Lessons from the infosys saga
Its CEO stayed an outsider geographically and otherwise
Adivided board, a visionary US-based CEO, a company in the throes of change and an industry in the midst of disruption, a founder unable and unwilling to let go, allegations of scandals and wrongdoing and hush money – the Infosys saga sounds like a boardroom mash-up of House of Cards and Game of Thrones. As the company starts to look for a new CEO and the stock nurses its bruises after losing almost 10% on Friday, it is important to look at the lessons from India’s latest corporate drama.
The first lesson is on the importance of cultural fit. Infosys was founded in 1981. It had four CEOs till 2014, all co-founders. For 33 years, the company was run in a particular way by the four CEOs who, despite differences, shared the same values. And then, in 2014, it hired an outsider as CEO and agreed to let him continue to be based outside India. Did he assimilate enough? Or did he remain an outsider – geographically and otherwise?
The second lesson is on letting go. At some family-managed businesses, family members who run the business never really have to worry about letting go. When they do let go, it is to a biological relative. In contrast, at board-run, professionally managed companies, there is no question of chairpersons or CEOs not letting go once their term is over. Infosys is neither. For long, it was a promoter-managed, albeit widely held company. And even after they stopped managing it, the promoters continued to be influential shareholders, holding around 12% of the company’s equity. Some of them, it now emerges, never stopped thinking of Infosys as anything but their company.
The third, and by far, most important lesson from l’affaire Infosys, though is on the role of the board. A board’s primary concern should be the company’s shareholders; its primary focus, governance and compliance. It is also essential that the board figure out a way to engage and deal with the promoters of the company should they choose not to sit on it. A good board shouldn’t become the B-team of a company’s management nor a hostage of large and influential shareholders. The Infosys board may have been first one, then another, and then, caught in the middle and divided, to boot.