Bengaluru: Infosys Ltd has dumped its ambitious long-term revenue target, had search firm Egon Zehnder evaluate each of the 10 members of the company’s board, and set up a three-member panel to “support and advise” chief executive officer Vishal Sikka in executing strategy.
The panel comprises non-executive chairman R. Seshasayee, co-chairman Ravi Venkatesan and director D.N. Prahlad.
All three developments are part of steps taken by the board to address criticism from several quarters, especially co-founder N.R. Narayana Murthy. They are important for three reasons.
Firstly, Infosys’s decision last year to award a higher salary of $11 million to Sikka, one of the triggers for Murthy’s criticism of the board, was based on its long-term goals of $20 billion in revenue, 30% operating margin and $80,000 revenue per employee by March 2021.
Infosys’s 2016-17 annual report has no mention of the targeted goals, not even as a footnote, contrary to the detailed description shared in last year’s annual report.
One board member who spoke on condition of anonymity admitted that Infosys had pretty much dropped this long-term goal.
It isn’t clear whether this means the board will review Sikka’s salary.
“The committee (nomination and remuneration committee) also noted that the management, under the leadership of Dr Sikka, has drawn up goals for revenue, margins, and revenue per person for the financial year 2020-21, which are expected to be achieved progressively over the next five years. The committee was of the view that Dr Sikka’s leadership will be essential to achieving these goals, and therefore recommended that Dr Sikka’s contract of employment be replaced with a new contract aligned to these goals, as well as to shareholder value creation,” said a statement from Infosys’s annual report for 2015-16.
An Infosys spokesperson continued to call these goals as an “aspirational target” in response to a query sent in May.
Secondly, the review of the board is as much an attempt to introspect as it is to address issues raised by Murthy who questioned the credibility of some of the board members and even lambasted some of the decisions made by the board.
“Infosys board’s decision to get itself evaluated by an external firm is part of good governance exercise, but it is also partially being done with an eye on Murthy,” said Amit Tandon, founder and managing director at Institutional Investor Advisory Services (IiAS), a proxy advisory firm.
“To improve the effectiveness of the board and its committees, as well as that of each individual director, a formal and rigorous board review is internally undertaken on an annual basis,” Infosys said in the latest annual report. “For fiscal 2017, the board review process was for the first time externally facilitated and conducted by Egon Zehnder. The process took the form of questionnaire, followed by structured interviews with independent and executive directors”
Egon Zehnder, which helped Infosys hire Sikka in 2014, also interviewed a few senior executives of Infosys although Mint could not ascertain the reason for this.
Finally, Infosys appointing the three-member committee for strategy, announced in the annual report published on 25 May, is again important because two of the three acquisitions made by Sikka have failed.
Infosys was to pay $120 million to buy mobile commerce firm Skava in 2015, which included $20 million, or Rs128 crore, as contingent money or payments dependent upon the achievement of certain financial targets by Skava on 31 December 2017. For the year ended March, Infosys paid only a third, or Rs40 crore, of this contingent money. Infosys reversed its entire $5 million in contingent money payable to Noah Consulting, as part of a total purchase price of $70 million. Panaya, the first purchase under Sikka, for $220 million, does not have any provision of contingent payments.