Cor­po­rate Af­fairs

As Nan­dan Nilekani re­turns to a badly-bruised In­fosys, all eyes are on the tech­no­crat to in­fuse change within the con­fines of the IT com­pany's core cul­ture.

India Business Journal - - CONTENTS - IBJ BU­REAU

Nilekani's Chal­lenges: As Nan­dan Nilekani re­turns to a badly-bruised In­fosys, all eyes are on the tech­no­crat to in­fuse change within the con­fines of the IT com­pany's core cul­ture.

In­fosys co-founders led by N R Narayana Murthy have staged a dra­matic coup. They have got fel­low founder Nan­dan Nilekani ap­pointed the chair­man of the soft­ware ser­vices com­pany in place of R Se­shasayee, who quit un­der their pres­sure in late Au­gust.

In­fosys Co-Chair­man Ravi Venkate­san has also re­signed, al­though he will con­tinue as an in­de­pen­dent di­rec­tor of the com­pany. Two other in­de­pen­dent directors - Jef­fery S Lehman and John Etchemendy have quit the In­fosys board with im­me­di­ate ef­fect. The res­ig­na­tions have brought about a near-com­plete over­haul of the nine-mem­ber In­fosys board, meet­ing key and per­sis­tent de­mands of the founders led by Mr Murthy.

The Ben­galuru-head­quar­tered com­pany faced a lead­er­ship cri­sis after Vishal Sikka, the first non-founder chief ex­ec­u­tive of In­fosys, quit abruptly on Au­gust 18, blam­ing founders for slan­der. On the same day, the In­fosys board, in an un­usual move, made a scathing at­tack on Mr Murthy, blam­ing his "mis­guided cam­paign" for Mr Sikka's res­ig­na­tion. U B Pravin Rao, who was named in­terim CEO after Mr Sikka's exit, will con­tinue in his cur­rent po­si­tion till a per­ma­nent CEO and MD is iden­ti­fied.

Mr Sikka, who was ap­pointed ex­ec­u­tive vice-chair­man after he quit as its CEO to over­see the tran­si­tion and ap­point­ment of his suc­ces­sor, has been re­lieved of his re­spon­si­bil­i­ties as the tran­si­tion has been ex­pe­dited with the ap­point­ment of Mr Nilekani. In­fosys has added that the board has de­cided to re­lieve Mr Sikka of his re­spon­si­bil­i­ties by pay­ing the con­trac­tual 90 days' base pay of $246,575, a vari­able pay of $205,572 and com­pany-paid em­ployee ben­e­fits for 90 days in lieu of no­tice. "All eq­uity awards out­stand­ing as on sep­a­ra­tion date to the ex­tent such awards are un­vested will ter­mi­nate on the date of sep­a­ra­tion," In­fosys has said in a state­ment.

Se­ri­ous is­sues

Mr Murthy and other former ex­ec­u­tives, like V Balakr­ish­nan, the former CFO of the IT com­pany, had in­sisted that their con­cerns for past sev­eral months per­tained to al­leged lapses in cor­po­rate gov­er­nance, in­clud­ing ir­reg­u­lar­i­ties in the $200-mil­lion ac­qui­si­tion of Is­raeli com­pany Panaya in 2015. They were de­mand­ing that In­fosys make pub­lic an au­dit re­port it had com­mis­sioned on the ac­qui­si­tion of Is­raeli com­pany Panaya. They were also ques­tion­ing gov­er­nance is­sues in the com­pany, such as huge sev­er­ance pay given to former CFO Ra­jiv Bansal and the salary hike to Mr Sikka.

The deal be­came con­tro­ver­sial after two anony­mous let­ters in Fe­bru­ary 2017 al­leged wrong­do­ing in some of In­fosys' ac­qui­si­tions, in­clud­ing Panaya. The let­ters had also raised is­sues, such as im­proper con­tract­ing and CEO com­pen­sa­tion as well as ex­pen­di­tures.

After the al­le­ga­tions, the com­pany had in­sti­tuted an in­de­pen­dent foren­sic in­ves­ti­ga­tion by US law firm Gib­son Dunn & Crutcher. The results of the probe that came out in July re­port­edly gave a clean chit to In­fosys' top man­age­ment on the deal. In­fosys has made pub­lic only the sum­mary of the find­ings, and Mr Murthy and other founders were de­mand­ing that the en­tire re­port be made pub­lic.

Mr Trou­bleshooter

Mr Nilekani's re­turn to In­fosys as non-ex­ec­u­tive chair­man is the best thing that could have hap­pened to the

be­lea­guered com­pany after the exit of Mr Sikka. It is a bril­liant move, and it can draw upon the im­mense good­will and ac­knowl­edged skills of Mr Nilekani for the ben­e­fit of In­fosys. In­fosys needed to do some­thing quickly to re­as­sure cus­tomers, in­vestors and em­ploy­ees, and it ap­pears to have done the best in bring­ing back Mr Nilekani.

In fact, a dozen in­sti­tu­tional in­vestors, in­clud­ing HDFC As­set Man­age­ment, ICICI Pru­den­tial As­set Man­age­ment and Birla SunLife As­set Man­age­ment, who to­gether own roughly 10 per cent of In­fosys' shares, had writ­ten to the board ear­lier seek­ing re­turn of Mr Nilekani. They had ar­gued that Mr Nilekani en­joyed the con­fi­dence of clients, share­hold­ers and em­ploy­ees.

In a com­mu­ni­ca­tion to stock ex­changes and the me­dia in late Au­gust, In­fosys had said that its board of directors had "unan­i­mously" ap­proved Mr Nilekani's ap­point­ment, terming him an "iconic leader".

Mr Se­shasayee, whose res­ig­na­tion, along with those of other key ex­ec­u­tives, in­clud­ing Mr Sikka, has been ac­cepted by the board, has said, "Nan­dan is an ideal leader for In­fosys at this stage in the com­pany's de­vel­op­ment. His ap­point­ment will al­low In­fosys to fo­cus on strate­gic changes it needs to make in or­der to cap­i­talise on the at­trac­tive op­por­tu­ni­ties in the years ahead."

Mr Nilekani's ex­per­tise is cer­tainly not ex­ag­ger­ated. The 62-year-old tech­no­crat was CEO of In­fosys be­tween 2002 and 2007. He is also cred­ited as the ar­chi­tect of Aad­haar, the world's largest bio­met­ric iden­tity card pro­gramme. Un­der Mr Nilekani, In­fosys had seen a 42 per cent growth in dol­lar rev­enue. Be­sides, he is seen as some­one who the co-founders, led by Mr Murthy, will lis­ten to and one who can re­store or­der in the em­bat­tled com­pany.

Mr Nilekani had fought the last Lok Sabha elec­tion in 2014 from Ben­galuru on a Congress ticket and had lost. Yet, he was made an ad­viser by the Naren­dra Modi gov­ern­ment to over­see the drive for a less-cash econ­omy after de­mon­eti­sa­tion last Novem­ber. Con­sid­ered an ex­e­cu­tion man, Mr Nilekani was the one who rolled out the Aad­haar, In­dia's big­gest tech­nol­ogy project, un­der the pre­vi­ous UPA gov­ern­ment.

Mr Nilekani, who had main­tained a stud­ied si­lence all through the lead­er­ship cri­sis pe­riod, has said that he is happy to re­turn to In­fosys, now in the role of non-ex­ec­u­tive chair­man. Back in the sad­dle, Mr Nilekani faces a slew of chal­lenges to take In­fosys back to the years of glory.

The IT ser­vices com­pany has been bruised by a tus­sle be­tween its former board mem­bers and Mr Murthy. In fact, the com­pany has failed to progress be­yond its core ac­tiv­ity as a wage ar­bi­trageur for IT ser­vices. It has few tech­nolo­gies of its own and lacks a high-value con­sul­tancy team. Mr Sikka was im­ported to whip In­fosys into shape and make good use of its cash pile. Un­der him, In­fosys man­aged to boost its rev­enues per em­ployee from the $50,000 mark, where it was stuck with TCS and Wipro, closer to the $65,000 level of HCL. Share­hold­ers were hap­pier, but In­fosys' con­ser­va­tive pro­mot­ers ap­pear to have not ad­justed to ex­trav­a­gant pay and sev­er­ance pack­ages, ac­qui­si­tion costs and char­tered flights that came with the new CEO. Mr Sikka's de­par­ture with much of the board owes less to their per­for­mance, mea­sured by in­vestors' con­fi­dence, and more to a clash of cul­tures be­tween founders and glob­alised man­agers.

Mr Nilekani for­tu­nately un­der­stands the cul­ture at In­fosys. This makes it sim­pler for him to con­tinue the sys­temic changes Mr Sikka in­tro­duced to raise rev­enue per em­ployee with­out rub­bing the founders the wrong way. The chal­lenge is to in­fuse this change within the con­fines of In­fosys' core cul­ture. The other big chal­lenge, of course, is deal­ing with the Panaya af­fair and cor­po­rate gov­er­nance is­sues.

In­fosys, which seemed to go the Tata Group way - rag­ing bat­tle be­tween the CEO and the pro­moter group - ap­pears to have de­fused the cor­po­rate cri­sis for now by bring­ing back Mr Nilekani.

Vishal Sikka's de­par­ture owes more to a clash of cul­tures be­tween founders and glob­alised man­agers. N Murthy

In­fosys has sadly failed to progress be­yond its core ac­tiv­ity as a wage ar­bi­trageur for IT ser­vices.

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