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.
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.
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 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.