Murthy Bombshell: Corp Governance Down at Infy
till the day we left the company voluntarily on October 14, 2014, to make Infosys the best governed company in India and on Nasdaq. We won several awards for good governance all over the world. However, since June 1, 2015, we have seen a concerning drop in governance standards at Infosys.
Let me illustrate this with just one example. Providing huge severance pay (with 100% variable) to some departing employees whi- event is just laughable since everybody knows that any trace of misdeeds can be erased within that period. Even if no misdeed has taken place (I hope so), rationalising it as “generosity” points to utter arrogance towards honest employees, total lack of fiduciary responsibility, and an unbelievable lack of application of mind. This is particularly hurtful to stellar former employees like Mohandas Pai (former CFO), DN Prahlad (former Infosys employee who is now an independent director), Bala (V Balakrishnan, former CFO), Sharad (Hegde, former senior vice-president) and several others who are still employed at the company. All these people have made huge sacrifices to build this company. Do various stakeholders share these same concerns?
I have heard this disappointment from a host of former employees and current employees who feel let down by the management and the board. I have heard from former directors (executive and independent) who are amazed that such acts are taking place at Infosys. Several investors have written to me.
Can you give us examples of what defined good governance at Infosys? Good governance is about doing what is fair in a transparent manner with full accountability accepted by senior leaders and board members for their actions. Good governance results from following the adages – when in doubt, disclose; and let the good news take the stairs and let the bad news take the elevator. For example, we disclosed voluntarily in 1995 that we were wrong in investing company money in secondary markets and that we lost money. We got up and apologised at the AGM to the shareholders for our actions and promised to not make this mistake again. The same year, we disclosed within 48 hours that we had lost business from a Fortune 10 company which contributed 25% to our top line. We worked hard and made it up. In 2001, we stood up and declared that we would grow only at 30% even though we had grown at 100% the previous year. Any time we grew at a very impressive pace, we warned the investors that such growth may not be sustainable.
How could the chairman have handled the issue of severance pay? The chair of the nomination and remuneration committee (Jeffrey Lehman) must have convened a meeting, discussed the prevailing practice of the company in the matter of paying huge severance pay, checked whether there is any special need for moving away from that policy, its impact on the reputation of the company, its impact on employee morale, and the future financial liability for the company. The committee should then have voted against it since I do not see any special need in this case. We have had a couple of eminent CFOs (e.g. Mohandas Pai and V Balakrishnan) who left the company and several key (former) employees (BG Srinivas and Ashok Vemuri) who had as important “secrets” as (Rajiv) Bansal, the former CFO (as claimed by the chairman (R Seshasayee) at the 2016 AGM) and they did not get any severance pay at all. Simply saying that the board did what was in the best interest of the company reinforces doubts that company was suppressing some information harmful to the company. If there was no harm done to the company, then it raises doubts about fiduciary responsibility.
Does the whole board bear this responsibility? While it is true that the board has collective responsibility for all actions, we must remember that there is a special committee to look after senior management compensation and severance pay. Therefore, it is the responsibility of the nomination and remuneration committee to do a thorough analysis and for the chair of that committee to brief the board. It is the responsibility of the chair of the board to review the decision of the committee, and advise it if he or she sees any lacunae. If not, the chair of the board must ensure that the chair of committee makes a presentation and that there is a discussion after that. Therefore, the primary responsibility for this lack of fiduciary responsibility lies only with the chair of the nomination and remuneration committee and the chair of the board. They must accept responsibility and atone for it.
There are speculations about a rift between CEO Vishal Sikka and the founders of Infosys. Right from the day the founders voluntarily left the company in October 2014 to give a totally free hand to Vishal to craft and execute his own strategy, none of the founders has discussed with him either his strategy or its execution. When Vishal is in India and is free, he requests for my time. We only meet for a meal in my house or, on rare occasions, on campus.
Vishal is a rare technocrat with whom I can discuss topics as diverse as quantum mechanics and B* trees (data structures in computing). Therefore, the only topics of our conversation during our meetings are physics, mathematics and computer science. Neither has he asked for my opinion on any aspect of his strategy or its execution, nor have I offered any advice on these issues. This has ensured that Vishal has had maximum freedom to pursue any strategy and any execution method of his choice.
At Infosys, the culture has always been for all predecessors to only wish the best for the succeeding CEO and his management whether it is Vishal now, or Shibu (SD Shibulal), Kris (Gopalakrishnan) or Nandan (Nilekani) in the past. Therefore, it is in the same spirit that I continue to wish Vishal, the management, and every employee the best of everything in the coming year like I have done in the past.
There is speculation about Prahlad’s appointment to the board. DN Prahlad is not my relative as defined in the company law. He is the earliest employee of Infosys who has served this company with distinction between 1983 and 1999 and rose to be the senior-most employee in the delivery function when he went to start his own company. At that time, the Infosys board was considering appointing him to the board along with Mohan (Mohandas Pai) and Phaneesh (Murthy).
If I wanted to recommend a relative, remember I have a son and a daughter who are both extremely well qualified to be considered for a board position of a company like Infosys.
What do you believe should be the differential in salary between one level and the next? In companies with good governance in developed countries, the ratio of the CEO salary to the next lower level is generally 1:2. At Infosys, today, it is about 2000 between the CEO salary and the entry-level salary for a software engineer. In poor countries like India where capitalism is still nascent, it is the responsibility of leaders of capitalism to ensure that these ratios are even lower. This is where the chair of the nomination and remuneration committee and the chair of the board have a huge responsibility.
You started the visa-independent Global Delivery Model in 2013. Where does it stand now? As you know, risk-identification and mitigation is an important duty of any board. Visa is such a risk for companies like Infosys. I started the initiative in 2013 since I wanted the company to reduce risk emanating from H-1B visas. We reduced the on-site percentage of work in our pilots from 30% to 10% and our plan was to replace the H-1B professionals performing this 10% with local talent. We made quarterly presentations to the board on the progress of this initiative as long as I was the chair of the board. I am told that this project was not monitored at the board level once I left. This surprises me.
What must the company do to redeem its credibility? There must be several initiatives to improve trust of shareholders in the company and the board. First is for the chair of the nomination and remuneration committee and the chair of the board to accept their mistakes and show contrition. Second is to follow the good practices of pre-2014 Infosys and improve upon them. Third is for the board to consult from time to time experts like Mohandas Pai, Bala, Marti Subrahmanyam and Omkar Goswami in finance and good governance; people like Nandan in sales and marketing; people like Kris and Sharad in technology and Finacle; people like Dinesh and Shibu in delivery expertise. There are, of course, many more good people among former Infoscions. I just named a few that came to my mind immediately. Finally, we have to bring in some good people like Marti Subrahmanyam as co-chair to the board and make people like Prahlad as the chair of the nomination and remuneration committee. There are also several other ex-Infoscions, schooled in the Infosys values, who would make excellent additions to the Infosys board.
Is there any specific benefit for you or your colleagues from all this? Absolutely none. In the150 years of corporate history in India, I am told that we are the first example of founders walking away voluntarily from the company that we built and founded. We had hoped that governance would not dip. I am an eternal optimist. I believe that we can still bring back Achhe Din to Infosys if we do things that I have mentioned above.
What makes for the longevity of a company? Good governance is the foundation on which the longevity of a company rests. Such a company will live healthily for over 200-300 years. Good corporate governance is about enhancing shareholder value on a sustainable basis while ensuring fairness, transparency and accountability in every action vis-à-vis every stakeholder – customers, employees, investors, vendor-partners, government of the land and society. The easiest way to enhance governance is by asking whether every action of the board, the senior management of the company, and every employee of the company enhances respect for the corporation and for the individual.
Between strategy and culture, what do you believe is more important? Peter Drucker, the famous management guru, once told me in the nineties that culture eats strategy for lunch. Therefore, culture is the bedrock on which successful strategy rests. Culture is what brings you joy, what makes you sad, what makes you proud, what you value in life, and how you spend your time and money. A good company’s culture is to seek respect from every stakeholder in everything it does. Such a company will strive to ensure that honesty, decency, fairness, transparency, accountability, compassion for less fortunate colleagues, leadership-byexample, concern for the society and excellence are on the front burner.