When two of corporate India’s best known names—Tatas and Infosys—are rocked by allegations of dubious governance practices, it is time to rethink our absurd expectations from the board of directors. While regulations have saddled ‘independent directors’ with more onerous burdens at every revision, they are forever in conflict with their own self-interest, which may be a fat remuneration from elite companies or manifold benefits that accrue from being networked into the elite and powerful business community.
Moneylife has written extensively on governance issues thrown up in the Tata imbroglio, where SEBI (Securities & Exchange Board of India) chose to remain a mute spectator to the issue of independent directors being sacked for being independent and failing to side with the ‘promoters’. This has provoked industrialist Nusli Wadia to file a suit in the Bombay High Court, raising some very pertinent governance issues. In the Infosys case, SEBI has announced that it will look into allegations made by an anonymous whistleblower about acquisition of an Israeli company, Panaya, and the high exit packages to chief financial officer (CFO) Rajiv Bansal and compliance officer David Kennedy.
Vishal Sikka, CEO of Infosys, has reached out to employees on 20th February, telling them that there were “no wrongdoings” and that he was being targeted to the “point of harassment”. But that does not answer any of the issues raised.
NR Narayana Murthy, the highly regarded chief founder of Infosys, who headed SEBI’s second corporate governance committee, has publicly criticised the hefty severance pay package, comparing it to ‘hush money’. More importantly, despite a media conference and interviews by R Seshasayee, non-executive chairman of Infosys, as well as independent directors Rupa Kudva (former head of rating agency CRISIL) and Kiran Mazumdar Shaw (founder and chairman of Biocon India), we are none the wiser about the core issues. In fact, Mr Murthy himself has called a truce, but is unequivocal about the fact that his concerns remain on the table and have not been addressed. Let me list them, for easy recall.
1. Why did CFO Rajiv Bansal leave abruptly in October 2015 and why did the board throw past practices to the wind and commit to pay him a stupendous Rs17.38 crore as severance pay, as against his annual remuneration of under Rs5 crore? Did the human resources department (HRD) at Infosys raise concerns about the implications of such a high exit package across the group? Who proposed the precise sum of Rs17.38 crore? On what basis was it justified? Were any concerns voiced internally and, if so, were they addressed? Here we are in February 2017 with no answers as yet, except that there have been “lessons learnt”-this from a company which has 200,000 employees.
2. Then, in December 2016, Infosys handed out another fat severance package to David Kennedy, its compliance officer, who was with the company for just over two years and had, apparently, quit voluntarily. Mr Kennedy was paid $868,250 (a hefty Rs6 crore), plus reimbursements for continuation coverage over a period of 12 months; and, yet, he was not asked to serve any notice period. Proxy advisory firms have flagged this issue and it is clear that there is more to these generous exit packages than meets the eye.
Even more surprising is the information that Mr Bansal was eventually paid Rs5.2 crore out of the committed Rs17.38 crore. Has he accepted less than one-third the severance package that was committed to him? People have sued for breach of contract for much lower sums. So far, Mr Bansal hasn’t spoken a word in public; but does that mean the matter is closed and he has given up the money? Or is the Infosys board being economical with details? Since SEBI says it is looking into the whistleblower’s allegations, can it officially ask Mr Bansal for information?
4. The acquisition of an Israeli software firm, called Panaya, is at the centre of the controversy leading to Mr Bansal’s exit. The Infosys board has not denied allegations that Mr Bansal refused to sign-off on the deal and had walked out of a board meeting in October 2015. The explanation that Infosys paid $200 million for a controlling stake in Panaya, as opposed to a $162 million valuation just a month earlier, also does not hold water, if it is indeed true, as alleged, that Panaya was on the verge of shutting down. While Infosys and SEBI are both reportedly looking into the whistleblower’s allegations, a serious internal investigation must have a plausible outcome and not an endorsement of the management viewpoint through consultants or law firms commissioned by the board.
5. Infosys has appointed Cyril Amarchand Mangaldas to revamp its corporate governance framework with reference to board members, nominee directors and independent directors. Does this mean that the governance structure that existed during Mr Murthy’s tenure has been disbanded under Mr Sikka and needs to be reworked? This is hard to believe, especially since Mr Murthy and other founders continue to be classified as promoters.
6. Interestingly, while the Infosys whistleblower appears to be targeting Vishal Sikka in his email, shareholders and founders assert that they have no problem with him. Mr Sikka has been good for the company and its shareholders. Mr Murthy is quoted by moneycontrol.com as saying, “We’re quite happy with CEO Vishal Sikka. He is doing a good job.” This is rather curious. Mr Murthy and some large shareholders have asked for a change in the board’s composition, especially the non-executive chairman and the head of the remuneration committee. Companies are led by CEOs or managing directors. It is hard to believe that the board, or Mr Seshasayee, the chairman, had done anything worse than rubber-stamp the CEO/management’s decisions. They could not have decided Mr Bansal’s severance pay or the acquisition price of Panaya on their own. It is rather disingenuous to claim that the board is responsible for poor governance standards but the CEO is not.
7. Then there is Oppenheimer Developing Market Funds, one of the largest shareholders of Infosys, which came out strongly in support of Mr Sikka. While it is nice of Oppenheimer to express support for the CEO’s stabilising role, the intemperate choice of words makes one wonder about its motivation. Here is what The Economic Times attributes to its portfolio manager Justin Leverenz. He says, “There have been loud, cancerous rumours of intervention by non-executive founders in the management team.” He goes on to say, “We also believe that non-executive founders need to come to grips with the reality that this is a public company. It is no longer their firm…” and further that “the Board needs to clarify the appropriate role of non-executive founders of the Company.” Clearly,
Mr Leverenz thinks he is talking down to the natives. Here are some facts. The non-executive founders did not leave behind a private firm that Mr Sikka took public. It is they who created an IT giant with 200,000 employees, with a market-capitalisation of Rs2,00,000 crore and revenue of $8.7 billion, with globally recognised and admired standards of good governance. As for a clarification of their role, surely Oppenheimer as a large investor would know that the non-executive founders continue to be classified as promoters. This means that, unlike Oppenheimer, which is only a large institutional shareholder, they continue to carry some responsibilities for actions of the company, without any say in decision-making. While support for a CEO delivering a good performance is fine, surely Oppenheimer should want answers to concerns raised by Mr Murthy which are not yet resolved.
Retail shareholders, corporates and institutional investors would be watching how SEBI handles this serious issue of governance, especially since the regulator will get a new chairman on 1st March and there is an opportunity for a new direction.