What’s Really Going On in Infosys?
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.
Comments
VG
4 years ago
All of us know what is there in the public domain. But we are unaware of the politics behind the scenes. The analysis is cogent and highlights the ills plaguing the IT bellwether once known for its corporate governance standards. Vishal Sikka is from a different culture and a genre - in total contrast with the background of promoters who have come up the hard way. Considering it was Narayan murthy who selected Vishal Sikka, he should have done enough due diligence if Vishal Sikka was the right fit for the organisation. However, Murthy is also a stakeholder, so what is wrong if he wishes to ask questions? The Board is clearlyat fault here and I am amazed that they could be so vituperative against the person who founded the company from scratch. For Nilekani, the going is not as easy as it appears. Times have changed since the time he stepped down as CEO in 2007. On hindsight, may be Infosys needs a CTO who can gel with the new CEO so that the technology push will help assuage matters. But the governance deficit will be a slur on the company's brand image. When brands like Patanjali are moving from brand equity to brand infinity, companies like Tatas and Infoysys are moving backwards to undo all the good things that they might have done in the past. As things got murkier, it is only the shareholders who have witnessed erosion of their wealth. Sikka's terms of contract that he would be paid regardless of performance is a shocker indeed.
B. Yerram Raju
4 years ago
Both Info and Sys have not lived up to governance standards and much more the founder Chairman and the independent directors. Nandan Nilekani is also a technology expert and should fit into the role of CTO . He has run into conflicts in the introduction and traction of Aadhar, his pet project, during his regime though lapped up by the succeeding NDA government as the be-all and end-all of citizen identification. Hope the love between Murthy and Nilekani would not be lost in the midstream of shoring up the image of Infosys in the investor eyes.
Pradeep Kumar M Sreedharan
Replied to B. Yerram Raju comment 4 years ago
Frakenstein created the Monster at the behest of the Private Central Banking Cartel. They got it done before they introduced Blockchain technology so that, they have a profile every single person on earth worth profiling. Now that is over, they will push for Blockchain and prevent anyone else having it, ie the profile of the world's citizens
Mahesh S Bhatt
4 years ago
Board Level questions for Infosys

Murthy failed after 3 years of Chairmanship but didnot leave Drumbeating upsetting his Vishal Sikka. Narayan Narayan.

Now other ex Infy Nandan Nilekani failed MP * NOT PESSIMIST BUT FACTIST/ trying his hand.Honestly praying Wishing Him all the Best with Aadhar of his Sarkari experience.

Now few pertinent Board level Governance Questions for VALUES CREATIONS.

1) Sr Management always recommends calculated risks does it dare to take the same of shoots from Jr Management's shoulders?
2) When to get Nivrutti from Pravrutti Active Insider participation Vs Passive External Board Participation or Only Shareholder ( not possible to decide )??
3) How to cut the Golden Chains of 9900 cr ( Murthy) Nandan ( 7700 cr ) effortlessly for newer pastures?Because Life Loves to play safe & with known devils?
4) Are the needy greedy better halves including Sudha /Rohini better halves expecting another Infy huge financial sweet shocks of upsurge??
5) Is what they have not enough? They would preach contentment to Juniors what about Promoters suckers??
6) Donot they understand IT situation of 1981 & 2017 are poles apart and are they planning to repeat History??God Bless Wait n Watch in 2020.
7) What a paradox Murthy & Mohandas Pai ( HR guy) stating Sikka was not achieving targets while Common Man feels they are wrong across the world?
8) This type of number battle /role battering /behavioural shakeups/Character assassinations/moral abuses personal denigration styles of TOP MANAGEMENT ( Sikka not CEO but CTO material) crass judgements by Board be open to public judgements?
9) Proven professionals treated like Whores days ( Vishal Sikka was from SAP
a MNC to Indian MNC & cultural transitions are getting detailed dity linen washing Private Sectors in Public Laundry cleansing sessions on media ??
10) Is this what more money does to Chairmen Moneyiac
11) Difference between Indian MNC & SAP MNC exits at C level shows the class vs crass Indian Board who has not digested the Moneypower?
Watch Tata Vs Mistry battle too ? Mahesh Bhatt
Milind Nadkarni
4 years ago
From what is being reported in the public domain, matters are not that clear and positions taken by ex – CEO as well as some of the directors of the board (including the Chairman) nether appear to be in the interest of company nor to bring-in transparency on the sticky issues. Perhaps the worst is from the 1st press conference given by Nilekeni, even he seem to be taking position which is not so transparent as pecially in making the findings of the investigations public (as NRN has been demanding). Difficult time for the company, especially the shareholders as when typically this kind of trouble starts, Managers either become directionless or just sit on fence not taking any bold decisions that are required to be taken at this point.
Yougander PN
4 years ago
The one Big Question the small investors have is.....is it better to sell out or hold the shares until these issues are settled which may take a long time say 2 to 3 years to be back on growth track. The IT Sector itself is in midst of lot of changes and challenges which doesnt promise a double digit return on the shares. This is a double whammy for Infosys to come out clean and stand still in the coming years!
Simple Indian
4 years ago
Fine analysis. While Mr. Murthy (NRN) may have not lived up to his 'high' governance standards as an Independent Director in other firms, the questions he and few other promoters / founders of Infosys raised are certainly valid and the Board hasn't given any satisfactory response to any of them as yet. NRN and his fellow Founders of Infosys have nurtured Infosys for decades and have a moral right and obligation to ensure that it remains a respected ethical firm. Hopefully Mr. Nilekani in his 2nd stint at Infosys will 'clean the mess' and restore its 'culture'. Sadly, just as in the Tata Group case, SEBI has remained a mute spectator in this case too.
Subramanian Parameswaran
4 years ago
Without getting into personality bashing of NRN or Sikka,, 2 things stand out,, 1. The board obviously and clearly mishandled the entire issue,, and that is a failure. 2. What kind of leader runs away quitting when he is clean and has nothing to hide,, I mean how can a leader be distracted from the one, single most important purpose of his life,, what kind of a leader walks away when it gets uncomfortable to answer the same questions,, signs of weakness or strength will you say,, best that he moved on as far as Infy is concerned,, no?
kapil bajaj
4 years ago
"...Mr Sikka’s salary rocketed 55% (to $11 million)... This, too, is a big culture change that the board ought to have addressed and explained to all shareholders of Infosys. "

At Sikka's appointment as CEO of Infosys, Narayana Murthy had famously said Sikka's coming means big money. What exactly did Murthy mean by that?

It seems to me that the "big culture change" was engineered by Murthy and other promoters.
Suketu Shah
4 years ago
Too much "noise" about Infosys to use Vijay Kedia's words for successful investing.Long term investors just waiting to get out at 1150/- or more shortly.Once out no one wl care for NMurthy and his cronies.

Great piece.NM total hypocrite like Tendulkar(as someone said below).
sohan modak
4 years ago
Sucheta, you are probably right in your analysis. Howeverr, you have completely sidestepped the fact that with vishal sikka's exit, Nilekani was brought in. Why, considering Nilekani's own involvement in the Aadhaar -UIDAI which has clearly turned out to be a massive intellectual, political, financial and national-security fraud. Murthy was obviously saving NN's skin. Well, well, Murthy himself was very much in the Aadhaar picture. Oof, birds of a feather...?
Suketu Shah
Replied to sohan modak comment 4 years ago
you scratch my back I scratch yrs.NM and NN relation.N m has turned out to be a total hypocrite.Also in troubled times a true leader never ever runs away they way NM has a few times.
Pradeep Kumar M Sreedharan
Replied to sohan modak comment 4 years ago
NM and Tendulkar are two characters, that evoke disgust in me.
Hypocrisy at it's best.
Milind Nadkarni
Replied to Pradeep Kumar M Sreedharan comment 4 years ago
Completely agree, ST has been given Bharat Ratna (including several other giants from the world of sports who are languishing) and some years back there was a talk of making NRN President of the country. God save our country.
Pradeep Kumar M Sreedharan
4 years ago
I bow before the depth, Pranaam.
Ramesh Bajaj
4 years ago
Well written and, most importantly, with tremendous insight.
Chandragupta Acharya
4 years ago
Good article. Narayana Murthy left Infosys not once but twice. But when almost the whole of his networth may be in Infosys stock, it is naive to expect him to sleep over what is happening at Infosys. Even if he was not the founder, he would be well within his means to raise issues about governance. Being the founder and still the promoter (on paper) makes his position even stronger. Those who want Mr Murthy to let go do not seem to understand this simple fact. Finding fault with Mr Murthy's behavior does not help answer the points raised by him. The Board clearly failed at this.
Jayant Shetty
4 years ago
A very comprehensive and analytical article. Gives a thorough insight into the happenings @ Infosys.
Govindaraj R
4 years ago
Good Article. Now one of the promoter is the Chairman. Will promoters take part in the Buyback. If they tender their shares, then they are not having confidence in the company. Many small company promoters buy shares from open mkt to build investor confidence. Will Infosys promoters have the guts to stay put with their shareholding ? Madam Pls put an article on buyback as the promoters who say they are in no need of money, then why should they participate in the Buyback issue.
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