CRI­SIS OF CRED­I­BIL­ITY

WITH ITS CO-FOUNDERS RAIS­ING IS­SUES OF COR­PO­RATE GOV­ER­NANCE AT IN­FOSYS, THE IN­FOTECH MA­JOR IS FORCED TO TAKE A HARD LOOK AT THE WAY IT DOES BUSI­NESS

India Today - - INSIDE - In­ter­view with Vishal Sikka

The In­fosys board bat­tles se­ri­ous al­le­ga­tions of fall­ing cor­po­rate gov­er­nance stan­dards.

Never be­fore in his 45-year-old ca­reer has R. Se­shasayee, 68, the soft-spo­ken and reclu­sive chair­man of In­fosys, hogged so much me­dia lime­light. All through his pro­fes­sional life, mostly with au­to­mo­tive ma­jor Ashok Ley­land and as chair­man of In­dusInd Bank since 2007 and as a board mem­ber of ICICI Bank for five years till 2003, he has steered clear of con­tro­ver­sies. But the past few days, per­haps, have been his most chal­leng­ing as he bat­tled ac­cu­sa­tions of lax­ity in cor­po­rate gov­er­nance at In­dia’s sec­ond-largest IT ser­vices com­pany, with its co-founders want­ing to set­tle for noth­ing less than his res­ig­na­tion from the board.

But ‘Sesh’, as close friends and col­leagues call him, is non­plussed. On Fe­bru­ary 13, as the In­fosys board pre­sented it­self be­fore the me­dia for the first time since con­tro­ver­sies shook its seem­ingly un­shake­able ed­i­fice, Se­shasayee wore a con­fi­dent de­meanour, set­ting out to clear the air on a se­ries of al­le­ga­tions against the one-time IT bell­wether, by none other than its iconic co-founders, in­clud­ing for­mer chair­man N.R. Narayana Murthy, for­mer CFO V. Balakr­ish­nan and Mo­han­das Pai, who was part of the early lead­er­ship of the com­pany.

Ad­mit­ting there could have been cul­tural dif­fer­ences be­tween the cur­rent board and the founders, Se­shasayee de­flected ques­tions re­gard­ing the de­mand for his ouster: “There is a board that has re­posed full faith in me and what I am do­ing. As long as I en­joy that faith, I shall con­tinue.” Min­utes af­ter the press meet, re­ports quot­ing Murthy said he was stick­ing to his de­mands (in­clud­ing ap­point­ing a co-chair for In­fosys, in­duct­ing new in­de­pen­dent direc­tors on the board and scru­ti­n­is­ing pay and sev­er­ance pack­ages for top In­fosys ex­ec­u­tives). Balakr­ish­nan in­sisted the In­fosys board had lost cred­i­bil­ity and pressed for Se­shasayee’s re­moval.

At the heart of the prob­lem at In­fosys is a cer­tain ‘ero­sion in val­ues’, al­lege the co-founders. They cite the ex­or­bi­tantly high salary drawn by CEO Vishal Sikka, 49, who was brought in from Ger­man soft­ware com­pany SAP AG in June 2014. Sikka draws $11 mil­lion, or around Rs 74 crore, an­nu­ally, in­clud­ing stock op­tions (re­vised from $7 mil­lion last year). Murthy says this is 2,000 times the en­try-level salary at In­fosys. The pay might cor­re­spond to global stan­dards or could be lower (Mi­crosoft CEO Satya Nadella drew $18 mil­lion in fis­cal 2016), but ac­cord­ing to re­ports, it’s much higher than Sikka’s coun­ter­parts in the in­dus­try—for­mer TCS chief N. Chan­drasekaran was paid Rs 25.6 crore for 2015-16 while Wipro CEO Abidali Neemuch­wala’s an­nual pay was Rs 12 crore.

“When Vishal’s com­pen­sa­tion was raised to $11 mil­lion, the fixed com­po­nent came down from $5.8 mil­lion to $4 mil­lion,” Se­shasayee ex­plained. The vari­able com­po­nent went up, and was tied to the length of the CEO’s as­so­ci­a­tion with In­fosys and his per­for­mance. “We had a global con­sul­tant look at his com­pen­sa­tion, and it was bench­marked with his peers be­fore tak­ing the de­ci­sion,” he added. On al­le­ga­tions that Sikka used pri­vate jets to at­tend meet­ings, Se­shasayee said Sikka had oc­ca­sion­ally used char­tered flights, but it con­sti­tuted only 8 per cent of his travel for Novem­berDe­cem­ber 2016. “While we need to look at the cost, we should not for­get the value part,” Se­shasayee said, al­lud­ing to Sikka’s con­tri­bu­tion to In­fosys’s turn­around.

Sikka, who holds a PhD in com­puter sci­ence from Stan­ford Univer­sity, got a rel­a­tively free hand in his first year at the helm. He came up with a slew of buzz­words and poli­cies, such as ‘de­sign thinking’, ‘new & re­new’ and ‘zero dis­tance’ to re-en­er­gise the com­pany. Sev­eral se­nior In­fosys em­ploy­ees who had helped build the firm left as Sikka brought in his own team, caus­ing heart­burn, say in­sid­ers.

One of the first things Sikka did was do away with the strate­gic busi­ness unit for­mat in favour of a con­sol­i­dated de­liv­ery ap­proach to achieve greater economies of scale. He set a $20 bil­lion rev­enue tar­get by 2020 (from $10 bil­lion at present). This couldn’t be achieved with tra­di­tional busi­ness meth­ods. More au­toma­tion and dig­i­tal­i­sa­tion is Sikka’s vi­sion for In­fosys. “The en­deav­our is to trans­form to a re­al­ity where au­toma­tion is com­ing in a big way,” he said on Fe­bru­ary 13. “My tar­get for the com­pany is for it to be­come more in­no­va­tive and go higher in the value chain.”

No won­der In­fosys in­vestors have thrown their weight be­hind Sikka and the board. Op­pen­heimer Funds, In­fosys’s third-largest in­sti­tu­tional in­vestor con­trol­ling about 2.7 per cent in the com­pany, said the founders needed to ac­cept the firm was pub­licly listed and no longer ‘their’ com­pany. The open sup­port from a for­eign in­sti­tu­tional in­vestor should come as a boost to Se­shasayee and Sikka, as it sends a pos­i­tive sig­nal to the firm’s over­seas clients. In­fosys, which em­ploys 0.2 mil­lion peo­ple, earns 97 per cent of its rev­enue from over­seas busi­ness. It has over 18 clients in the

In­fosys in­ves­ti­gated, but found noth­ing un­to­ward. How­ever, In­fosys board mem­ber Ki­ran Mazum­dar-Shaw said Bansal’s sev­er­ance pack­age could have been han­dled bet­ter and “mod­er­ated”.

Pu­nita Sinha’s appointment as an in­de­pen­dent direc­tor in Jan­uary 2016 was also ques­tioned over cor­po­rate ethics, as her hus­band, Union min­is­ter Jayant Sinha, was MoS fi­nance at the time.

In­sid­ers say Sikka’s drive for merg­ers and ac­qui­si­tions hasn’t gone down well with some co-founders. In its pre­vi­ous three decades, In­fosys ac­quired just two com­pa­nies. Sikka ac­quired four in 2015 alone, at $550 mil­lion.

The In­fosys cri­sis mir­rors some­what the de­vel­op­ments at the Tata Group where the pro­mot­ers, mainly Tata Trusts led by Ratan Tata, which hold over 60 per cent stake in Tata Sons, ousted Cyrus Mistry in a board­room bat­tle. The dif­fer­ence is In­fosys shares are mostly held by the pub­lic (87 per cent), in­clud­ing FIIs, while Murthy and 18 oth­ers, part of the pro­moter fam­ily, hold 12.75 per cent. So, the lat­ter’s state­ments can in­flu­ence pub­lic opin­ion, but they don’t have much say in the firm’s day-to-day man­age­ment. Murthy and his fam­ily are the largest share­hold­ers (3.44 per cent stake, worth Rs 7,800 crore).

“Murthy and the oth­ers have the right to raise is­sues, but it should not have been done in pub­lic,” says Shri­ram Subra­ma­nian, MD, InGovern, a proxy ad­vi­sory firm. In 2013, when he re­turned as In­fosys chair­man, Murthy him­self had faced flak for in­duct­ing son Ro­han Murty as his ex­ec­u­tive as­sis­tant.

The way for­ward? Some ex­perts feel the In­fosys board should be re­con­sti­tuted with some new in­de­pen­dent direc­tors. The sev­er­ance pay­outs should be re­viewed. By agree­ing to lis­ten to the stake­hold­ers, in­clud­ing the co-founders, more keenly, Se­shasayee may have put an end to the pub­lic bat­tle for now. But only a step-by-step mend­ing of the firm’s pro­cesses, in­clud­ing the slack gov­er­nance stan­dards, as al­leged by the co-founders, will bring last­ing changes as the IT gi­ant strug­gles to com­pete in a tough global com­pet­i­tive en­vi­ron­ment. agree­ment”. The amount paid was just Rs 5.2 crore; the bal­ance re­mains sus­pended since April 2016, he said.

But Murthy al­leged the pay­outs could be “hush money”. An anony­mous whistle­blower had writ­ten to the man­age­ment (the let­ter was leaked to the me­dia), al­leg­ing Bansal was paid Rs 17.4 crore to buy his si­lence, since he was privy to de­tails of the Fe­bru­ary 2015 $200 mil­lion acquisition of Is­raeli soft­ware firm Panaya, which he felt was over­priced. $100 mil­lion rev­enue zone, an IT in­dus­try bench­mark for high-value clients.

An­other is­sue is the sev­er­ance pay­outs. In a Jan­uary fil­ing with the US mar­ket reg­u­la­tor, In­fosys said for­mer gen­eral coun­sel David Kennedy would get a sev­er­ance pay­out of $868,250, or Rs 5.8 crore. In Oc­to­ber 2015, CFO Ra­jiv Bansal got a sev­er­ance pack­age of around Rs 17.4 crore. Se­shasayee said Bansal’s pack­age “took into ac­count com­plex cir­cum­stances and it was a bona fide busi­ness

HOLD­ING FORT In­fosys chair­man R. Se­shasayee and CEO Vishal Sikka at the press meet held by the com­pany’s board in Mumbai on Fe­bru­ary 13

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