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Murthy’s questions on Infosys are our questions

Jagdish Rattanani

Author: Jagdish Rattanani

Date: Mon, 2017-09-04 10:14

Infosys has been the crown jewel of the Indian corporate sector, a mascot for growth driven by values. The story of how the founders and particularly N R Narayana Murthy built Infosys and gave the company its unique culture and status in the Indian mind-set has been told again and again. It has inspired a new generation of managers and leaders, and remains living proof of the fact that it is possible to build a world class enterprise in India by doing business the right way.

So the events at Infosys and the noise created by the sudden exit of its CEO should bother us all. At one level, the events challenged the promise that companies built like Infosys can grow and thrive. At another, the conflicting signals emanating from within the corporation raised doubts in many minds, particularly when the dissonance was presented in the frame of the old versus the new, or the founder(s) versus change, dynamism and innovation. At a deeper level, the huge questions on governance signal just how soon even a corporation cut in the mould of Infosys can slide. The return of one of the founders and the former CEO, Nandan Nilekani, as the non-executive chairman should bring some comfort but it cannot wish away the many questions raised by the sordid drama that has played out over the past several months.

But away from the noise, it should now be clear to everyone that Narayana Murthy has been consistent in his observations and positions on many of the issues he has chosen to raise on Infosys and its path and functioning under its first non-founder CEO. In fact, these are the very issues that contributed to the iconic status of the company. Murthy has always come across as a voice for transparency and is known for going the extra mile in releasing information. This has been captured in an iconic quote from him dating back several years: “When in doubt, disclose.”  The words represent a philosophy that is an intangible asset; it builds wealth at Infosys.

In this light, take the demand for the release of the report of investigations into Infosys's acquisition of the Israeli software company Panaya, Inc, a provider of automation software, in March 2015 for 200 million USD.  Infosys denied “malicious allegations” flagged in a letter by an anonymous whistleblower that came to light in February 2017. It would be fair to accept and believe what the company has stated in its defence, given the robust internal systems that Infosys is reputed or believed to have had. But no one can question, doubt or suspect the motives of Narayana Murthy’s demand that the report of a company-ordered investigation into the acquisition be made public.

This is perfectly in sync with what Murthy has always stood for and stated often. In fact, it is a principle that no one should have any doubt adopting. What was praised and promoted as good governance for the Murthy-era cannot today become undesirable just because Murthy speaks from outside the company. The same can be said about Murthy’s position on the “huge” severance package (reported at Rs. 23 crore) offered to its CFO and his questions about why such a package was offered when the culture of the company has been very different.  In fact, no one in Indian corporate history has been paid 30 months of severance pay, as Murthy has pointed out. This is again a classic-Murthy stance. Way back in 2012, Murthy has been quoted as saying: “The board should decide the compensation…based on three factors: fairness, transparency and accountability. Fairness in deciding the compensation of the CEO with respect to the compensation of the lowest level professional is very important.”

These are strong value positions that needed to be debated and discussed and cannot be dismissed lightly as the board under the previous chairman sought to do. The answer cannot be, as was being suggested in some quarters, that Murthy and his ilk wanted to hold on to power, that they could not let go or that they were unsuited for change and caught in a time warp. These are distractions that have taken away from the very strong, powerful and valuable positions that Infosys has been built on and indeed every Indian, let alone Murthy, has a right to ask these questions and seek answers.

They go at the heart of not only the way the India growth story must evolve but also the purpose and meaning of an accelerated growth trajectory in a country where the vast majority are still poor. The question on whether these are the ways Indian corporate leaders must function and reward themselves points to the larger worries on growth going haywire, benefiting a few at the cost of many. This builds a culture of greed and triggers behaviour of a kind that has eroded the trust of ordinary citizens in modern day business empires. Infosys does not belong there. The worry is how close the company came to being taken over by a culture that was alien to it and in fact alien to all that the Indian corporate sector must stand for.

 

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Dear Sir, I appreciate the points made in support of the value system that had been so stressed upon at Infosys right from the days of Narayana Murthy. But I would also like to remind how Infosys had been struggling to find proper CEO level material for quite some time before they managed to land Mr. Vishal Sikka. Mr. Murthy had major issues with the compensation offered at the higher levels and the cost of the company acquisitions but to be very pragmatic, we are into an era of disruptions where there seems to be a marked gap in terms of skilled professionals at the highest levels and it takes some doing on part of companies to land the best of talents. It is a critical stage for IT companies in particular that too the ones based out of India as we move out of legacy technology based offerings where most of the base level work of companies based out of USA would get ‘Bangalored’/outsourced previously. We are very much into a transitionary phase where newer technologies like IOT, AI, machine learning are set to completely wreak havoc with the existing business models, organizational structures and employee requirements. In order to steer clear in these turbulent times, the Indian companies need strong and visionary leaders who have the foresight to go for skill building of existing workforces, adopting newer technologies and platforms or else they risk disappearing into the abyss like so many famous companies over the years. Cases in point are the likes of Kodak and Nokia who went from boom to bust in dramatically short periods of time just because of the fact that they focussed more on their existing values and belief systems instead of challenging those and venturing out into the unknown. Thus it is pertinent that companies focus more on linking compensation with performance and delivery. And that was Mr. Sikka had exactly tried to do the same with some significant acquisitions and technology adoptions which were slowly turning Infosys more into a product based company or lets just say one with more distributed offerings spread across both product and service categories. Infosys was starting to move higher up the value chain by moving beyond traditional support and maintenance based projects to landing newer ones based on fintech, automation and AI. This recent saga now puts the breaks not only in these significant advancements made by the company but also does severe damage to the perception where the company just couldn’t let go of its older mindsets and adapt with changing demands. Investor confidence and employee morale are also set to take a major hit now and it will be tough for the company to land new projects in these times of uncertainty. Infosys has decided to let go with the old guard by getting Mr. Nandan Nilekani back on a temporary basis but it will be interesting to see how they manage to get someone for the long term and get the company back on track.

(please note some minor corrections in previous comment) *And that was exactly what Mr. Sikka was trying to do *Infosys was trying to *Infosys has decided to go with

The buzz around corporate governance at Infosys has been doing the rounds for some time now. Although a lot of tech-savvy jargons like design thinking, artificial intelligence etc. have been associated with Infosys since Mr.Sikka took over, the controversy over the deteriorating corporate governance was an issue that the company could not get off its back. Being a former employee of the organization, I have witnessed enough instances to corroborate my stance that the questions raised by Mr.Murthy are pertinent and need to be dealt with care. Employees in an organization need to be incentivized in order to be adequately motivated in achieving their targets. The high difference between the compensation of the CEO and the lowest level professional had created a widespread dissonance across the organization. In an organization which claimed to be driven by values, such dissonance haschallenged the basic premise of the values on which it is built. It can be safely stated that the questions raised by Mr. Murthy resonated well with the majority of the professionals across the organization. Although some of the changes in innovation and operating style, like flexibility of dress code and work from home, were appreciated by one and all,but the compensation structure and the matter of the huge severance package of the CFO failed to garner the confidence and support of the professionals. Under Murthy’s leadership, Infosys had earned its name in the market for maintaining a high level of corporate governance by practising transparency in its transactions. The deteriorating levels of corporate governance hasled to unnecessary gossip and discussion amongst the professionals, either during tea breaks or over lunch. These discussions do nothing but lower the morale of a professionals and deter them from effectively contributing to their work. An organization is bound to fail if the workforce is in doubt regarding the path the organization is heading to. This discord and dissonance in turn leads to higher attrition rates and leaves the existing workforce in a disgruntled state. Thus, I think it is time that Infosys returns to its roots and strive towards attaining its lost lustre by restoring the high level of corporate governance for which it was known. It would be a mistake on the part of the organization to attribute the questions raised by Mr. Murthy as merely a battle for retaining power. Being a founder of this organization, he surely has the best interests of the company at heart and he hits the bull’s eye with his line of thought – “When in doubt, disclose”. An organization can prosper and grow by ensuring that professionals from the lowest to the highest level are satisfied with the environment they work in. Hence, I believe that the above article beautifully captures the pangs of the conflicts going on at Infosys and the impact it is having on the overall image of the organization in the market. It is also right to state that the questions being posed by Mr. Murthy are not exclusive to him but is the general sentiment of the majority associated with the organization in any manner.

The resignation of Mr.Vishal Sikka brought to limelight some of the deep rooted questions surrounding the entrepreneurial environment. Infosys, founded by a group of like-minded people headed by Narayan Murthy, as rightly pointed out by sir, was looked upon as a benchmark for corporate governance. Mr. Murthy has been consistent on going back to his core values of transparency and ensuring that Infosys despite the competition in the market would not resort to unfair means to achieve success. In fact, it was a standout factor as far as working of Infosys is concerned. But then what has changed over the period of time is the fact that as the leadership of the organization changes, some new changes are brought in with a fresh perspective, those thoughts should be given room to bloom. Vishal Sikka, when joined Infosys, was considered as the ideal candidate given his focus on innovation and passion to take the firm forward and venture into new avenues. It seems that his ways of working did not go down well with the founders, who constantly have pointed out the dilution of corporate governance standards of the company under his leadership. It is fair on the part of the founder members to be on a lookout for the firm they built and point out irregularities. But is Mr. Murthy’s stand and his approach to the whole situation transparent enough? I would say let’s look at the other side of the story too. The Infosys board has been constantly pointing out how Mr. Murthy has been bullying them into his decisions taking advantage of the influence he has over the company. This makes an outsider, a stakeholder in the company think that is it difficult for the founders to “cut the umbilical cords” to the firm once they leave the firm and let the board work independently. I am not implying that the founders should not at all intervene in the working of the firm. They are a crucial part when it comes to keeping a check on the working & guiding the firm when needed. But putting a chip on the board’s shoulder about the fact that always being scrutinized and openly criticized for their actions in my view limits their ability to act in best of interests. I think Mr. Murthy’s alleged open criticism of the board did not send out a positive message to the stakeholders and the employees which create a sense of confusion. Corporate governance and transparency are things which cannot be compromised on, agreed, but neither can the image of a firm as large as Infosys, which is an inspiration in every aspect, be clouded with skepticism.

Having worked in Infosys for 3 years and seen the appointment of Vishal Sikka as one of the employees at the bottom of the pyramid, my take on the developments differ from yours. I feel that the way in which Sikka left the organization was unfortunate and that Narayana Murthy could have done better than trying to orchestrate the situation in public view. At the very outset, it is important to recognize the context in which the entire boardroom saga played out. In 2014, Infosys was lagging under the leadership of SD Shibulal, both in revenue growth and employee morale. There wasn’t any significant differentiation in the service offerings and Infosys was not willing to match the cost leadership shown by competitors thus losing key clients and market share. Employee morale was at an all-time low. When Vishal Sikka was brought in there was palpable excitement in the workforce about changes in the organization which would once again make them feel proud of it. Vishal Sikka had outstanding credentials. He was the architect of the revival of SAP Labs through their latest offering, HANA, an in-memory database that he had conceived. Furthermore, in the age of the diminishing value of the cost arbitrage model followed by Indian IT services firms, he was the ideal person to drive a vertical growth in the value chain. He started off promisingly by bringing several vaunted leaders from SAP, launching new service lines and completing promising acquisitions. In the meanwhile, the founders including Murthy had requested that they be notified as ordinary shareholders of the company. This was important because it signalled to the board and to the world that the founders would not be meddling in the affairs of the organization and give carte blanche to Vishal to carry out his agenda. With this freedom and vote of confidence Sikka went about setting an ambitious target of $20 billion in revenue by 2020. Despite the industry growth slowing down, Infosys gave market estimate beating results quarter after quarter through a mix of inorganic and organic growth. When ex-CFO Rajiv Bansal received an unprecedented severance package and a whistle-blower reported that apparently there were irregularities in the acquisition of Israeli firm Panaya, Murthy, who till that point was all praise for Sikka, suddenly came out and started pressing for independent investigation. The board obliged despite Murthy being a minority shareholder due to his stature as the founder. Murthy asked for his representative on the board resulting in D. N. Prahlad’s appointment. Murthy wanted a co-chair of the board and Ravi Venkatesan got the job. All of this happened because Murthy’s perception that there was a lack of corporate governance due to Panaya deal and Bansal’s severance which was repudiated by an independent investigation. The board had no legal obligation to heed his concerns which had been made public unnecessarily but it did. Even after this Murthy continued to attack Sikka and the board and undermined Sikka’s position in public over media. At the end, Sikka resigned and the company is back in the hands of Nilekani, co-founder and trusted by Murthy. The question that begs to be asked at this juncture is that will Infosys be able to get another competent CEO who knows he might get a similar treatment if some decision he takes does not sit well with the founders and whether it was a prudent move on Murthy’s part to play this out in public and leave the company with the unenviable task of starting the rejuvenation process over.

Dear Sir, I find this article extremely pertinent with regards to corporate governance issues that India Inc. faces. Infosys’ case comes close on the heels of a storm that hit the Tata group in October, 2016. Cyrus Mistry’s unceremonious ouster was a shock to many and raised a lot of questions about the hierarchy and power structure of the Tata Group. Noticeably, Tata Sons’ and Tata Trusts’ corporate governance improprieties have also come under the scanner. Tata group has been associated with values such as integrity and trust since time immemorial. However, power structure at Tata’s has always been skewed, with Tata Trusts holding a controlling stake of around 66% in Tata Sons and other group companies. This, coupled with questions on independence of the independent directors, insider trading allegations cannot be cast aside easily by either investors or corporates. The 149-year-old conglomerate’s decision of sacking Mistry without as much as an interim notice is totally contradictory with their claims of transparency in decision-making and governance processes. On the face of it, one might say that the case at Infosys is completely different from the Tata turmoil. One is about the CEO resigning from the firm of his own accord and the other more of a case of being kept in the dark and kicked out. However, if we look at the finer lines, there are a lot of parallels. Murthy questioned the severance package shelled out to Infy’s CFO; Mistry raised concerns about continuing operations of Nano on emotional grounds despite losses of around 1000 crores. Murthy unabashedly raised questions on corporate governance and the affidavit filed by Cyrus Mistry too raised allegations of ill corporate governance practices in place. Quoting an article in The Economist’s print edition, my point of view resonates with the statement “In India, “good corporate governance” is often used as a euphemism for “not being crooked”. Upholding the fundamental values of the group seems to have become a pain by and large for most corporates. Cases as big as Tata and Infosys are exposed in the limelight due to their sheer presence in the market, but a lot of small instances get brushed under the carpet and brought to a close. Corporates do have a responsibility towards the investors and the minority stakeholder. As I see it, the brand and reputation hit that these firms take, is one thing. But the hit that investors and minority stakeholders take is completely unacceptable and inappreciable. India Inc. has had enough Satyams, Enrons, Tatas and would do well to cut the chain now. Importance of solid corporate governance cannot be undermined.

It was sad to witness that a person with commendable credentials had to abruptly leave the organization due to a conflict with the company's founders. It was the fight between the old and the new. This management could have been handled in a more professional manner rather than a public assault on the governance of the organization. The most effected, as a result of this public spat, are investor confidence and the employees of the organization. Noticing such an egregious event, the morale of the employees has been lowered. Transparency in an organization is a key feature but it should not hinder the image of a firm as iconic as Infosys. Founders keeping an eye on their organization is totally justifiable, but intervening in the decision making of the board is unacceptable. As stated by one of the stakeholder that it is difficult for the founders to “cut the umbilical cords” to the firm once they leave the firm. No doubt, they are an integral part when it comes to guiding the organization when needed. But there should be only distinct level of involvement. Narayan Murthy, as mentioned by sir, built Infosys with certain ideologies and ethics and made it a brand. One cannot assert that if these ideologies are continued to be practiced it will give prolific results. We can take examples of companies like Nokia and Kodak that were not susceptible to changes and focused more on their existing values, ultimately lead them to their downfall. Before Sikka joined Infosys, the organization was no longer the best IT company in India, losing its place to its counterpart TCS (TATA Consulting Services). The organization failed to lure new projects as in this ever changing world of technology, it was well behind the technology benchmark set in the market. Infosys needed a transformation, it had to be more than just a Service and Maintenance Provider company. On Joining, Sikka took bold initiatives by introducing new technologies to the organization and started walking on a tedious road to make Infosys a product based company. He brought numerous products as well as consulting companies under Infosys, made employee friendly policies like terminating the rule of formal wear and introducing work from home option. Since he took over, the organization witnessed an unexpected growth. He even made publically an ambitious target of generating $20 billion by 2020.There were no doubts on his ability and vision to once again make Infosys the top IT company. If this trend of taming the board by the founders continues then I am afraid it will be hard to find a CEO with a vision of his own.

Dear Sir, Thank You for this thought provoking blog. I find the topic of the blog quite apposite in the present-day scenario & engrossing for an ex Infoscion like me. Infosys – An IT behemoth honoured as the epitome & harbinger of middle class success, transparency & corporate governance benchmarks observed as its first non-founder CEO, Dr Vishal Sikka resigned after allegations of corporate governance lapses. The shares plummeted 10%, wiping out 22000 crores of shareholders wealth & markets tanked 400 points. Although, corporate governance lapses like Satyam Computers Services (2009), Tata Group (2016) & Now Infosys Limited (2017) have rattled the India Inc., the corporate tussle between iconic co-founder & former CEO, Mr N. R. Narayana Murthy & first non-founder MD & CEO Dr Vishal Sikka have left various stakeholders of once IT industry bellwether at loggerheads & embers from the controversies refuse to die down. As an ex Infoscion, I believe Mr. Sikka’s performance & strategy were never at the core of the controversy with the founders. But deep-rooted belief of the founders that the very culture & values that Infosys is known for, were at stake. I feel, my stint at Infosys convinces me of the authenticity & genuineness of the concerns voiced by the founders. Under the leadership of Mr. Vishal Sikka as CEO, Infoscions observed firm’s revenues increase from $8.2 billion to $10 billion, employee turnover down from 23.4% to 16.9%, cash reserves up from $4.9 billion to $6.1 billion. During his stint, industry renowned initiatives like Design Thinking, Zero Bench, Zero Distance, Artificial Intelligence, Automation & Robotics were incorporated into the firm. Although, the results were nowhere near Dr Sikka’s own Goal of $20 Billion revenue target by 2020, these were fairly commendable accomplishments considering industry slowdown, decline in deals from west, change in work visa rules in US etc. However issues pertaining to steep hikes in compensation packages to senior executives including Dr Sikka, lavish severance packages to ex Chief Finance Officer Mr Rajiv Bansal & Chief Compliance Officer David Kennedy, acquisitions of technology firms, Panaya & Skava at undisclosed closed deals, hiring of SAP colleagues at senior roles & steep packages, profligate usages of aviation & foreign offices, non-meritocratic appointments of directors on board, lack of communication & consultations with key stakeholders on crucial decisions were at centre of the corporate tussle. These issues, I believe, did not go well with the fiscally prudent founders, whose brainchild Infosys was known for its benchmarks in financial disclosures, industry standards, delivery models & humongous returns on employee stock options. Although several recommendations by Mr Murthy led promoters like induction of Mr D N Prahlad & Mr Ravi Venkatesan on board, investigation by renowned firm Gibson Dunn & Crutcher LLP on acquisitions were conformed to. However, denial of the board to make the investigation inquiry reports public escalated the conflict. Mired in unpredictability over corporate governance, law suits, CEO search, senior management attrition, future strategy, stakeholder confidence it will be interesting to watch out for how Mr Nandan Nilekani, India’s Aadhaar Man steers Infosys to the Industry bellwether status, regaining the global trust, brand credibility & ensuring founders – board bonhomie.

Having worked in Infosys for nearly two years it pains to see the company in the new headline for a subject that should have never leaked out of the board room. Over the years Infosys has maintained its high standards at corporate governance and transparency making it a reliable and dependable choice for foreign clients. Narayan Murthy along with all the other co-founders are attributed for this success. Despite taking retirement from Infosys, Murthy has always been a guiding angle for the company. In 2014 Narayan Murthy handed over the mantle to Vishal Sikka, but he could not dissociate himself from being the CEO of the company. Statistics says that Vishal Sikka had turned the fortune for Infosys in no time. With his innovative ideas he changed the face of Artifical Intelligence services offered by Infosys, unleashed new horizons with design thinking and zero distance initiative. He transformed the culture from a cost oriented to entrepreneurial oriented delivery system. Amidst these breakthrough innovations there were dissonances budding in the board meetings from Narayan Murthy on the extent of clarity of activities given to the stakeholders. What Narayan Murthy doesn’t realize at this point of time is that having stepped down from the post of CEO he will have to learn to let go. With all due respect to his expertise and intellect he cannot expect to run a public company as a family business. Being a stakeholder he must follow the channel of board meeting or the general meeting to voice his opinion. There is a democratic means of convincing the other shareholders to replace the board for their erroneous moves. Narayan Murthy is having a tough time witnessing any changes in the company that he has built with over the years with his sweat and blood. But can he continue to distract the entire board with his incessant questions and allegations? It is time he trusts the new generation with their decisions and give them autonomy in running the company. They may fumble and make serious mistakes but they will definitely learn from it. The ideologies that worked ten years ago cannot be used in the changing industry condition. The reason that Murthy started discussing the internal matters of Infosys in public was to arouse the other stakeholders against the poor commitment towards the culture of Infosys. Each and every member of the board has been hand-picked by Murthy with the other co-founders. They will have to give merit to the fact that the board is also in support of Vishal Sikka’s modus operandi. Everyone cannot be blinded at the same time. He must act as the grandfather of the company to encourage the new leadership and management and assist them when they feel lost. An open criticism on the decisions of the boards has only brought defamation and chaos to the company and its leaders in the international market. They need to draw a line on what must and must not be talked about in public. I wish to leave you with the question: Is the acorn better than the oak which is its fullness and completion? Corporate Governance and transparency cannot be put at stake but at the same time Infosys as a multinational company cannot afford to undergo a change in members of the board every now and then.

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