Meeting founders' expectations key challenge for next Infy CEO
Sikka’s resignation is expected to impact the firm’s operations in the near-term. The relation between at least one founder N R Narayana Murthy and the board is at the lowest level after Friday’s exchange of words. Clients and investors would be worried, and there is a possibility that the work force will be demotivated, RAM PRASAD SAHU reports
The unexpected resignation of Infosys MD & CEO Vishal Sikka is expected to impact the company’s operations in the near-term, given the uncertainty of leadership. The relation between at least one founder N R Narayana Murthy and the board is at the lowest level after today’s exchange of words. In this backdrop, both clients and investors would be worried, and there is a possibility that the 200,000-strong workforce would be demotivated, which could be a major problem for a services company.
Stakeholders are concerned about the ongoing spat between the board and founders continuing and the management’s indication in the investors’ call that “there was no guarantee that it will be sorted out” does not give them confidence. The tussle between the board and the founders could delay the process of selecting a new head. Sikka has quit the company at a time when the software industry is facing major headwinds as the traditional software business is facing demand challenges and pricing pressure while the Indian information technology (IT) players are yet to mark their presence in the high growth areas of artificial intelligence, automation, digital and cloud. Sikka had got the company started on the transformation path to the new areas and the analyst community is worried that there could be some hiccups.
Besides navigating the difficult business environment, Sikka’s successor has to also meet the founders’ expectations, which Sikka was unable to. Though the shareholding of the five founders and their families is at 12.75 per cent, the CEO and the board are likely to get questions from the founders which they will need to answer.
While the company, in an investors’ call, indicated there would be continuity in the business plan, investors are jittery about the near-term fallout from the leadership vacuum till a new CEO is confirmed. U B Pravin Rao, the company’s chief operating officer, has been appointed interim CEO. On the CEO’s appointment, Infosys chairman Ravi Venkatesh told analysts on Friday, “We need a person with a transformational mindset to share this vision. We cannot afford to do a reset on the strategy or go back. The leader has to be like Vishal was and is.” For the board, finding the right candidate is going to be a task. “It's going to be not just important but challenging to find the right candidate,” said Venkatesh. Finding Sikka was also not an easy task, and Murthy had to come back after SD Shibulal’s term ended.
Emkay’s Rahul Jain and Ruchi Burde believe the resignation will impact the company’s financial performance in the short- to medium-term. While there could be short-term blips on business growth, the important parameter, according to analysts, is any employee exits especially in the senior management team in the wake of Sikka’s resignation.
While analysts such as Sarabjit Kour Nangra of Angel Broking say some attrition could happen, the transition period will be key and the company’s ability to get a CEO who could deliver in a tough environment. Otherwise, growth will suffer. The board assuaged some of the concerns saying Sikka would continue as executive vice-chairman till March 2018. Sikka said he and Rao would be talking to the top 100 clients starting this weekend, explaining the transition process and giving them confidence about business continuity.
Investors are going to keep a close tab on company’s ability to meet its constant currency revenue guidance of 6.5-8.5 per cent growth for FY18. Given the challenges on slowdown in client spending and business uncertainty, the company was forced to cut its guidance thrice last financial year.
While there could be a slowdown in new business, over the next couple of quarters, current client commitments and deliveries will not be impacted, said analysts. The board will meet on Saturday to discuss the ~13,000-crore buyback, which could provide a ray of hope for investors.