The clash of cultures at Infosys -old guard vs the new; frugal salaries, low-key lifestyles vs globally benchmarked compensation severance structures; innate skepticism of buying growth vs aggressive acquisitions -is playing out at an inopportune moment for the $10-billion company , as the Indian IT services industry faces its toughest external environment in a decade.In the midst of a big technology transformation wave, wherein many low-end jobs are getting automated, the overall external situation has worsened on account of US President Donald Trump’s protectionist policies, especially with regards to work visas and preference for American jobs.
At this critical juncture, emerging reports of friction between a section of founders of the company and its executive management -reported in detail by TOI in its February 8 edition -is distracting and, if unresolved, deleterious to the health of the company , say industry analysts.
Under Sikka, Infosys is targeting to be a $20-billion company with a 30% operating margin and $80,000 revenue per employee by 2020. A stretch target by any standards as its revenue, currently, is half that. Out of the $20 billion, $16.5 billion is to come from existing business, $1.5 billion from acquisitions and $2 billion from new businesses.
The founders have sought to take the high ground, arguing that their issues with Sikka and the board are about governance, principle, values and transparency . Although Sikka could not be reached for comment, people close to the board -a majority of which is said to be backing him, at least for the moment -say most of the founders are still attached to a business model that is facing an existential crisis, and are wary of aggressive acquisitions that are necessary to grow the company . “They are just too conservative when it comes to investing in the future,” says a Young Turk. There’s also a perception among the new generation that somewhere deep down, the `old guard’ doesn’t want to `let go’ of a company they built from scratch. Sikka is the first non-promoter CEO of Infosys.
The first signs of frayed relations between some of the founders, notably N R Narayana Murthy , Infy’s first chairman, and the board, emerged about a year ago over the induction of Punita Sinha, wife of Union minister Jayant Sinha, as an independent director.Murthy abstained from voting on her appointment. While emphasising that he had great respect for her as a professional, he grounded his objection in the fact in that the entire history of Infy , it had never invited the spouse of any active politic ian to the board. Sikka and the board’s argument to that was that she was eminently qualified -having been a fund manager with Blackstone and Oppenheimer, among others -and that the decision was taken on merit.
Since then, there have been a number of friction points.The executive compensation -the main concern of the founders -is geared to support Sikka’s transformational vision, but has run smack into founder-chairman N R Narayana Murthy’s longstated philosophy on “compassionate capitalism” where the ratio between highest compensation in the firm and the median salary should ideally be 50 to 60. Their biggest concern has been the 55% increase in CEO compensation that appears particularly large when average salary hikes have hovered in the single-digits of 6% to 8% at the company . Murthy is reliably learnt to have told people that the board had placed him in a “moral dilemma” when it proposed such a steep hike, and he had chosen to abstain from voting on the resolution at last year’s AGM. Three cofounders–Krish Gopalakrishnan, S D Shibulal and K Dinesh–followed suit in abstaining; only Nandan Nilekani, also a co-founder and who succeeded Murthy as chairman, Sudha Murty voted in favour of the resolution.
Sikka’s compensation saw a sharp increase to $11million, annually , in 2017 from $7.08 million in 2016. Infosys says that the cash component of the salary has actually come down for Sikka with most of it in restricted stock units (RSUs) against extremely steep targets. Sources close to Sikka say that he actually gets less cash now than when he was chief technology officer at SAP .
High severance packages to departing top executives, such as CFO Rajiv Bansal and legal counsel David Kennedy , has al so been an issue of concern.Tom Reuner, managing director of US-based HfS Research, said Sikka’s honeymoon period is clearly over. “While the whole industry is in transition, away from labour arbitrage and into uncharted waters of the Trump administration, it is easily forgotten that Infosys is a much happier place these days and that he (Sikka) gave the company back the pride of being perceived as an innovator. In the end much will come down to execution. Should the numbers improve, the rest will be easily forgotten -but only then.”
The gameplan to position Infosys as a next generation services company leveraging automation, artificial intelligence and analytics, requires different skillsets and bold acquisition strategy , say industry experts. Infosys, under the founders, has traditionally been wary of large acquisitions.
The biggest acquisition that Infosys ever made, Lodestone, hasn’t panned out well. The Zurich-based consulting company Infosys acquired in 2012, before Sikka joined, for $350 million, has also been a point of conflict.Sources say Sikka thinks of it as a bad acquisition, one that does not fit into his strategy . Lodestone has been posting weak results and has been affected by an exodus of executives over the past year.
So far these tensions haven’t impacted the company . Among peers, its stock has done the best in the two years. Under Sikka, Infosys’s share price rose 18% (till December 2016) while TCS’s fell about 9% and Wipro 14%.
When TOI reached out to N R Narayana Murthy on Wednesday about his concerns on how Infosys is being run, he did not deny specifically that there were issues. Asked if he had written a letter recently to Sikka appreciating his work, Murthy said: “I do not remember writing any recent letter to Vishal.” When asked, “You have raised some concerns in the past including Sikka’s compensation, severance packages and shifting value system.Are these still concerns for you? Do you feel Infosys is moving away from your philosophy of compassionate capitalism?”, Murthy replied: “I am in Hyderabad. These are best answered by Vishal and not me since I do not know answers to them except the first and the second questions. You know my answer to the first part of the second question. I leave the second part to Vishal.”
Murthy recently called for a visa-independent global delivery model. He seemed to be publicly suggesting that the initiative he started has not been taken forward as aggressively as it should have been.
Infy director tweets support for Sikka
In a tweet that is being seen as a sign of support for Infy’s CEO, Kiran Mazumdar Shaw, an independent board member of the company and one of India’s most high-profile businesswomen, said late Wednesday, “Exciting new business opportunities which VSikka and his brilliant team are leading to new frontiers of growth.” This was in response to a tweet by Sikka saying, “3AM. Road warriors heading east for client mtgs. Focus & silence amidst chaos”- leading to speculation as to whether he was referring to the situation at Infosys.