US law firms start probe for law­suit against Infosys

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Just a day af­ter for­mer Infosys CEO Vishal Sikka an­nounced his res­ig­na­tion al­leg­ing slan­der from the founders and shares plunged 9.6 per cent, four US law firms have an­nounced ini­ti­at­ing in­ves­ti­ga­tions in prepa­ra­tion for a class ac­tion law­suit against the firm to re­cover in­vestors’ losses. Infosys’ board also ap­proved a long-awaited H13,000 crore share buy­back of­fer on Satur­day.

Per­cep­tions mat­ter. Not long ago, two cor­po­rate en­ti­ties were cited by funds and in­vestors at con­fer­ences and in schol­arly es­says, held up as il­lus­tra­tive ex­am­ples of stan­dards of cor­po­rate gover­nance. They were from con­trast­ing back­grounds. One was a di­ver­si­fied old-world group founded by the leg­endary Jam­setji Nusser­wanji Tata, and the other, Infosys, a new world en­ter­prise set up by a band of tech pro­fes­sion­als with no sur­name to boast of.

Much wa­ter has flown un­der the idyl­lic bridge of eth­i­cal con­scious­ness and over the raft of ex­pec­ta­tions. A del­uge of leaked ‘se­crets’, the re­lease of pri­vate con­ver­sa­tions and wash­ing of dirty linen in pub­lic do­main have stained, if not tarred, in­di­vid­ual and in­sti­tu­tional rep­u­ta­tions. Call it the curse of time, the jinx of star­dom both Tata Sons and Infosys have had to wres­tle with strife, spec­u­la­tion and loss of rep­u­ta­tion.

Last Oc­to­ber, the share­hold­ers of Tata com­pa­nies and the pub­lic at large wit­nessed a rather ugly spat be­tween Cyrus Mistry, the then chair­man of Tata Sons, and Ratan Tata, the grand pa­tri­arch of the House of Tatas. Ques­tions ranged from pro­pri­etary rights to pro­pri­ety— many of the is­sues taken up for lit­i­ga­tion in dif­fer­ent courts. Since then, Ratan Tata has as­serted his will, brought in S Ra­mado­rai from Tata Con­sul­tancy Ser­vices to head the group. Ten months later, the pages have been turned and many ques­tions raised have been left be­hind.

This week, Vishal Sikka said Tata to Infosys. There are dis­sim­i­lar­i­ties and then there are sim­i­lar­i­ties. Cyrus Mistry was al­ready in­side the Tata Sons and his fam­ily owned a stake in the em­pire. Sikka came from the out­side as a pro­fes­sional into an en­ter­prise set up by pro­fes­sion­als. Both fal­tered in in­stalling con­fi­dence as they man­aged change.

In a blog, writ­ten in hurt and bit­ter­ness, Sikka re­ferred to “false, base­less, ma­li­cious and in­creas­ingly per­sonal at­tacks”, and said, “I have de­cided to leave be­cause the dis­trac­tions, the very pub­lic noise around us, have cre­ated an un­ten­able at­mos­phere.” Un­named but un­mis­tak­able, the ref­er­ence was to the founder N R Narayana Murthy. Adding its share of driz­zle, the Infosys board said, “Mr Murthy’s con­tin­u­ous as­sault is the pri­mary rea­son that the CEO, Dr Vishal Sikka, has re­signed de­spite strong board sup­port.”

The saga has stirred pub­lic opin­ion rais­ing the spec­tre of pro­fes­sion­als be­ing done in by the founder. It could be ar­gued that the pro­fes­sion­als were let down by those who chose them. In­deed, both Mistry and Sikka were praised for po­ten­tial—Mistry’s choice was de­scribed by Tata as “far sighted”, and Sikka’s “il­lus­tri­ous track record” Murthy said made him an “ideal choice”. It could also be ar­gued that founders/pro­mot­ers saw rea­son for course cor­rec­tion. Doubt­less, the ug­li­ness could have been avoided, but such is the game of thrones—Murthy who owns barely 3.4 per cent lever­aged his rep­u­ta­tion against that of the board.

What is strik­ing though is the pen­chant for se­duc­tive stereo­typ­ing. And the­o­ries are galore—from the ‘for­m­ers’ un­will­ing to let go, to dy­nas­tic as­pi­ra­tions, to al­lu­sions of a de­sire for a ‘come­back’. It bears men­tion that there is noth­ing im­proper or illegitimate for a founder or a pro­moter to re­claim the right to nur­ture or nurse the en­ter­prise. The Ford fam­ily re­turned to man­age Ford Mo­tors. The story of the re­turn of Steve Jobs to Ap­ple and the suc­cess that fol­lowed is now im­mor­talised on cel­lu­loid by Hol­ly­wood. The land­scape in Eu- rope and the US is lit­tered with bat­tlescarred pro­fes­sion­als and dis­em­pow­ered pro­mot­ers.

The an­swer to whether pro­fes­sional man­age­ment is bet­ter than founder/pro­moter man­age­ment is scarcely bi­nary. It is vi­tal, how­ever, to seek bi­nary re­sponses to ques­tions in­volv­ing cor­po­rate gover­nance in listed com­pa­nies with large di­verse pub­lic own­er­ship. What is par­tic­u­larly rel­e­vant is the con­text of the legacy—where as Murthy as­serts, the founders strove to make Infosys the best gov­erned com­pany in In­dia.

What is the is­sue at stake in the bat­tle at Infosys? Sikka has been at pains to list achieve­ments. A third, or over 800 words of his 2,400-word blog, is de­voted to the change that he en­gen­dered at Infosys— these in­clude the growth in rev­enues, op­er­at­ing mar­gins, per em­ployee rev­enue, qual­i­ta­tive change in client base, vis­its by clients, in­creased div­i­dend pay­out etc.

Murthy, in a let­ter, states up­front that the is­sue is not per­for­mance. He puts it ex­plic­itly: “My prob­lem is with gover­nance at Infosys.” Murthy asked the Infosys board to an­swer his ques­tions and re­spond to is­sues raised by an anony­mous whistle­blower. He has sought a re­sponse to ac­cu­sa­tions by the whistle­blower against the Chair, the Chair of the Au­dit Com­mit­tee, the Chair of the Re­mu­ner­a­tions Com­mit­tee, some in­de­pen­dent direc­tors, au­di­tors and others of be­ing in­volved in what Murthy dubs “a de­plorable set of events”.

In what is vir­tu­ally a 3,300-word no con­fi­dence mo­tion against the board, Murthy has sought an­swers on the ac- qui­si­tion of Panaya, rea­sons why the then CFO Ra­jiv Bansal ob­jected to the ac­qui­si­tion, val­u­a­tion of the ac­qui­si­tion, con­flict of in­ter­est and ben­e­fits through the ac­qui­si­tion to some­one within the com­pany, due dili­gence on ul­ti­mate ben­e­fi­cial own­ers of Panaya, com­pen­sa­tion in sev­er­ance agree­ments post ac­qui­si­tion and so on.

The Infosys board main­tains it has “thor­oughly in­ves­ti­gated each anony­mous al­le­ga­tion with the as­sis­tance of highly-re­spected ex­ter­nal coun­sel and ex­perts, and de­ter­mined that the al­le­ga­tions were en­tirely with­out merit.” How­ever, Murthy’s de­mand for the re­port to be made pub­lic has been de­clined by the board as it be­lieves “fur­ther dis­clo­sure would be in­con­sis­tent with best cor­po­rate au­dit prac­tices” and would “com­pro­mise the con­fi­dence of em­ploy­ees” who co­op­er­ated in the probe. The ques­tion that begs to be an­swered is why a board would de­cline to make pub­lic a probe that clears those ac­cused of wrong­do­ing.

In­dia’s cor­po­rate land­scape is re­plete with scan­dals and rid­dled with ques­tions of pro­bity and ac­count­abil­ity. Suc­ces­sion plans are wasted pri­mar­ily be­cause there is much opac­ity in the func­tion­ing of com­pa­nies. The dis­course must move away from the stereo­type of good guys and bad guys, of pro­fes­sion­als and founders to what is right and what is go­ing wrong. The ques­tions that need to be asked must be asked and an­swered.

As Al­dous Hux­ley said, “There are things known and there are things un­known, and in be­tween are the doors of per­cep­tion.” And per­cep­tion mat­ters.

N R Narayana Murthy (right) and Vishal Sikka

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