Corporate Affairs

The helmsman returns

Print edition : September 15, 2017

Infosys Executive Chairman N.R. Narayana Murthy with Vishal Sikka at a press conference in Bengaluru on June 12, 2014 when he was appointed CEO and Managing Director. Photo: PTI

A view of the Infosys headquarters in Bengaluru. Photo: Namas Bhojani/Bloomberg

Nandan Nilekani. Photo: G.R.N. SOMASHEKAR

U.B. Pravin Rao. Photo: P TI

Ravi Venkatesan. Photo: G.R.N. SOMASHEKAR

Nandan Nilekani’s homecoming opens a new chapter in the Infosys journey.

THE third week of August was tumultuous at Infosys, the Indian software services industry bellwether. On August 18, chief executive officer (CEO) and managing director Vishal Sikka, the first “outsider” (non-founder) to head the company (he has been at the helm since 2014), announced his resignation. The company’s board appeared to sympathise with him and blamed the founder, N.R. Narayana Murthy, for his departure.

Narayana Murthy, widely regarded as a pioneer within and outside the industry, fought back. On August 24, the board was virtually dismantled: Nandan Nilekani, a co-founder who is more widely known as the architect of the Aadhaar project, returned to take over as non-executive chairman. Nilekani’s return meant the ouster of chairman R. Seshasayee, Sikka and two other directors. These departures have provided Nilekani with a free hand to reconstitute the board and give the company a new direction.

The happenings at Infosys had a far-reaching impact. Although Sikka’s statement of August 18 did not specifically name Narayana Murthy, his allegation that the “constant drumbeat of distractions” had pushed him into a corner had the hallmark of a tirade against the company’s founder. In a move rarely seen in the corporate world, the board also mounted a frontal assault on the company’s founder. In a statement issued the same day, the board blamed Narayana Murthy’s “continuous assault” on Sikka for his resignation. It reiterated its “strong support” for Sikka, despite Narayana Murthy’s “misguided campaign” against the leadership. Sikka was made executive vice chairman, even as chief operating officer (COO) U.B. Pravin Rao was named interim managing director and CEO.

Unanswered questions

The media’s heightened focus on the corporate drama was also marked by an inability to separate issues of corporate probity from corporate performance and leadership. There is a grain of truth in the board’s allegation that there was a “continuous” stream of allegations made by Narayana Murthy, but the fact remains that these go back to at least 2015 when Infosys acquired Panaya, an Israeli start-up specialising in automation technology.

Two separate whistle-blowers said in February 2017 that the deal was shady, alleging that the $200 million paid was far higher than warranted and was suggestive of payoffs to individuals. But the allegations went beyond the Panaya acquisition. The terms on which the company’s then chief financial officer (CFO) Rajiv Bansal left Infosys in October 2015 (he remained as an adviser until December 2015) raised questions about whether the board had exercised enough caution, prudence and due diligence.

In particular, the size of Bansal’s severance package, totalling Rs.17 crore, was seen to be excessive by Infosys’ standards. Moreover, the details of the severance package were disclosed only in May 2016. Narayana Murthy engaged with the board on this matter too and the severance package was finally capped at Rs.5 crore. Bansal has invoked the arbitration clause in his contract to force Infosys to part with the rest of the package.

The circumstances of the resignation of Infosys’ general counsel was also a matter on which Narayana Murthy trained his guns on the board.

All three elements of the allegations—the nature of the acquisition, the terms and circumstances of Bansal’s exit and the general counsel’s departure—brought the entire Panaya deal under a cloud. Narayana Murthy’s repeated demand for greater clarity was not without substance.

Although the company spent a considerable amount of time and money on investigating the complaint before finally giving a clean chit to the deal, the full report was never made available either to the board or to the shareholders. This has been a major demand repeatedly made by Narayana Murthy. In fact, Ravi Venkatesan, who was co-chairman until August 24, reiterated the board’s decision not to release the full report of three separate investigations, including one by an American legal firm, after Sikka’s resignation.

The two-page summary report of Infosys’ Audit Committee that the board released on June 19 gave a clean chit to Sikka, but the report itself is sketchy. Narayana Murthy wrote to the board saying that he was not satisfied that a thorough probe had been conducted into the allegations of impropriety and wrongdoing. Specifically, on July 8, Narayana Murthy asked the board if the company could categorically state that no Infosys employee or relative of an employee had benefited from the Panaya acquisition.

Moreover, the perception that Infosys was holding back relevant information began to gather momentum and could have been the reason why Narayana Murthy’s actions in seeking information from the board found wider appeal.

In fact, Narayana Murthy, in an email to his “advisors” dated August 9, which was leaked to the media, said: “I have nothing against Dr Vishal Sikka.” He said that his sole focus had been on governance issues at Infosys, adding that he had “never commented about his [Sikka’s] strategy or its execution” and that “the fault lies with the current board”.

He said: “If the board had not embraced inaction and had ensured proper governance, [it] could have created checks and balances required in any well-run company. That, alas, does not exist today.”

Walking away not an option

Those who saw in Narayana Murthy’s persistence evidence of a patriarch who refused to cede control over the company, including Omkar Goswami, a former director, were not being charitable. But those who defended Narayana Murthy said that “walking away” was not an option for someone who had founded the company. Walking away after handing over the company to a younger and competent leader is one thing, but running away from a company that is out of tune with its core legacy is quite another, they argued.

In the first two trading days after Sikka’s resignation, the Infosys share nosedived, shedding nearly 15 per cent in value. The company’s decision to offer a buyback, pending since the January 2017 “in principle” decision—another matter of criticism owing to the board’s tardy performance—implies that the buyback would draw down Rs.13,000 crore from its cash reserves. The board’s approval, a day after Sikka’s resignation, was an obvious move to assuage the markets.

The bonhomie that characterised Sikka’s entry in 2014 had been ebbing for some time. Sikka, a former top executive at SAP, the global specialist in enterprise solutions, was brought in to provide a renewed technology focus at a time when Infosys and the industry were entering a new phase of their evolution—from a labour arbitrage-based offshoring model to one that relied on greater automation.

It was believed that Sikka’s aggressive push in this direction would set it on a new path (“Rebooting Infosys”, Frontline, July 11, 2014). Clearly, recent events have proved that while embracing change may be beneficial in many respects, discarding cardinal values in order to chase growth may prove futile in the long run, especially for a company with Infosys’ track record.

The board was clearly unable to rein in its CEO, demand accountability or take strong measures by acting as a cohesive entity. What really tilted the balance in favour of Narayana Murthy was the widespread appreciation of his role as founder and his own track record of nurturing a company that stood for probity. The issue became so important that a political angle soon emerged from the shadows. Soon after Sikka resigned, on August 23, Ravi Venkatesan met Union Finance Minister Arun Jaitley, triggering speculation about what transpired. Why would the country’s Finance Minister want to meet the leader of a private corporate entity, especially when it was going through a crisis? The question was partly answered when the Securities and Exchange Board of India, the stock market regulator, said that it would undertake a fresh probe into the circumstances. This was obviously an attempt to put pressure on the board to clean up its act. It was obvious that the political leadership did not wish to see Infosys slide further, especially as it is preoccupied with the fallout of large-scale job losses in the information technology (IT) industry. The pressure to fall in line was not purely political; the fact that the publicly owned Life Insurance Corporation (LIC) controls the single biggest bloc of shares held by an Indian entity—not even the promoters individually own more than the insurer—meant that the government had other levers to operate to make those heading the board fall in line. Speaking to newspersons on August 25, Nilekani said he would get the “full briefing of the investigations” into the whistle-blower allegations and would “take appropriate action”. Significantly, the terms of Sikka’s separation stipulate a “non-disparagement obligation”. It is not clear whether the clause would prevent the reports from being revealed.

The board said it “was not its intention to cause Mr. Murthy or any other affected person any personal distress or anguish while stating its point of view”. This appeared to be a virtual apology, although observers were left wondering how the same actors could so dramatically revise their positions on Narayana Murthy within seven days. These developments indicate that a full-scale revamp of the board is on the cards. Nilekani also said one of his top priorities was to get a new CEO.

Nilekani’s entry marks a new era at Infosys. This could be viewed either as the homecoming of the old guard or as a last-ditch effort to stabilise a company in troubled times.