Will you walk from Bengaluru to Chennai?” the patriarch of a family-promoted business who can’t be identified asks this writer, while illustrating the difference between risk and uncertainty.
The context — the roles of a chief financial officer (CFO) and chief executive. Obviously, nobody walks to Chennai unless they must. “Yet, people regularly take on Mount Everest, which is just 8 km,” adds the founder, a self-professed social hermit, with a smile.
“But you’ll say Everest is a more expensive and arduous climb which is also true.” His point: CEOs are paid to take risks. The risk tenure can be as steep as an arduous 8 km that we cannot see the summit of, or the 345-km walk to Chennai that is less expensive. That’s the grey zone between uncertainty and risk.
“The CEO chooses the risk and so it is the CFO’s role—absolutely critical—to hold the CEO back, ring-fence risk, or call out if it is uncertainty or risk.” This is the sagely wisdom of a private family-promoted businessman in a general context. Let’s take the liberty of applying it to the Rs 65,569-crore software services company called Infosys.
When Vishal Sikka was appointed chief executive in mid-2014, the office of the CEO moved from Bengaluru to Palo Alto, with Sikka working out of both centres. This unique arrangement is vital to how Infosys is controlled. It is good for clients but for most of the senior management in India, for the first time in Infosys’ history, decisions taken in the US are having an impact here. More on that later. First, the known knowns.
One, prima facie events. The CFO of a $8.7-billion company leaves. His exit is tied to an unheard-of severance package (Rs 17.38 crore), which becomes known five months after. After the annual general body meeting, where investors express displeasure, that payment is stopped at a little over Rs 5 crore. This is the most sensational instance of poor disclosure practices by Infosys under Sikka. Two, in the context of Indian IT companies that have an eye on operating profits, this CEO is unconventional, to say the least. He has promised Infosys will grow to $20 billion by 2020; it was sub-$10 billion in 2015-16. It must grow at 20% in a market, when it clocked 9.1% in 2015-16. So this is about climbing Mount Everest.
Now, the good news. Young employees love him. Even technology advisors and consultants feel that if there is friction between old founders and Infosys, it is a sign that the company is being reinvented for modern needs. “The friction shows there is serious intent and not lip service,” says Sid Pai, an independent technology consultant, who has never met Sikka. “You can expect that the younger company will align with the new culture at Infosys. What we are seeing (Murthy versus Infosys) is a natural expression of a strategic shift in the company.”
For most of the 2,00,000 employees that have seen granddaddy-founders move on, Sikka is a whiff of fresh air. “After Nilekani (in 2007), the chief executives were more about ‘keeping the lights on’,” says an employee who has worked there under all CEOs. “We turned very old school. The DNA of the company did not change. The focus was on operational improvements rather than winning new business aggressively.” From a “socialist” environment, Infosys feels “rejuvenated” under Sikka, he says. “He’s been good at translating an idea into performance indicators for every employee on ground.”
The employee cites Sikka’s ‘zero distance,’ an initiative to promote design thinking among developers, project managers, analysts and architects to apply technology to enterprise customers anywhere. “It is an example of bringing innovation to a customer to business or IT to give and show them how it improves their business. He mandates this across all projects across company,” the employee says. So, Sikka has the young with him. In this context, why are the old at Infosys anxious? It’s disclosures, again, and governance issues. And this plays along with the location factor — Bengaluru.
Long before traffic jams on Hosur Road and Bannerghatta Road, for more than a quarter century, Bengaluru was the nerve centre for offshore delivery of software services to clients in North America and Europe. This meant more than 80% of its workforce, the CEO’s office and finance/investment functions resided in the ghastly-designed pyramid structure in the city. Everything was a room or floor away when decisions were taken, or needed clarification. Arguments could be faceto-face, even if that other patriarch, NR Narayana Murthy, mostly had his way while active in operations.
In contrast, Vishal Sikka, 49, sits in a slick Palo Alto. Decisions taken in the US have ramifications in Bengaluru, with senior employees not having the same room to push back or alter discussions. Both Murthy and Nandan Nilekani, as CEOs, thrived because they were able to produce operating margins of 30% as the idea of offshore delivery expanded globally. Nilekani had flair, Murthy played schoolteacher. Those were good times. By 2009, when Kris Gopalakrishnan and his successor SD Shibulal followed Nilekani, markets were hit by the financial meltdown. Pressure on them was to target growth while managing an organisation of more than 1,50,000 employees.
The strategic goal was to prepare Infosys for a mobile enterprise and cloud, but operating margins were a bigger concern. When Sikka arrived, two things were for sure. He was the first technology-CEO in Infosys’ history. All his predecessors had evolved in career from tech geeks to managers of a multi-billion organisation. Operations and strategy preceded technology and the foot soldiers had everything about technology-fulfillment under control.
This also meant Sikka was new to operations, governance and financial controls—the holy trinity in an ultraconservative and most brahminical organisation born in Bengaluru. On February 13, he referred to himself as a “kshatriya warrior” to emphasise he is here to stay. It’s not the most politically-correct thing to say in any organisation; neither would it help Sikka connect with the senior managers offshore.
The Palo Alto resident, who left India in his teens, can’t forget a common culture is everything in this people business. For sure, Sikka is building an agile organisation, but disclosures, accountability and governance become vital when 80% of Infosys resides in India. UB Pravin Rao, chief operating officer, is crucial in the non-founder CEO’s management because he is based here. But decisions in the past two years have been taken by Sikka, empowered by the board. Pai, the technology consultant, says the transformation is mid-way. Sikka is now inextricably tied to the fate of the organisation. “Any change now would be akin to a surgeon sewing up and walking away in the middle of a complex medical operation,” he adds. The board knows this.
Another industry observer says that if the board is found to be half-hearted about its CEOs, then clients—and hence, even employees—can panic. The organisation cannot afford to be headless, regardless of controversy around the severance package and CEO compensation which was increased to $11 million in 2016. The new salary was effective at the start of this year. While Sikka has the board’s full backing — an acknowledgement that he is rebuilding Infosys — the senior leadership in India is still used to disclosing the tiniest lapses. Remember, this is a 35-year-old legacy. The finance and operations teams still reside here.
For instance, Infosys’ financial-services customer RBS had flagged off that their project with Infosys was running into technology difficulties when it reported its first quarter result in April 2016. It was expected to cost far more than the £1.2 billion that RBS had initially budgeted. RBS has a subsidiary unit, Williams & Glyn (W&G). “Due to the complexities of W&G’s customer and product mix, the programme to create a cloned (IT) banking platform continues to be very challenging and the timetable to achieve separation is uncertain,” RBS had said in April 2016. This led them to cancel the project with Infosys in April 2016. It impacted 3.000 employees working on it.
Three sources said Infosys knew the deal was being cancelled in late June. The company finally disclosed the deal loss on August 9, about five days after RBS announced it was scrapping the spinoff of William & Glyn. (It remains unsold.) RBS made the announcement on August 5. In response to this, Infosys chairman R Seshasayee said, “First of all, there is no compliance requirement in things of this nature. If they are material, we need to make disclosures.”
An Infosys top manager concurs that ramp-ups and ramp-downs happen all the time. “Sometimes, we negotiate with them. Only when we are 100% sure that it’s going to have a material impact on our guidance, that’s when we disclose.” But this is also a matter of perception in Bengaluru, where Infosys took pride in being proactive in disclosures. “If Sikka makes Infosys a fast-moving platform company, which is the vision, disclosures on projects won’t be all that important a concern,” says an industry observer.
The Palo Alto office can house around 50 Infoscians and showcases proofs of concept of innovations in development like 3D printing shop, apart from a lab for virtual reality and augmented reality. “These are innovations we are involved in from the customer’s point of view, and a startup environment in the Palo Alto mould,” an employee told ET. The board, Seshasayee says, recognises that a global company is on the cusp of a major transformation of rebranding itself, motivating and bringing in new talent. So, it will have to be competitive to get them the right environment.
Sikka, the first non-founder CEO, is an unconventional Infoscian. During one of his first visits to India, an employee noticed that the CEO had breached an old norm at Infosys. Employees rarely walk on to the grass of the lush lawns. But Sikka had taken off his shoes and was strolling there. Alone. An Infosys CEO like none of the four before and that’s why he will always attract scrutiny.