Infosys: Boardroom Feuds

It seems the media simply loves masala. No wonder the “seemingly” ongoing battle between Infosys founder N.R. Narayana Murthy and current CEO Vishal Sikka became a “caste war” when Sikka apparently proclaimed on CNBC that he is a “Kshatriya warrior and here to stay”. Some self-anointed pundits promptly called it a war between a Brahmin (Murthy) and a Kshatriya (Sikka). Some pundits were outraged that a revered institution (not company) like Infosys had been dragged into such an unseemly controversy. Some wondered what had prompted Murthy to behave like Ratan Tata and make a public spectacle of himself (Read: ‘Corporate Legacy: Idle Worship’, in BW issue dated 23 January 2017, where we had analysed the slightly tainted legacies of both Ratan Tata and N.R. Narayana Murthy).

There were moans when Chairman R. Seshasayee announced at a recent press conference in Mumbai: “We live in a glass house…but please do not stare at us too long. We have 80,000 shareholders, employees, management and investors. And have a job to do…We have learnt a lesson and will make judgement. We will retain gold standards,” he said.

Seshasayee and other board members vigorously defended the high profile Sikka; even going to the extent of explaining his frequent flyer miles, which some old hands at Infosys find extravagant and unseemly in a company whose culture is steeped in modesty and austerity!

The Same Old Story
Seasoned observers are bound to ask: So what’s new? About 12 years ago, Vivek Paul had given an exclusive interview to BW Businessworld after quitting as vice chairman and poster boy of a then rapidly growing Wipro. In the interview, Paul, who was US-based like Sikka and an “outsider” had admitted that he had faced resentment and resistance from old timers at Wipro who disliked his flamboyant ways since it went against the “culture” of the company. The promotor and founder of Wipro Technologies, Azim Premji, had let Paul go.

Like in the case of Sikka, there were eyebrows raised about the kind of compensation package Paul was taking home. In the six years that Paul was at the helm of Wipro, revenue had grown by 10 times, compared to 8 times for Infosys. But then, Premji controlled 75 per cent of the company and virtually “owned” the board. For many, Sikka might have done a remarkable job to completely revamp Infosys so that it can survive future challenges in the age of digital and cloud computing.

Well, empires have a way of striking back and promotors find it very difficult to let go. There could be merit in allegations raised by founders like Murthy about weakening of corporate governance norms. But was it necessary to wash allegedly dirty linen in public? Or is it the first salvo in a war where founders like Murthy have decided that Sikka has become “too big for his boots” and must get his proverbial head chopped off.

Even admirers of Murthy like former colleague (CFO) T.V. Mohandas Pai find the “founder knows best” policy irrational. Pai, who now serves as the Chairman of Manipal Global Education, says that shareholders have the right to question the board and it is a good thing. He had earlier expressed his dissent over the founders leading the company far too long. “Others who came later on and contributed as much were not recognised…NRN’s initial philosophy that the best person fit for the job should lead the company did not materialise. As a result, Infosys lost four generations of leaders in the last 20 years,” Pai points out in an interview with BW Businessworld.

That is exactly what Ratan Tata has done with Cyrus Mistry. Founders and promotors in India usually have problems when CEOs become very high profile. Around the time Vivek Paul quit, another proverbial high profile head was chopped off. In 2003, just months before his scheduled and previously announced exit, the CEO of Britannia Industries Sunil Alagh was summarily sacked by the board led by Nusli Wadi who controlled 45 per cent of the stake along with French food company Danone. Alagh had become “too big for his boots” and was apparently sacked for reasons of personal integrity with alleged funds misuse of about Rs 1 crore.

More recently, Vineet Taneja, who had earlier worked with Nokia and Samsung, quit as CEO of Micromax Informatics after a stint that lasted less than two years. The reasons were obvious: differences with founders and promotors. For founders like Murthy, there should be signs of warning from both the examples. Alagh had consolidated Britannia as a strong FMCG player during his almost decade long tenure as CEO. The company suffered badly till it found an able successor in Vinita Bali. Similarly, Micromax was the No. 2 mobile handset player when Taneja decided to quit. One year down the road, it is not even in the top 5.

Governance Goals
Coming back to Infosys, what exactly are the issues that worry founders like Murthy and can there not be an amicable solution? Sikka seems determined to stick to his guns and would prefer to go all out in the open if one analyses his public statements like: “We are the custodians of this business. The strategy I have laid out is new, renew. I left India barely out of teen ages. Why I came to Infosys was because of the keenness on tradition and upholding values. We have done well in performance in revenue terms, customer satisfaction or opening new frontiers. We have upheld values. These are not easy times.” The issues they have raised over the past year or so include the steep rise in Sikka’s compensation early last year; the appointment of Punita Sinha, wife of union minister Jayant Sinha as an independent director; and a large severance pay of Rs 17.4 crore to former CFO Rajiv Bansal. The issues seem valid at some level as the founders had consciously built Infosys on the foundation of the highest levels of corporate governance, to the extent of barring any of their family members from being a part of the operations of the company. These “transgressions” seem so serious that former CFO V. Balakrishnan has said on news channels that Seshasayee should resign taking full responsibility for all the lapses in the past and that the Board should have an interim chairman and directly address the issues of the founders.

However, the Board seems to be firmly behind Seshasayee and Sikka. Jeff Lehman, the most senior member of the Board and chairman of the Nomination and Remuneration Committee, said, “The members of the Board are deeply engaged with the company and spend considerable time on the affairs of the company. The Board has full confidence in the leadership of Seshasayee to steer this company in these challenging times.”

At the same time, the Infosys Board, which also includes Biocon founder Kiran Mazumdar-Shaw as a member, has offered an olive branch to unhappy old timers. “While the Board appreciates and respects inputs from the founders, it is committed to fulfilling its fiduciary responsibility to act independently and in the overall interest of the shareholders. To formalise this process, the Board has recently appointed Cyril Amarchand Mangaldas, corporate governance experts, to receive from promoters and other key stakeholders various inputs, evaluate them and make recommendations to the board. This will be an ongoing process for some time. The company will take every step to uphold the standards of governance processes, of which the company has always been an exemplar.”

Focus Intact
Despite all these steps, the Infosys Board seems in no mood to give in on demands to cut down on “extravagant” expenses on Sikka. “The company is in the process of a formidable transformation journey. The board is fully aligned with the strategic direction of Dr Vishal Sikka and is very appreciative of the initiatives taken by him in pursuance of this transformation. Vishal and the board, while being pleased with the company’s resumption of industry-leading performance on many parameters, are keen to further accelerate the progress and achieve even more shareholder value increase, on the foundation of sound governance. We will remain undistracted with this focus,” said R. Seshasayee.

Time for a reality check: Ratan Tata and Azim Premji controlled their Boards and a majority stake. Narayan Murthy doesn’t. And thereby hangs a tale.