A clash of ideas

Sushma Ramachandran

THE resignation of Infosys chief executive Vishal Sikka and the open battle between the company’s board and legendary promoter NR Narayana Murthy has created an upheaval in corporate India. For the second time within a year, the departure of a top industry honcho has become the lead story in all newspapers. Apart from the many hours spent on analysing the issue on the news channels. It was less than a year ago that Tata Sons removed the first non-family member to be appointed chairman from the top post of the business house. Similarly, the first non-promoter chief executive of Infosys had to resign due to persistent criticism from the promoters. In both cases, the appointments had been made with great fanfare by the very same persons who later argued strongly for the exit of these individuals.

In the case of the Tatas, it was considered to be an issue that had much to do with the legacy of the century- old organisation. While Cyrus Mistry was initially considered the right person to bring the business house into the modern era, the sweeping changes initiated by him ran counter to the views of those who had been at the helm for decades. No wonder then that the acrimonious departure was followed by the appointment of an insider as the head of one of the biggest industrial conglomerates in the country. 

A similar pattern has emerged in Infosys. But with a significant difference. In the case of Tatas, most members of the company board supported Ratan Tata. In the case of Infosys, the board has not only come out strongly in defence of Vishal Sikka, but also actually castigated Narayana Murthy for this role. There is no doubt that Murthy is the most high profile, renowned and probably venerated founder of the iconic IT company. For the board to thus come out aggressively against him means that the provocation was considered beyond acceptable limits.

There are legacy issues as well in Infosys. The promoters were chagrined by the shifts in culture. The frugal lifestyle of the founder promoters had shifted to one where corporate jets were used while soaring salaries for the top executive and hefty severance packages for exiting employees became a norm. The biggest bugbear was the acquisition of a company with which Sikka was reported to have had ties a long time ago. In deference to criticism from Murthy, the board held back the severance package and set up an external committee to inquire into the corporate acquisition. But this was not enough for Murthy who continued a sustained attack via the media. The last straw was his inability to accept the committee’s decision that the acquisition was above board and a message hinting at Sikka’s lack of capability.

 Along with Sikka’s resignation came a detailed statement by the Infosys board squarely placing the entire blame for the situation on Murthy. The fact is that this is a major watershed in the annals of corporate India. This is the first time that a board has taken such a strong stance against a promoter. In similar situations abroad, boards have united to support management against promoters, but this has taken place for the first time in this country.

The question is, what is the way forward for the company as well as for the future of good corporate governance in the country? Infosys like other Indian IT companies, is already battling global headwinds that are not propitious. The main lure of Indian IT professionals was their low cost and this attraction may be lost if the Trump administration has its way. Another key issue of artificial intelligence taking away jobs is also looming large over the IT sector globally. To tackle this challenge, Sikka is reported to have created a new division and a new revenue stream for Infosys which was expanding rapidly. It seems there are no two opinions on the fact that he has left the company in a better financial condition than when he joined it.

His resignation, however, has meant that share value has fallen considerably at one fell blow. While the media highlights the losses to the wealthy promoters, it is ultimately the ordinary shareholders who are suffering huge losses on their investments. For Infosys, therefore, this bruising battle has taken a toll in many ways.

As for good corporate governance, an issue repeatedly highlighted by Narayana Murthy, it has to be seen how the role of promoters needs to be viewed in future. It cannot be argued that promoters of companies should not have a right to raise issues that are pertinent with the management and the board. But if they seek to have a say in every decision, it would be wise for them to remain on the boards of these concerns and ensure their views are taken into account. Staying out of the company and then taking the battle to the media cannot be considered good corporate governance by any stretch of imagination. Also, in case there is need to ensure that the management continues to follow the same culture of the company as laid down by the founders, the selection of chief executives needs to be carried out with this aspect in mind. When Sikka was appointed, the selection was reportedly meant to transform the company to tackle the changes in an evolving global scenario. And for this purpose, Sikka was considered the right candidate. A doctorate in artificial intelligence surely had the right credentials for the top executive to deal with the issue of automation in the IT industry. 

Yet the culture issue became more important than these qualifications. It thus behoves both promoters and company boards to take succession planning with greater seriousness in the future. In this respect, it is clear mistakes have been made on both sides. The board itself should have supported the chief executive with greater vigour, rather than allowing him to resign and then launch a futile broadside against Murthy. As for the promoters, it is clear that their umbilical cord to the company has not yet been cut. As a result, the fate of this iconic enterprise, known in the past for good corporate governance, hangs in the balance. It will take a mighty effort to bring it back on track yet again, especially in the light of the challenging global environment for the IT sector.