Corporate governance war

Sushma Ramachandran

INFOSYS and the Tatas group have little in common barring the fact that the biggest IT company in the country, TCS, is part of this industrial house. Infosys may not be the largest software company but is surely one of the most influential and closely watched in the corporate world. Its annual or even quarterly financial results make a splash in the stock markets. The house of Tatas, on the other hand, comprises a vast stable of companies covering steel, automobiles, chemicals, hotels and consumer goods.  Many of its blue chip companies also have a big impact on stock market movements. Infosys, however, is a single company and is thus relatively a pygmy compared to the house of Tatas. 

Nevertheless, the two have been compared for the past few weeks as a controversy over corporate governance issues erupted in Infosys with company founders ranged on one side and the current management on the other side. Comparisons are no doubt odious, but in this case there was some similarity. In the case of the Tatas, former group chairman, Ratan Tata felt the new incumbent, Cyrus Mistry was acting in a way that went against the core ethics and culture of the group. Similarly, Infosys founder, NR Narayana Murthy argued that the new management was not adhering to the culture of good governance on which the company had been based since inception. Thus in both cases, the former managements felt the old ways and culture were being overturned by the new set of managers. Another similarity was the sharp vocal divide in corporate circles with some supporting the old guard while others felt the new incumbents had made the companies more dynamic.

In the Infosys case, it was Murthy who raised a red flag over the issue of severance pay being much higher than the norm being given to two persons. It then snowballed into a debate over the $11 million pay package being given to the CEO, Vishal Sikka, as well as the overall nature of governance quality in the firm. All the founders of the iconic firm have not made their views public on the issue, but other long time employees have joined the fray, some of whom are miffed about not having been given equally fat severance packages. In fact, the severance package of the employees is even direly being described as “hush” money which is bringing it to the level of a corruption charge. At the same time, the Infosys board headed by chairman R Seshasayee has strongly refuted such insinuations.

The issue at hand is also being described as a departure from the values and “culture” of the company by Murthy  who made it into a media war. Messages were being sent to the management through the media rather than directly having a dialogue with the chairman or the CEO. The fact is, that in the case of both the Tatas as well as Infosys, it was clearly a case of the old guard having stepped back and then finding that the new managers turned the institution in a direction than was unexpected and unsettling for them. In both cases, to the impartial observer it seems that the new direction has made the corporates more dynamic and in tune with the changing market environment. Human resource experts, for instance, find nothing out of place with the severance packages given by Infosys, given that these are normally negotiable plus these were approved by the board. And high CEO salaries are now the norm globally though ideally one would prefer remuneration to be more evenly spread over an organisation. 

While no one can object to the founders of a firm taking interest in its operations, it would have been far wiser for them to have evolved a system under which their voices could have been heard by the current management. This could have been in many forms, either an institutionalised dialogue with the new managers or even remaining on the board as directors. In case they were concerned about Infosys maintaining an extremely level of ethics in terms of corporate governance, systems should have been put in place to ensure the continuance of this “gold standard” of performance. Or as mentioned above, the founders should have remained on the board as watchdogs at the right place. Now after having completely distanced themselves from the company, it seems rather unfair to shoot arrows at the current management through the media and create a needless  controversy over an internal corporate issue. The timing is all the more regrettable as Infosys right now, like all other Indian IT companies has to deal with the new regime in the US and the changes that may have to be brought into their operations of exporting services.

On a national level, one also needs to be concerned that the services exports which are one of the mainstays of the overall export effort could be affected by turmoil at one of the leading software companies. It is intriguing that these same concerns did not occur to the founders and former employees who launched this media spat. Instead, the whole issue could have been dealt with through a direct dialogue as one cannot imagine that the Infosys board would take the views of the company founders lightly on any issue. 

Corporate governance issues are making waves in many Indian companies nowadays, which is all to the good as it shows that there is much lower tolerance for unethical behaviour in business than in the past. But if companies like Infosys are to stick to their “gold standards” of values, these issues need to be codified and make much more specific than is the case at present. If companies seek to put a cap on CEO salaries or severance packages, which is all to the good, these need to be put down in guidelines which can then be followed in both letter and spirit. In the Tatas case also there were issues raised about the fate of acquisitions by the company. In all such cases, instead of waking up after the fact, it would be more useful to have ethics and culture defined in a specific way rather than leaving it in the fuzzy area of “good corporate governance”. The old guard thus needs to engage with those now at the helm of corporates in a more constructive way rather than engaging in damaging media battles.