Unless Infosys Solves Its Succession Bug, It Will Continue Fighting With One Hand Tied Behind Its Back

Apart from recovering value, Infosys has to prove that it doesn't have to keep running to its founders to sort things out as soon as the going gets tough.

An employee of Infosys stands at the front desk of its headquarters in Bengaluru, India, April 15, 2016. Credit: Reuters

An employee of Infosys stands at the front desk of its headquarters in Bengaluru, India, April 15, 2016. Credit: Reuters

The bruising controversies plaguing Infosys, India’s second largest software company and until recently a bellwether, through this year can be expected to end with the person taking a lead in initiating them, founder chairman N.R. Narayana Murthy, signalling peace.

He has told the media, “Absolutely, all is well.” Now that Nandan Nilekani is the chairman, “we can all sleep well”. Also, as a sort of promise that he would not rock the boat again in the near future, “let us all keep quiet so that he (Nilekani) does his job well.”

The first and most obvious point that comes to mind is that the same Murthy, who had earlier insisted that the independent forensic report on the allegations made by the whistleblower be made public, has now looked beyond that demand after Nilekani declined it on the same grounds as the board had done earlier. The report didn’t change, Murthy’s sentiments did.

The conclusion is inescapable that Murthy wanted R. Seshasayee, the previous chairman, to go. He did and in the process CEO Vishal Sikka went too. Two issues arise. This kind of boardroom battle does not speak well of the protagonists concerned and shareholder democracy has been undermined by a founder with a small shareholding having his way over the sentiments of a majority of shareholders. (They appeared to have been willing to go along with the earlier chairman-CEO duo.) Murthy, who was and is still admired across the country, has not covered himself with glory.

The second and more important point is, where does Infosys go from here. It has lots of catching up to do. In the last 12 months its share price has remained almost static, up 6%, even as that of key competitor TCS gone up by 28%! So Infosys shareholders have lost considerable value, all to no purpose. Governance standards in Infosys remain as high as they have always been and, critically, did not fall down somewhere in between.

Other than recovering value, Infosys has to prove to the rest of the world that it can handle succession and does not have to keep going back to founders to sort things out as soon as the going gets tough. It may be recalled that the firm’s policy of sticking to being led by a founder member for too long led to a fall in performance and caused Murthy to step in.

Not long thereafter, with a new CEO and chairman in place, some founders and other old timers started to have second thoughts and public skirmishing began. Now, a founder is back at the held to restore the ship to an even keel and is taking his time to find a new CEO.

This is understandable as the task of leading Infosys is bound to look daunting, after the way Sikka found it impossible to continue functioning. As attractive as Infosys is as a company, who will want to take the top seat which has just turned out to be unbearably hot for the last incumbent. And even when a new CEO is installed, there will be a period of wait and watch to see if he is able to settle down and Infosys runs like any other leading well run company. This implies valuation will continue to be discounted below what performance numbers would warrant.

Nandan Nilekani. Credit: PTI

Nandan Nilekani. Credit: PTI

Assuming that all goes well, Infosys will have to face the same existential challenge before all Indian information technology leaders. They will have to reinvent themselves – turn into deliverers of innovative solutions in an age when automation is rapidly rendering redundant large numbers of staff who make up an army of coders.

Net hiring among the top six has already turned negative and as this gains momentum, it will be a traumatic experience to ask people to go and try not to pretend that the axe is falling only on non-performers. Software, the bounteous job providing darling of the middle class will fall from its pedestal. If a firm like GE, which had dramatically turned itself into a technology company, requiring all newcomers to know how to code in the digital age, then the tough challenge ahead of India’s IT leaders cannot be underestimated.

There are two ways to acquire technology. One is to put most of the company into a training mode. The Indian IT leaders are already doing this. But they also have to acquire successful technology startups. It is here that Infosys’s recent past can catch up with it.

Buying a technology startup is a gamble. You have to take the risk of overpaying, gambling unsuccessfully and the shareholders have to back the board and management with full confidence in them. The whole fracas in Infosys was at least partly due to whether the company overpaid for Panaya acquisition and whether the CFO who objected to the price was given not a golden but a platinum handshake.

Hence, it will not be easy to lead Infosys successfully with what can feel like one hand tied behind your back.

Subir Roy is a senior journalist and the author of Made in India: A study of emerging competitiveness (Tata Mcgraw Hill, 2005) and the forthcoming Ujjivan: The microfinance frontrunner (OUP).