Bengaluru: The company says no, but there could be more to this denial than meets the eye.
On Monday, in a statutory filing to the US Securities and Exchange Commission, Infosys Ltd warned that actions by activist shareholders could affect the company and devalue its stock. “Responding to actions by activist shareholders can divert the attention of our board of directors, management and our employees and disrupt our operations. Such activities could interfere with our ability to execute our strategic plan.”
Although the company stopped short of naming names, people familiar with the development said that some moves by its founders clearly fall in the area of activism.
“Actions of activist shareholders may adversely affect our ability to execute our strategic priorities, and could impact the trading value of our securities,” added Infosys in its filing, and also listed this as one of the risk factors in the so-called 20-F document. This is the first time that Infosys has called actions of any of its shareholders a risk factor.
In a response, an Infosys spokesperson was at pains to stress that the company was not referring to its promoters as activist shareholders: “Over the past year, there have been specific instances of companies in our industry, seeing active participation and discussion with shareholders and stakeholders. We would like to categorically state that ‘activist shareholders’ called out as a risk in our Form 20-F does not refer to any particular group of investors or individuals.”
Still, the language of the filing is illuminating, especially when it refers to actions by activist shareholders diverting the attention of managers.
That’s pretty much what non-executive chairman R. Seshasayee said in a press conference in February after an outburst by co-founder and promoter N.R. Narayana Murthy. Such instances, he said, are “usually distracting and therefore I very, very much hope that we will not have any future occasions” when the founders would take such matters to the public.
Some of the issues raised by the promoters are similar to those activist shareholders would usually raise, according to Shriram Subramanian, founder and managing director of proxy firm InGovern Research. “Now, was it right on the part of Infosys to term its founders as activist shareholders and as part of risk factor? I can only say it is right or apt for Infosys to place all issues it faces before all investors.”
Infosys’s founders together hold 12.75% equity in the company. Led by Murthy, they have publicly expressed their disenchantment against some of the decisions by the current board. In February, Murthy lambasted Seshasayee and the head of the nomination and remuneration committee, Jeffrey Lehman, over the board’s decision to give a generous and unexplained Rs17.38 crore in severance pay to former chief financial officer Rajiv Bansal. In April, in response to an emailed questionnaire from Mint, Murthy chided the board’s decision to award a higher salary to chief operating officer U.B. Pravin Rao.
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, Gopalakrishnan, Shibulal, and Dinesh went unanswered.
Over the past year, Infosys’s board has taken a series of steps to assuage the concerns of some of its founders, none of whom are on the board.
It first reversed the decision on Bansal’s severance pay. In October, it agreed to induct D.N. Prahlad, a relative of Murthy and a former employee of Infosys, as an independent director on the board. In February, the board even inducted Prahlad as a member of the all-important nomination and remuneration committee. In April, it agreed to pay CEO Vishal Sikka only $6.8 million of his promised $11 million salary after Infosys managed only 7.4% dollar revenue growth in 2016-17.