Who would have thought that Infosys, which set the gold standard on good corporate governance, would make headlines for poor governance issues? Vishal Sikka, a high-profile CEO, hand-picked by the founders has quit. His exit letter makes insinuations about a ‘founder’—read NR Narayana Murthy—raising too many questions on various issues. I am no fan-girl of Mr Murthy. His pious statements cover a very shrewd mind that has worked well for Infosys and also burnished his image. He, correctly, demands high standards from the Infosys board; but his own response to sticky situations has been to resign rather than confront management. As an independent director of the NDTV board, he attended one meeting in the first year and resigned after the second year. Mr Murthy was very much on the NDTV board when the promoters’ holding company, RRPR Holding P Ltd, did a highly controversial deal with ICICI Bank to raise funds against their shares. In another case, he used his appointment to the RBI (Reserve Bank of India) central board to resign from a corporate board, rather than raise adverse issues highlighted by an RBI inspection report. I could go into details; but it is not relevant, except as a contrast between his expectations from the Infosys board and his own actions on other boards.
Having said that, Mr Murthy, and the other founders, never compromised with much higher standards that they established and maintained at Infosys, on any significant issue. None of the founders enriched himself by siphoning money from the company—as is the standard practice among most of our promoters. They were frugal about using company funds for personal expenses or travel. All their wealth came from their shareholding in Infosys; they remain significant shareholders even today. Mr Murthy, in particular, continues to be classified as a promoter, because the board thought that the association boosts Infosys’ brand value. When the founders walked away from management in 2014, they put in place a professional management; if it did not work out, why shouldn’t they lead the effort to set things right?
Given these facts, the intemperate attack against
Mr Murthy in a formal statement issued by the board of directors is crass and disgusting. It is a self-serving cover-up of the board’s own failures such as poor transparency, inability to carry the founder group along, and bad decisions with regard to compensation, acquisition and exit payments. The board of directors needed to stay true to the culture of the company that they represent; it is not up to them to tell a founder, who is asking pertinent questions, to butt out. Developments subsequent to Mr Sikka’s resignation also suggest that the board may have misread the situation in assuming that other founders of Infosys, who have remained silent so far, would not support Mr Murthy. Now let us take a quick look at the issues involved.
Mr Murthy’s Interference: The outgoing CEO, Vishal Sikka, says he was not allowed to function because of incessant questioning. But then, why are there no answers to the original questions? All we know is that Infosys paid a fat Rs10 crore to big-name firms for an investigation, which gave the board and the management a clean chit. Is this good enough? There were specific questions raised by a whistleblower about the Panaya acquisition and the exit pay to former CFO Rajeev Bansal. A sensible management would have put out detailed excerpts from the report even if it did not want to release the entire report. Instead, the management and directors were arrogant enough to believe that they could ride on the Infosys brand, while giving the brush off to its founder who is a business legend. This shockingly poor judgement alone justifies the demand for significant changes in the board.
Vishal Sikka’s Performance
: Clearly, there are divergent views on this as well. While he is credited with giving Infosys a different direction, Mr Murthy has gone public about three Infosys directors sneakily telling him that he was more a CTO (chief technology officer) material than a CEO. These directors must, surely, be asked to quit, since they dishonestly signed the letter blaming Mr Murthy for Mr Sikka’s exit. As one founder told a newspaper, “If the board had so much confidence in Vishal, why has it been constantly talking to others, including Mr Murthy, and complaining about Vishal’s performance as a CEO?” Did Mr Sikka misread the board, or were some directors playing both sides?
Vishal Sikka’s Compensation: Mr Sikka’s salary is another contentious issue. While he is credited with improving the financial performance of Infosys, does it really justify such a steep pay hike? The rank and file at Infosys are asked to forego increments, while Mr Sikka’s salary rocketed 55% (to $11 million) along with that of just a few others. This, too, is a big culture change that the board ought to have addressed and explained to all shareholders of Infosys.
Rajeev Bansal Episode: It may be recalled that Mr Bansal, the former chief financial officer (CFO), was paid a massive Rs17.38 crore as exit pay (down from an even higher package of Rs23 crore). According to a whistleblower, Mr Bansal had disagreed with the cost of the Panaya acquisition which is at the centre of the governance controversy; he resigned a little after. Mr Murthy, in questioning his big exit payout, had said it seemed like hush money. The board’s reaction was to drastically cut the payment promised to Mr Bansal. Reneging on a contract is easier said than done; the matter is now under arbitration and one does not know what else will be revealed in the process. Won’t Infosys have to pay what was promised, if Mr Bansal wins?
Mr Murthy’s letter to the board, which is now in the public domain, has asked whether the Infosys chairman had told a “blatant lie to shareholders” at the 2016 Annual general meeting, when he said that Mr Bansal had “special secret competitive data” that warranted the high severance pay. He also asks why David Kennedy, a former general counsel of Infosys, was paid nearly a million dollars in severance, instead of the standard three months’ pay, when he quit the company. Mr Kennedy’s role in structuring
Mr Bansal’s severance package and hiding it from the board is part of the controversy over the Panaya deal.
Panaya Problem: The Mint newspaper has reported that, on 8th July, Mr Murthy asked the board in an email if the company could categorically say that no employee or a relative of the employee benefited from Infosys’s decision to spend $200 million to buy Panaya Ltd (the Israeli automation technology firm acquired in 2015 had been valued at $162 million just a month before the acquisition, alleged a whistleblower’s letter). He did this after Infosys thought it fit to release just one substantive paragraph from investigations commissioned through four separate agencies since 2015. The report appears to give a comprehensive clean chit to the board and its top management. But if everything was hunky-dory, why did Rajeev Bansal quit and why the fat exit pay?
The turmoil at Infosys is sure to turn into a management case study for corporate governance issues. Before that, it will probably come in for intense discussion by the committee headed by Uday Kotak to update our corporate governance rules. Chairman of the Securities and Exchange Board of India (SEBI), Ajay Tyagi, had neatly passed the buck of dealing with the troubling issues raised at Infosys and the Tata group. It is hard to imagine how the Kotak committee can come up with solutions to both situations that can be nicely resolved by a new set of compliance rules or disclosures.
At the time of writing this column, Mr Murthy has postponed his plan to do a conference call with investors to 29th August and media speculation about Nandan Nilekani returning to Infosys had gathered momentum. Hopefully, good sense will prevail and we will see sweeping changes at the Infosys board and a new CEO, without further dirty linen being washed in public.