A TALE OF TWO CITIES

The Economic Times - - Deep Dive - Ku­nal Tal­geri, Jochelle Men­donca & TV Ma­halingam

Wil l you walk f rom Ben­galuru to Chen­nai? ” the pa­tri­arch of a fam­i­lypro­moted busi­ness who can’t be iden­ti­fied asks this writer, while il­lus­trat­ing the dif­fer­ence be­tween risk and un­cer­tainty. The con­text — the roles of a chief fi­nan­cial of­fi­cer (CFO) and chief ex­ec­u­tive. Ob­vi­ously, no­body walks to Chen­nai un­less they must. “Yet, peo­ple reg­u­larly take on Mount Ever­est, which is just 8 km,” adds the founder, a self-pro­fessed so­cial her­mit, with a smile. “But you’ll say Ever­est is a more ex­pen­sive and ar­du­ous climb which is also true.”

His point: CEOs are paid to take risks. The risk ten­ure can be as steep as an ar­du­ous 8 km that we can­not see the sum­mit of, or the 345-km walk to Chen­nai that is less ex­pen­sive. That’s the grey zone be­tween un­cer­tainty and risk. “The CEO chooses the risk and so it is the CFO’s role—ab­so­lutely crit­i­cal—to hold the CEO back, ring-fence risk, or call out if it is un­cer­tainty or risk.” This is the sagely wis­dom of a pri­vate fam­ily-pro­moted businessman in a gen­eral con­text.

Let’s take the lib­erty of ap­ply­ing it to the ₹ 65,569-crore soft­ware ser­vices com­pany called In­fosys. When Vishal Sikka was ap­pointed chief ex­ec­u­tive in mid-2014, the of­fice of the CEO moved from Ben­galuru to Palo Alto, with Sikka work­ing out of both cen­tres. This unique ar­range­ment is vi­tal to how In­fosys is con­trolled. It is good for clients but for most of the se­nior man­age­ment in In­dia, for the first time in In­fosys’ his­tory, de­ci­sions taken in the US are hav­ing an im­pact here. More on that later. First, the known knowns. One, prima fa­cie events. The CFO of a $ 8.7-bil­lion com­pany leaves. His exit is tied to an un­heard-of sev­er­ance pack­age (`17.38 crore), which be­comes known five months af­ter. Af­ter the an­nual gen­eral body meet­ing, where in­vestors ex­press dis­plea­sure, that pay­ment is stopped at a lit­tle over ₹ 5 crore. This is the most sen­sa­tional in­stance of poor dis­clo­sure prac­tices by In­fosys un­der Sikka.

Two, in the con­text of In­dian IT com­pa­nies that have an eye on op­er­at­ing prof­its, this CEO is un­con­ven­tional, to say the least. He has promised In­fosys will grow to $20 bil­lion by 2020; it was sub- $10 bil­lion in 2015-16. It must grow at 20% in a mar­ket, when it clocked 9.1% in 2015-16. So this is about climb­ing Mount Ever­est. Now, the good news. Young em­ploy­ees love him. Even tech­nol­ogy ad­vi­sors and con­sul­tants feel that if there is fric­tion be­tween old founders and In­fosys, it is a sign that the com­pany is be­ing rein­vented for mod­ern needs. “The fric­tion shows there is se­ri­ous in­tent and not lip ser­vice,” says Sid Pai, an in­de­pen­dent tech­nol­ogy con­sul­tant, who has never met Sikka. “You can ex­pect that the younger com­pany will align with the new cul­ture at In­fosys. What we are see­ing (Murthy ver­sus In­fosys) is a nat­u­ral ex­pres­sion of a strate­gic shift in the com­pany.”

For most of the 2,00,000 em­ploy­ees that have seen grand­daddy-founders move on, Sikka is a whiff of fresh air. “Af­ter Nilekani (in 2007), the chief ex­ec­u­tives were more about ‘keep­ing the lights on’,” says an em­ployee who has worked there un­der all CEOs. “We turned very old school. The DNA of the com­pany did not change. The fo­cus was on op­er­a­tional im­prove­ments rather than win­ning new busi­ness ag­gres­sively.” From a “so­cial­ist” en­vi­ron­ment, In­fosys feels “re­ju­ve­nated” un­der Sikka, he says. “He’s been good at trans­lat­ing an idea into per­for­mance in­di­ca­tors for every em­ployee on ground.”

The em­ployee cites Sikka’s ‘zero dis­tance,’ an ini­tia­tive to pro­mote de­sign think­ing among de­vel­op­ers, project man­agers, an­a­lysts and ar­chi­tects to ap­ply tech­nol­ogy to en­ter­prise cus­tomers any­where. “It is an ex­am­ple of bring­ing in­no­va­tion to a customer to busi­ness or IT to give and show them how it im­proves their busi­ness. He man­dates this across all projects across com­pany,” the em­ployee says. So, Sikka has the young with him.

In this con­text, why are the old at In­fosys anx­ious? It’s dis­clo­sures, again, and gov­er­nance is­sues. And this plays along with the lo­ca­tion fac­tor — Ben­galuru.

Long be­fore traf­fic jams on Ho­sur Road and Ban­nerghatta Road, for more than a quar­ter cen­tury, Ben­galuru was the nerve cen­tre for off­shore de­liv­ery of soft­ware ser­vices to clients in North Amer­ica and Europe. This meant more than 80% of its work­force, the CEO’s of­fice and fi­nance/ in­vest­ment func­tions resided in the ghastly-de­signed pyra­mid struc­ture in the city. Ev­ery­thing was a room or f loor away when de­ci­sions were taken, or needed clar­i­fi­ca­tion. Ar­gu­ments could be faceto-face, even if that other pa­tri­arch, NR Narayana Murthy, mostly had his way while ac­tive in op­er­a­tions.

In con­trast, Vishal Sikka, 49, sits in a slick Palo Alto. De­ci­sions taken in the US have ram­i­fi­ca­tions in Ben­galuru, with se­nior em­ploy­ees not hav­ing the same room to push back or al­ter dis­cus­sions. Both Murthy and Nandan Nilekani, as CEOs, thrived be­cause they were able to pro­duce op­er­at­ing mar­gins of 30% as the idea of off­shore de­liv­ery ex­panded glob­ally. Nilekani had f lair, Murthy played school­teacher. Those were good times. By 2009, when Kris Gopalakr­ish­nan and his suc­ces­sor SD Shibu­lal fol­lowed Nilekani, mar­kets were hit by the fi­nan­cial melt­down. Pres­sure on them was to tar­get growth while man­ag­ing an or­gan­i­sa­tion of more than 1,50,000 em­ploy­ees. The strate­gic goal was to pre­pare In­fosys for a mo­bile en­ter­prise and cloud, but op­er­at­ing mar­gins were a big­ger con­cern. When Sikka ar­rived, two things were for sure. He was the first tech­nol­ogy-CEO in In­fosys’ his­tory. All his pre­de­ces­sors had evolved in ca­reer from tech geeks to man­agers of a multi-bil­lion or­gan­i­sa­tion. Op­er­a­tions and strat­egy pre­ceded tech­nol­ogy and the foot sol­diers had ev­ery­thing about tech­nol­ogy-ful­fill­ment un­der con­trol. This also meant Sikka was new to op­er­a­tions, gov­er­nance and fi­nan­cial con­trols—the holy trin­ity in an ul­tra­con­ser­va­tive and most brah­mini­cal or­gan­i­sa­tion born in Ben­galuru. On Febr ua r y 13 , he re­ferred to him­self as a “ksha­triya war­rior” to em­pha­sise he is here to stay. It ’s not t he most po­lit­i­cally-cor­rect thing to say in any or­gan­i­sa­tion; nei­ther would it help Sikka con­nect with the se­nior man­agers off­shore.

The Palo Alto res­i­dent, who left In­dia in his teens, can’t for­get a com­mon cul­ture is ev­ery­thing in this peo­ple busi­ness. For sure, Sikka is build­ing an ag­ile or­gan­i­sa­tion, but dis­clo­sures, ac­count­abil­ity and gov­er­nance be­come vi­tal when 80% of In­fosys re­sides in In­dia.

UB Pravin Rao, chief op­er­at­ing of­fi­cer, is cru­cial in the non-founder CEO’s man­age­ment be­cause he is based here. But de­ci­sions in the past two years have been taken by Sikka, em­pow­ered by the board.

Pai, the tech­nol­ogy con­sul­tant, says the trans­for­ma­tion is mid-way. Sikka is now in­ex­tri­ca­bly tied to the fate of the or­gan­i­sa­tion. “Any change now would be akin to a sur­geon sewing up and walk­ing away in the mid­dle of a com­plex med­i­cal op­er­a­tion,” he adds. The board knows this. An­other in­dus­try ob­server says that if the board is found to be half-hearted about its CEOs, then clients—and hence, even em­ploy­ees— can panic. The or­gan­i­sa­tion can­not af­ford to be head­less, re­gard­less of con­tro­versy around the sev­er­ance pack­age and CEO com­pen­sa­tion which was in­creased to $11 mil­lion in 2016. The new salary was ef­fec­tive at the start of this year.

While Sikka has the board’s full back­ing — an ac­knowl­edge­ment that he is re-

While Sikka has the board’s full back­ing — ac­knowl­edg­ing he is re­build­ing In­fosys —the co’s se­nior lead­er­ship in In­dia is still used to dis­clos­ing the tini­est lapses

build­ing In­fosys — the se­nior lead­er­ship in In­dia is still used to dis­clos­ing the tini­est lapses. Re­mem­ber, this is a 35-year-old legacy. The fi­nance and op­er­a­tions teams still re­side here.

For in­stance, In­fosys’ fi­nan­cial-ser­vices customer RBS had flagged off that their project with In­fosys was run­ning into tech­nol­ogy dif­fi­cul­ties when it re­ported its first quar­ter re­sult in April 2016. It was ex­pected to cost far more than the £1.2 bil­lion that RBS had ini­tially bud­geted. RBS has a sub­sidiary unit, Wil­liams & Glyn (W&G). “Due to the com­plex­i­ties of W&G’s customer and prod­uct mix, the pro­gramme to cre­ate a cloned (IT) bank­ing plat­form con­tin­ues to be very chal­leng­ing and the timetable to achieve sep­a­ra­tion is un­cer­tain,” RBS had said in April 2016. This led them to can­cel the project with In­fosys in April 2016. It im­pacted 3.000 em­ploy­ees work­ing on it. Three sources said In­fosys knew the deal was be­ing can­celled in late June. The com­pany fi­nally dis­closed the deal loss on Au­gust 9, about five days af­ter RBS an­nounced it was scrap­ping the spinoff of Wil­liam & Glyn. (It re­mains un­sold.) RBS made the an­nounce­ment on Au­gust 5.

In re­sponse to this, In­fosys chair­man R Se­shasayee said, “First of all, there is no com­pli­ance re­quire­ment in things of this na­ture. If they are ma­te­rial, we need to make dis­clo­sures.” An In­fosys top man­ager con­curs that ramp-ups and ramp-downs hap­pen all the time. “Some­times, we ne­go­ti­ate with them. Only when we are 100% sure that it’s go­ing to have a ma­te­rial im­pact on our guid­ance, that’s when we dis­close.”

But this is also a mat­ter of per­cep­tion in Ben­galuru, where In­fosys took pride in be­ing proac­tive in dis­clo­sures. “If Sikka makes In­fosys a fast-mov­ing plat­form com­pany, which is the vi­sion, dis­clo­sures on projects won’t be all that im­por­tant a con­cern,” says an in­dus­try ob­server. The Palo Alto of­fice can house around 50 In­fos­cians and show­cases proofs of con­cept of in­no­va­tions in devel­op­ment like 3D print­ing shop, apart from a lab for vir­tual re­al­ity and aug­mented re­al­ity. “These are in­no­va­tions we are in­volved in from the customer’s point of view, and a startup en­vi­ron­ment in the Palo Alto mould,” an em­ployee told ET.

The board, Se­shasayee says, recog­nises that a global com­pany is on the cusp of a ma­jor trans­for­ma­tion of re­brand­ing it­self, mo­ti­vat­ing and bring­ing in new tal­ent. So, it will have to be com­pet­i­tive to get them the right en­vi­ron­ment.

Sikka, the first non-founder CEO, is an un­con­ven­tional In­fos­cian. Dur­ing one of his first vis­its to In­dia, an em­ployee no­ticed that the CEO had breached an old norm at In­fosys. Em­ploy­ees rarely walk on to the grass of the lush lawns. But Sikka had taken off his shoes and was strolling there. Alone. An In­fosys CEO like none of the four be­fore and that’s why he will al­ways at­tract scrutiny.

SID PAI, IN­DE­PEN­DENT TECH­NOL­OGY CON­SUL­TANT

(Mumbai inputs by Megha Man­davia)

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