Will Murthy vs Sikka mark an end to Infosys’s dream run?
Bengaluru: Infosys Ltd’s founders, led by N.R. Narayana Murthy, have blown the bugle in their 10-month old fight to control the board of India’s second largest software services firm. Many are worried that Infosys’s run under Vishal Sikka, its first non-founder chief executive officer, may end sooner than later.
Late on Thursday, Infosys sent a seven-paragraph statement, announcing that the company recently appointed Cyril Amarchand Mangaldas, a law firm it described as corporate governance experts, to evaluate inputs the company receives from promoters and other external stakeholders and make recommendations to the board.
This development was strange given that Infosys itself denied in the statement any corporate governance lapses at the company.
“If you have not done anything wrong then why in the first place appoint a law firm or corporate governance experts,” asked a Mumbai-based equity analyst on condition of anonymity.
Murthy, in an interview to The Economic Times published on Friday, expressed his displeasure on some decisions made by the board and was scathing in his remarks on two of the senior-most board members of Infosys, nominations and remuneration panel head Jeffrey Lehman and non-executive chairman R. Seshasayee.
Murthy questioned the rationale behind Infosys agreeing to pay a generous severance of Rs17.38 crore to its former chief financial officer, Rajiv Bansal, and said that “they (Lehman and Seshasayee) must accept responsibility and atone for it”.
On another question of how Infosys’s board could redeem its credibility, Murthy said “first is for the chair of the nomination and remuneration committee (Lehman) and the chair of the board (Seshasayee) to accept their mistakes and show contrition”.
Infosys founders had expressed their displeasure with Seshasayee over some of board’s decisions and asked him to consider stepping down.
This decision to appoint a law firm, which has worked with Infosys in the past and also has Murthy as a member on its “strategic advisory board”, has made many senior employees and experts interpret it as a victory for Murthy.
“Two things are clear. First, of course some of the founders are unhappy with the board, as they believe some of their suggestions have not been accepted and on what they call as falling corporate governance standards,” said a senior executive at Infosys. “Second, by having a law firm, on which one of the founders is a member of its strategic advisory board, means that Murthy emerges victorious. Infosys could have had any law firm to assist but still the CEO and the board accepted this decision.”
The appointment of the law firm, given that Murthy is a member of its strategic advisory board, “is inherently conflict of interest”, said Shriram Subramanian, founder and managing director of proxy firm InGovern Research. “This is also worrying because this means the founders may make the board, which itself had taken a lot of non-transparent decisions, agree to a lot of their suggestions.”
An email sent to Infosys seeking comment went unanswered.
“The board will see changes, as some of the founders demands on getting ‘like-minded’ people will be met,” said a second senior executive on the condition of anonymity. “Once you get control of the board, it is a joke to say that CEO can work independently.”
“One thing which is still unclear is that why is Vishal continuing at Infosys despite these antics by some of the founders,” said the first executive cited above. “Is it because Vishal cannot take on the founders and express his unhappiness or is Vishal worried of his future or has some alleged wrongdoing happened under his watch, now is being using as a stick to beat the CEO?”
Infosys continues to downplay any talk of a rift between the founders and board or founders and Sikka.
An Infosys statement said: “The Company denies any governance lapses alleged by some sections of the media in reports that have appeared in the last few days on purported rifts among the Founders, the Board and the Management.”
“While the Board appreciates and respects inputs from the Founders, it is committed to fulfilling its fiduciary responsibility to act independently and in the overall interest of the shareholders.”
The issue of failing governance standards include three main developments. Firstly, the founders are unhappy with the “non-transparent” manner in which the board decided to increase Sikka’s compensation to $11 million from $7.08 million. Secondly, the founders believe the current board’s decision to appoint Punita Kumar Sinha, wife of minister of state for aviation Jayant Sinha, as an independent director was wrong, given that Infosys has always preferred people not related to politicians. The founders even expressed their unhappiness over both decisions, as some of them abstained from voting when the two resolutions were put to vote for shareholders’ approval in April last year.
The third is the decision to give Bansal the generous severance payment. Infosys later stopped the remaining instalments of the severance payment after some of the founders expressed their unhappiness with the decision.