India's software elders should learn to trust the market

The fact that the Infosys spat has played out so openly could augur well for its future

Nobody wants to be N. R. Narayana Murthy right now. Not that there is any dearth of empathy with the infotech magnate whose eminence takes up space by the gigabyte on the internet. Must a man who had his leftism knocked out of him by the brute excesses of communism-he was bundled off a train into prison for 72 hours by Bulgarian guards just for asking a co-traveller what life is like under red rule-now suffer the brute excesses of capitalism 42 years on? Must the co-founder of a great enterprise, one that has striven to redeem business of all its alleged ills, endure intimations of his own irrelevance to his life's legacy? Must his voice be swiped off handset screens, his values admired more than adhered to, his presence reduced to that of a symbol?
Globally, far worse is known to happen, with Hollywood portrayals of America Inc offering us only the saddest of stories. It takes a hard heart not to wince as you watch Mac McDonald collapse on getting an earful from Ray Kroc in John Lee Hancock's The Founder (2016), the wily salesman having grabbed control of McDonald's 'crazy burger ballet' from its actual founders through a devious real estate ploy. And it takes some restraint to keep your eyes dry as the creator of Apple is fired in Danny Boyle's Steve Jobs by John Sculley, the professional CEO he himself had picked, for being too much of a nuisance to his own creation. Of course, Jobs' return and Apple's revival is a tale that has long achieved epic status.
Either way, in triumph or tragedy, entrepreneurs are always heroes-keepers of the halo they endow their fims with.
The trouble with that, though, is that the same glow of the past could just as easily paralyse prospects of prosperity under fresh leadership. And in a country that has never been one for shock therapy-be it the transition of an economy or a company-effecting a genuine shift in authority is all the more difficult.
That Infosys would pull it off well was once taken for granted. No longer, not after Narayana Murthy's recent outburst. At 70 now, he rarely betrays emotion, as you'd expect of a man who talks Quantum Mechanics with the software major's current CEO Vishal Sikka, but his quiet ideals are still loud and clear: his austerity, his egalitarian outlook on pay scales, his modesty with financial projections, and his overt emphasis on corporate culture and ethical governance. While the whiff of a possible 'hush money' scandal may have prompted his open confrontation with the company's Board and CEO, much else has evidently been grating on his nerves, worsened perhaps by the fact that the promoters on whose behalf he speaks own less than 13 per cent of Infosys, while institutional investors have the majority clout needed to call the shots. In 2014, reportedly, he'd wanted to be relieved of all legal liability as a 'promoter'. It didn't happen.
Is Sikka's pay packet of $11 million way too high? Was former CFO Rajiv Bansal's eye-popping severance deal of Rs 17.4 crore a sign of something rotten in Infosys? Has the company got something to hide? The CEO and Board have denied it, offered explanations, expressed regret over Bansal's payout-now deemed a lapse of judgment-and agreed to codify all compensation contracts. Meanwhile, big investors have rallied to Sikka's defence. The prospect of a Tata style shake-up has blown over.
Narayana Murthy is still grumpy, however, and his other criticisms linger in the air. No CEO, he insists, should be paid more than twice as much as the next highest executive. Plus, the top guy's pay should not to be 2,000 times that of an entry-level recruit, as he claims the Infosys ratio now is. He also quotes Peter Drucker as once having told him that "culture eats strategy for lunch", that the way a company works is its real basis for success.
Such admonitions get eye-rolls these days. The more he wags his finger at a company in the throes of a strategy shift in fierce rivalry with other global software players, the more outdated his views sound. Sikka's salary, for instance, is not only well in line with global norms, it's simply what the company wants to wager on a man who promises to double its revenues to $20 billion by 2020. To hit this goal, Infosys is going all out for automation, artificial intelligence and other daring bits and bytes. It's a high-risk game with high rewards, Sikka's record so far suggests he's got what it takes, and big investors are cheering him on.
His goal of $20 billion by 2020 may sound a bit too pat, even bombastic to those accustomed to the decimal diligence of its old 'guidance' issuances, argue his backers, but it wasn't exactly pulled out of a hat. Infosys has spelt out a credible gameplan and its numbers are under the watch of fund managers who will hold him to it. So far, to Sikka's credit, the more vocal among them have given him a huge thumbs-up. Get on with it, they say.
Even before the recent ouster of Cyrus Mistry from Tata Sons, India Inc had seen a series of unhappy partings between owners and their top recruits. At Britannia, Vinita Bali's 2014 exit was viewed by many as a sad comment on how uneasy such relations remain; Varun Berry has taken over since. Similar concerns have made the goings-on at Godrej Consumer Products Ltd under Vivek Gambhir the stuff of speculation. Of no less curiosity is the odd case of Cipla, which saw its market value double under Subhanu Saxena, a professional, before things went awry with the company's owners; he was succeeded by Umang Vohra last year. In all these, 'the family' has loomed large.
Thankfully, there are several success stories of clear handovers, with the Max Group, Wipro, Marico and Dabur frequently cited as examples. In the US, The Coca-Cola Company, Playboy and Disney are held up as stellar cases.
What makes Infosys exceptional is that it is not closely held. Its ownership not only spans the globe, its very diversity is an assurance that no individual or family exercises more than a sliver of control. The bulk of its shares are with FIIs, and no single institution can have its way with it. Any move to overthrow the status quo would need multiple minds to agree. In other words, it's as close as a business gets to the modern ideal of an entity governed by the collective will of a vast group with little in common but an interest in its well-being. Terms like 'shareholder democracy' have always been premature in India, but the fact that the Infosys spat has played out so openly could augur well for its future. First the Tata affair, and now this-for once, even investors with only a few shares are taking a closer look at how their companies are run.
Regulatory action, of course, doesn't enter the picture unless actual rules are flouted. Scraps over direction and culture are matters only for those whose money is at stake. It's here that founders who turn their companies over to professionals might do themselves a favour by displaying a little more trust in the market to do what's best for all concerned. If a firm is badly run, or finds itself at war with itself over values, it's bound to hurt at some point; and once it shows up in the results, investors will flee and calls for the CEO's scalp will arise with brutal efficiency. While elderly advice should always be welcome, the convergent opinion of many ought to prove better for a company than the weighty voice of a few. Willy-nilly, that's the secret of capitalism's success.
-The Open