With their scorched-earth strategy, a small group of shareholders consisting of the founders and their supporters have managed to have their way when they do not have the numbers that would allow them to legitimately do so.
A tidal wave has hit Infosys with the resignation of CEO Vishal Sikka and the board’s message to the stock exchanges hugely critical of founder and former chief N. R. Narayana Murthy. This tumultuous development could not have come at a more unfortunate time as India’s software leaders grapple with powerful headwinds.
What is most unfortunate is that Sikka was seeking to steer Infosys down the new technology road which would have reinvented the company and ensured a relevant future for it. Despite this, he has been ousted or hounded out, whichever way you may like to put it. The ultimate irony is that Sikka had put in a credible performance in terms of a financial turnaround and his departure will be a serious setback for the company which had long remained one of India’s most admired.
The tensions within the company became public earlier this year when Murthy conveyed to the media his unhappiness over the board’s inability to prevent severe lapses in corporate governance. These involved top pay, the acquisition price for a particular technology firm and the severance pay for senior exits. In response, the board decided to revamp its governance structure and, most importantly, Murthy and chairman of the board R. Seshasayee agreed not to air their grievances in public and instead try to sort them out through dialogue.
The next development was the appointment of Ravi Venkatesan, industry veteran and long term Infosys board member, as co-chairman of the board which was again seen as the board going a good way to address Murthy’s concerns. While Venkatesan was by no means Murthy’s first choice, there was some apprehension that the new setup would curb Sikka’s ability to keep moving fast down the technology road.
Even this was not good enough for Murthy and the latest developments were precipitated by his going public over his continued disaffection over falling corporate governance standards in the company. Sikka, while conveying his decision to quit, indicated that he could not continue to work while being “besieged by false, baseless, malicious and increasingly personal attacks.” The board, for its part, has sent a stinker to the exchanges accusing Murthy of “factual inaccuracies” and “already disproved rumours.” This is when the company under Sikka delivered “competitive financial performance” and “profitable revenue growth.”
Popular opinion has sharply tilted against Murthy who is seen to be a person who cannot let go even a long while after retirement. The allegation of lapses in governance does not appear to stick and Murthy will be particularly faulted for letting his fight with the board make life unbearable for Sikka. Murthy has himself said that some have told him that Sikka was more suited for the role of chief technology officer than CEO. This fits in with the current paramount need for Indian information technology companies to acquire capabilities to survive in the world of automation, big data, analytics and cloud. It is a shame for Sikka to have to leave at this juncture.
The big issue that emerges from all this is that of shareholder democracy. The vast majority of shareholders, led by institutional investors, all have faith in Sikka. What is more, proxy advisory firms, which are typically the first to raise an alarm over corporate governance lapses, have till now not raised this issue over Infosys. It is a small group of shareholders consisting of the founders and their supporters who have managed to have their way when they do not have the numbers that would allow them to legitimately do so. Imagine the course of a democracy being dictated by a small group which is simply held in high esteem and nothing more.
The hugely difficult task that the board will now have to undertake is find a successor to Sikka. Considering the way in which he was made to go, which highly capable industry leader will be willing to step into such a troubled environment? The easy option for the board will be to usher in someone who has Murthy’s blessing so that the company steers away from internal conflict and gets down to retaining its status as an industry leader with a positive future ahead of it. But it must be remembered that Sikka also came in with Murthy’s blessings.
It is an incomparably difficult task to build a great company. Murthy and the other founders have enshrined their names in the Indian hall of fame by creating a national icon in Infosys. Even if we assume that there were a few governance slip-ups, the value that is being destroyed is totally out of proportion to the supposed transgressions.
Subir Roy is a senior journalist and author of Made in India: A study of emerging competitiveness (Tata Mcgraw Hill, 2005) and the forthcoming Ujjivan: The microfinance frontrunner (OUP).