The country’s second largest IT major — Infosys — is going through turbulence due to divergence of perceptions between the original promoters and the successor team who are non promoters.
Today, the IT giant, after three and a half decades since inception, is a nearly $10 billion company. Infosys has consistently maintained an impressive growth trajectory under the leadership of its founders. One of the original founders N R Narayana Murthy exited as the founder-chairman of the company in 2011, to return in 2013.
After 2014, the founders stayed away from the management of Infosys which now comprises an all new successor team. On July 1, 2015, R Seshasayee was appointed chairman of the Board of Infosys. Earlier, Vishal Sikka from the SAP Board was made CEO and MD. He took over the mantle from Murthy in June 2014.
As a non-promoter CEO of Infosys, there were mixed feelings on his appointment. His style showed promise. He announced an ambitious target to hit $20 billion in revenue by March 2021 and needed a good team to achieve this. But six executive vice-presidents and eight senior vice-presidents left Infosys.
Recently, Murthy criticised Sikka, Seshasayee and independent director Jeffrey Lehman for the decline in values and corporate governance at Infosys. He expressed unhappiness over the inconsistency of severance pay given to some employees who had exited the company, which varied without any rationale. He also commented on the excess pay package to senior management executives. The ratio of compensation of a senior management executive to an average employee at Infosys was disproportionate.
The CEOs possess enormous potential to abuse power. A good and dynamic CEO is an asset to an organisation with an ability to enhance the quality of corporate governance. His role is to harness the technology and resources of the company to its competitive advantage. The CEO’s objective is to successfully create shared purpose and aspirations. His mission is to enable employees to achieve synergy between individual aspirations and organisational objectives.
Infosys is known for its corporate governance practices and has won several awards for good governance. The management team at Infosys, constituted predominantly by its founders, always believed that good governance results in longevity of a company. According to them, honesty, decency, fairness and concern for the society will result in pride, value and respect in life. The culture of the company is to earn the respect of all the stakeholders. Respect comes from transparency, fairness, openness, accountability and leadership by example.
Murthy has always maintained, “when in doubt, disclose”; therefore, transparency has been very high at Infosys till now which has earned the company tremendous trust and respect from the stakeholders.
For instance, in 1995, the Infosys management apologised to the shareholders at the AGM when the company lost money in the stock market. In the same year, the management acknowledged that it lost business from a Fortune 10 company which contributed to nearly 25% of its top line. In 2001, it disclosed that the company would grow only at 30%, despite 100% growth rate over preceding years. Even during good growth periods, the management was always modest when it maintained that high growth may not be sustainable.
As young first-generation entrepreneurs, Murthy, Nandan Nilekani, Kris Gopalalakrishna, Shibulal, Dinesh and others during the 1980s evolved a vision — ‘To Be a Globally Respected Company’ — which they accomplished with their values, dedication and hard work. Since its inception in 1981, as a startup when the business environment for the IT sector was not particularly favourable, Infosys had to go through travails and turmoil till 1990.
Selling Infosys
The country was then still a socialist economy where profit was not forthcoming in a licence raj riddled with red-tape and regulations that deterred dynamic business performance. So much so, in 1990, the founders, except for Murthy, wanted to sell the company for a million dollars. However, he prevailed upon other founder members against the idea. He believed that ‘Chance favours the prepared mind.’
Accordingly, the new economic policy was announced in 1991 which opened the floodgates of opportunity for Infosys. The founders demonstrated a high degree of commitment and values. Founders, after they conceive a company, bring it into legal existence, nurture it, hand it over to non-promoters to manage and find it difficult to emotionally disengage themselves from its activities. Invariably, a successor team of non-promoters finds it a challenge to sustain growth and take an organisation to higher levels of growth.
The founder promoters have to distance themselves from the manner in which the successor team chooses to manage the company. Disharmony arises due to difference in management style, approach, ethos and values of the successor team and the original promoters which could jeopardise a company’s interests.
Comparisons, though odious, between founders and successors, are bound to be made. Criticism and counter-criticism do not constitute good governance. Undoubtedly transition is a challenge for companies.
(The writer is Professor of Finance, Institute of Management, Christ University, Bengaluru)
