegation with the assistance of highly-respected external counsel and experts, and determined that the allegations were entirely without merit.” However, Murthy’s demand for the report to be made public has been declined by the board as it believes “further disclosure would be inconsistent with best corporate audit practices” and would “compromise the confidence of employees” who cooperated in the probe. The question that begs to be answered is why a board would decline to make public a probe that clears those accused of wrongdoing. India’s corporate landscape is replete with scandals and riddled with questions of probity and accountability. Succession plans are wasted primarily because there is much opacity in the functioning of companies. The discourse must move away from the stereotype of good guys and bad guys, of professionals and founders to what is right and what is going wrong. The questions that need to be asked must be asked and answered. As Aldous Huxley said, “There are things known and there are things unknown, and in between are the doors of perception.” And perception matters.
Shankkar Aiyar Author of Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India