Less than two weeks back, Infosys – one among the top three IT companies of India [Tata Consultancy Services and Cognizant Technology Solutions being the other two] – got a big jolt when its chief executive officer [CEO] and Managing Director [MD], Vishal Sikka submitted his resignation.
After being run by promoters for over three-and-a-half decade, in June, 2014, he was brought in as the first ever professional to commandeer the ship. The change was driven by the compelling need to leverage new technologies viz. data analytics, automation, cloud computing and artificial intelligence for driving growth under a competitive environment which Sikka was best positioned to do.
Pertinently, his induction was orchestrated by Infosys founder and the iconic figure Narayana Murthy. Indeed, his exit too has been orchestrated by none other than Murthy himself.
Murthy was critical of declining standards of corporate governance under the new management. He reached this conclusion primarily on the basis of three alleged wrongdoings that have hogged media for over an year viz. (i) disproportionately high salary given to CEO and other members of top management team; (ii) irregularities in acquisition of an Israel company that involved an outgo of about US$ 200 million; (iii) unusually high severance package given to an ex-CFO allegedly to buy his silence on irregularities under (ii).
One is aghast at the mentioned allegations. Since when, the salary of a CEO has become an issue of corporate governance? Whether the amount is more or less, it is entirely the prerogative of the board. Even so, within the remuneration package drawn by Sikka, a major component is variable pay linked to performance. Moreover, comparison of his package with those of predecessors [made by Team Murthy to drive home its charge] is not fair as the latter were all promoters getting a share in profits [in addition to salary] unlike the former who being a professional gets salary only.
As regards (ii) and (iii), the Infosys board got an investigation done by an international agency which saw no irregularities in the transaction. Still, if there are any doubts, further probe by the regulator viz. Securities and Exchange Board of India [SEBI] can unravel the truth. In fact, SEBI can take suo motu cognizance of the developments and conduct the investigation if prima facie, it believes that excess payments were made.
Clearly, it was an attempt to make a mountain out of a mole. Forget any deficiency in governance, under Sikka, Infosys was on its way to metamorphosing in to a US$ 20 billion company by 2020 from current US$ 10 billion – based on a mix of organic and inorganic growth and carefully crafted capital allocation strategy. Then, what prompted Murthy to stage a coup forcing Sikka’s ouster.
This may perhaps, have to do with Murthy having second thoughts [belatedly though] over relinquishing control; something, which family owned industrial/business houses never do. Indeed, the latter even when they do [invariably, towards the end of their life term], they pass on the baton to their sons/daughters.
The happenings at Infosys have a parallel in developments last year in the Tata Group. In October, 2016, Cyrus Mistry the then Chairman, Tata Sons – a holding company of dozens of Tata group companies – faced an unceremonious exit. He was removed by moving a resolution under ‘any other item’ in the agenda of Tata Sons board meeting. What makes it even more appalling is that he was not even given an opportunity to defend himself, violating principles of natural justice!
The elevation of Mistry to the position of Chairman in 2012 – after remaining on its board for several years prior to that – was planned and orchestrated by iconic Ratan Tata [RT]. 4 years thereafter, his exit too was orchestrated by none other than RT.
RT took umbrage to review by Mistry of past decisions [taken under his dispensation] such as buy-out of Corus Group [2007] and attempts to reduce un-sustainable high level of debt were viewed as tantamount to working out of sync with ‘ethos’ and ‘culture’ of the group or losing the trust of owners. In short, Mistry was charged of having lost the confidence of promoter/shareholder [read dominant].
There are stark similarities in happenings at these top two corporate. Thus, CEO/Chairman at Infosys/Tata Sons were removed/sacked by the very iconic figures [read: RT/Murthy] who brought them in. Both were charged of deteriorating standards of corporate governance besides being at loggerheads with promoters. And, promoters/owners at each showed demonstrable instincts of wresting control but with a slight difference in the approach.
At Tata Sons, RT had hatched a pre-meditated plan to keep Mistry ‘lame duck’ from the day one. During almost one-and-a-half century of Tata empire, a person appointed as chairman of Tata Sons ‘automatically’ became chairman of Tata Trusts [it has 67% shares in Tata Sons]. But, in this case, RT continued to be in command of the latter even after Mistry was made head of former. Clearly, the intent was to run the conglomerate via remote control.
In short, RT never disappeared from the scene and continued to manage the affairs in terms of policy direction as well as day to day functioning. There were glaring instances of gross interference and financial irregularities [for instance, Tata’s foray in to airlines is under investigation for alleged corruption and money laundering]. When, Mistry asserted and things came to a head-on collision, he had to face an unceremonious exit.
In contrast, when Murthy exit Infosys, he divested a good portion of his already limited shareholding which [unlike Tata] was nowhere near majority mark. Yet, after an interregnum of 3 years, he resurrected his ambition of wresting control. This was realized by running an orchestrated campaign in the media [even leveraging his public stature] to create a perception against Sikka.
Murthy [just like RT] may have succeeded in his game plan [besides Sikka, the Chairman, Seshasayee and three other directors have resigned] with his co-founder Nandan Nilekani having taken charge who will now spearhead search for a new CEO. The old guard may still be able to stabilize things and recuperate the loss of wealth shareholders suffered [a dip of about Rs 30,000 crores in market capitalization following Sikka’s exit].
But, a new transformative experiment of handing over the baton to professionals to commandeer the ship has crashed even before it starts sailing. If, it cannot succeed at a company like Infosys that is known for trying new ideas, then hopes of such a thing happening at other corporate are very dim.