Murthy Bomb­shell: Corp Gover­nance Down at Infy

The Economic Times - - Front Page -

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.

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