Founders must learn to let go for Infosys to grow
The Indian IT giant should settle the outsider versus insider CEO debate before resolving other issues
By Anuj Srivas (Wide Angle)
Published: Sat 19 Aug 2017, 10:32 PM
Last updated: Sun 20 Aug 2017, 12:41 AM
Vishal Sikka is likely the only person who will walk away from the Infosys crisis with only a handful of blemishes on his record.
On August 18, Sikka, the first non-founder head of Infosys resigned under contentious circumstances, flatly blaming the tussle between the company's board and its founders for his decision.
"The continuous allegations, the continuous noise around the same things; at some point you realise that this is taking a heavy toll on the organisation, it's taking a heavy toll personally. So, I just felt that this is an untenable situation and I don't want to do this anymore," said Sikka at a hurriedly-put-together press conference held in Bangalore.
Over the last year, the founders of Infosys have used their stature and stockholding (around 13 per cent) to mount a battle over several corporate governance issues, the most serious of which involves the $200-million acquisition of an Israeli automation company called Panaya in 2015.
The most serious concerns raised by Infosys' founder Narayana Murthy stem from developments that snowballed after this acquisition, namely high severance package paid out to former chief financial officer Rajiv Bansal (who reportedly had issues with the deal) and a similarly exorbitant severance package paid out to the company's general legal counsel David Kennedy (who allegedly refused to keep quiet about Bansal's severance package).
Divided board and founders
It had become clear that the temporary truce between the company's board and its founders - best seen through the appointment of Ravi Venkatesan as co-chairman of the board in April and roping in of the Cyril Amarchand Mangaldas law firm in February to review corporate governance practices - had started to unravel over the last few months.
Hours after Sikka's resignation, the board and Murthy engaged in a war of words, with the directors explicitly pointing out that "misleading" charges by the Infosys' founder were damaging the company. "The board declines to speculate about Murthy's motive for carrying out this campaign, including the latest letter," said Infosys, referring to a letter that Murthy wrote to some of his advisers on August 14.
What simultaneously complicates and explains some of this confusion is that there are at least a handful of board members who are unhappy with the way Sikka's tenure unfolded. Murthy's August 14 letter, which was reported by Mint, refers to how the founder received complaints from "three independent directors and Venkatesan" that he was not "CEO material, but CTO material".
No glory for the board and founders
The bottom line, however, is that the Infosys board has largely failed on three major fronts. First, it failed to adequately shield an outsider CEO that it publicly backed in the face of unrelenting criticism by the company's founders. Two, it has not satisfactorily cleared the air over specific corporate governance issues. And three, it has been unable to convincingly bridge the widening gap between the founders and Sikka.
These three issues are clearly interrelated and obviously made more complex. The board has not openly engaged with Murthy's criticism and shareholder concern over a whistleblower's detailed allegations of impropriety in the Panaya deal. Over the last two years, Infosys has hired at least three reputed international law firms to probe some of the whistleblower's allegations. The first two firms investigated the Rs 173.8 million given to former CFO Bansal and the last one looked into allegations as to whether any conflicts of interest that were triggered when Infosys bought Panaya.
Although the management and board have said the probes found no evidence of wrongdoing, it's more than a little bizarre as to why the findings of the reports haven't been put in the public domain or its major conclusions shared with significant shareholders. If it had done so, the board's criticism of Murthy being a factor in Sikka's departure would have sounded more legitimate on Friday. Also, it would have put a swift end to some awkward questions such as why general counsel Kennedy was let go last December or why Bansal's severance package was stopped half-way.
The founders have repeatedly stated they don't want a seat back at the table. On Friday, Murthy re-stated this, saying that "well-meaning shareholders" such as himself don't want money, positions for their children or power. All they want is good corporate governance.
And yet, the way the founders have gone about this task is puzzling. If Infosys's corporate governance concerns are real, why haven't the founders and other well-meaning shareholders reported them to either Sebi or SEC (Infosys is also listed on the Nasdaq)? If indeed any of the Panaya whistleblower's allegations are true - some of them were made public in Murthy's email to the board on July 8 - these require a regulatory probe. Why not ask for that instead of sending bi-monthly emails to the board, which inevitably find their way into the public domain through the financial Press?
There's more to this saga: alleged cultural clashes between the Infosys old guard and Vishal Sikka over higher executive pay, erosion of company values to more minor quibbles such as the alleged overuse of the company's jet.
At the end of the day, it's uncertain as to whether the board and the founders will easily be able to patch up and put this behind them. The new CEO will have his task cut out. Which brings us back to Murthy's last jab: what does Infosys want in its new CEO? A CTO with a few CEO-like qualities or a CEO with a few CTO-like qualities? It's not for nothing that the name currently being proposed by market analysts and commentators is Nandan Nilekani.
While getting Nilekani back is a long-shot, it's clear that Infosys should first settle the outsider versus insider CEO debate and defuse the board-versus-founder stand-off before it can get anywhere. -The Wire