All eyes on Infosys shareholder meeting amid board-founders tiff

Bengaluru: Saturday’s shareholder meeting of Infosys Ltd promises to be interesting with the company’s management and founder promoters seemingly targeting each other ahead of it.

Analysts say this display of brinkmanship, if it is that, will only hurt the company.

On 9 June a report in The Times of India, citing unnamed people, said that the founders could consider selling their 12.75% stake in the company. Infosys founders, led by N.R. Narayana Murthy and the company denied the news. If the leak-and-denial was aimed at unsettling the management and the board, it did that, says one person familiar with happenings at the company.

On 12 June, Infosys, in a move that looked as if it were returning the favour, just stopped short of calling the five promoters as activist shareholders and a risk to its business in a statutory filing to the US Securities and Exchange Commission. Expectedly, Infosys later clarified that it was not referring to its promoters as activist shareholders but several people familiar with the development said the public disenchantment expressed by the founders against some of the decisions made by the board since February this year falls in the area of activism.

The statement was inserted in the risk factors by senior managers of the company and approved by the chairman of the board’s risk committee, Ravi Venkatesan. To be sure, given Infosys’s current valuation, the amount of cash on its books, and the cash it generates, some of its activist shareholders may want more. Already, Infosys has said it will reward shareholders with Rs13,000 crore through a share buy-back and dividends.

Still, given that this announcement on the reward to shareholders was made only in April, there are unlikely to be any more immediate demands from them, said an analyst on condition of anonymity. That makes the disclosure in the filing look suspiciously like a “take that”, this person added. Mint learns that the promoters have expressed their concern over this to the company.

The board, the first person mentioned above said, is largely united and supports the management, but is looking to stabilize the situation and focus on more important issues—such as the business challenges faced by Infosys.

The analyst likened the threat of a sale by the promoters as a warning, and the response by the company as a message.

Both sides are posturing, said an executive who spoke on condition of anonymity.

“Murthy has privately maintained that Infosys is like a child to him. And when the child does something wrong, you do not throw away the child but rather try to correct him,” added this person. “So I will be surprised if the founders really sell their stake in the company”

“By spelling out activist shareholders as a risk, the board and management are clearly sending across this message to the founders,” said the executive cited above.

The two people who are likely to be most disturbed by all that is happening are chief executive officer Vishal Sikka and non-executive chairman R. Seshasayee, said the person familiar with happenings at Infosys. Murthy called for the chairman’s resignation earlier this year but Seshasayee does have the board’s support, this person added.

“There is an unnecessarily awkward situation in which the founders are second-guessing the new management,” said Vivek Wadhwa, distinguished fellow at Carnegie Mellon University College of Engineering. “It is not that new management is doing everything right; in fact I am convinced that it is trying to make the company more like an American company in the worst possible way, with golden parachutes, unjustified hype, and all. So these are all bad things, but it is not for the old guard to complain. It is the board and shareholders that need to be doing this.”

There is also a cultural clash, said an expert.

“At (the) basic level, I see a visionary leader (Vishal Sikka) with a product/software background clashing into Infosys’s disciplined-execution-oriented founders with IT services backgrounds,” said Rod Bourgeois, founder of US-based DeepDive Equity Research.

Both Wadhwa and Bourgeois say that the ongoing drama in the interactions between the founders and current management is a distraction and it will be in the interest of the founders to sell their stock and make an exit.

Only five of the seven original co-founders—Murthy, Nandan Nilekani, S.D. Shibulal, Kris Gopalakrishnan and K. Dinesh—are categorized as promoters of the company. Emails sent to Murthy, Nilekani and Dinesh went unanswered while Gopalakrishnan and Shibulal declined to comment. In an email response, Infosys repeated its claim that the disclosure regarding activist shareholders was not directed at the founders.