Infy must move on, go about its business quietly

When there is a dull passage of play during a cricket match, commentators fervently say, “something has got to give!” Over the past year or so, that feeling was being increasingly felt ab­out Infosys Limited, the country’s second biggest IT services exporter, considering the not-so-cordial relations between the company’s founder N R Narayana Murthy and its CEO and present board, with Vishal Sikka coming in for attacks particularly.

On August 18, Sikka resigned as CEO after three years with Infosys. The bourses have been informed that the resignation was primarily due to the differences between Murthy and Sikka. Although he has since been given the nice-sounding designation of Executive Vice-Chairman, it appears to be only a matter of time before he parts company with Infosys. A lot has been written and spoken about this unfortunate episode. But perhaps we should take a different perspective, avoiding getting too deep into the intricacies of the charges levelled at each other by the warring factions.

Such ugly episodes should not happen in any company; and certainly not at Infosys. This is the company that showed India what world-class corporate governance is, adopted international accounting standards much before a roadmap to transition to it was laid down in India, showcased the true meaning of an independent director on the board, and did not hesitate to disclose a sexual harassment case against one of its star executives. This is a company that handled allegations about misuse of visa programmes with maturity.

There can be no two opinions that within the walls of its many offices, many less critical issues that have not been reported in public have been handled with the same fair principles. Regulators were so happy with these principles that Murthy was even made the chairman of a committee on corporate governance. It is disappointing that a company with such stellar principles is in a situation where dirty linen is being washed in public.

It should be remembered that Vishal Sikka was the first non-founder to be appointed CEO. Till then, all the founders had taken turns in occupying the corner office at Infosys. In hindsight, it is easy to conclude that the decision to appoint Sikka was erroneous since the main reason for the differences of opinions seems to be a clash of cultures.

Infosys has never been a flashy software company — an internal CEO would have appeared par for the course. For a company that has done so well, if there is one regret the founders may have today, it could be that they did not nurture a person internally to lead the company after the founders decided to leave. After all, it has always had great leadership talent within the company and one of them could have been groomed to take over in 2014. The company lost a lot of talented managers — some of them contenders for CEO — after Sikka was appointed.

Trusting the insider

If news reports are to be believed, it appears that the next CEO of Infosys would be an insider who has been there and done that, so to say, at Infosys. If a survey is done comparing the tenures of an internal CEO and one chosen from outside at several companies, it will doubtless show that CEOs who have risen through a company’s ranks last longer in the top job. Many Indian companies such as ITC stand testimony to this — a fact that Infosys should not overlook again.

The differences of opinion between Murthy and Sikka seem to have been over three major issues — the acquisition of Panaya, the termination benefits paid to a former CFO, and Sikka’s own compensation package. The Infosys Board can probably give a single common response to all these issues by stating that these are routine transactional issues that the Board is aware of and has responded to appropriately.

Acquisitions are almost a natural thing these days for companies in the services sector. One of the risks of disclosing too much information on acquisitions is that it is exactly the fodder that competition is waiting to chew on. Investigation reports are covered with a lot of disclaimers and filled with technical jargon — it is going to be difficult for any shareholder to understand such complicated reports.

The termination benefits paid to a form­er CFO and Sikka’s salary should be easy to explain for an entity whose main cost is the salaries of employees. Companies disclose tons of information on employee compensation these days and shareholders have a right to question if they are of the opinion that a person does not deserve the salary he is drawing. Shareholders normally reach such a conclusion about the CEO if they are of the opinion that he has been responsible for destroying shareholder wealth — something that Sikka is not guilty of.

What seems to have irked Sikka the most seems to be a statement that a few of the board directors thought that he was fit for a technology role but not for CEO. This is an opinion, the merits of which the board should have decided based on Sikka’s performance as CEO.

Now that this episode has reached a conclusion of sorts, all the parties involved should move on. Infosys should consider this an unnecessary distraction but one that happened nevertheless, learn its lessons and focus on performing in a changing and challenging business environment. It would help if the company has a couple of years of quiet and steady growth, without such dramatic events as we have seen over the past few days.

(The writer is a Bengaluru-based chartered accountant)