Signals from the Infosys shake-up

Infosys was born thirty-seven years ago, just when the IBM PC was launched, and shortly before Apple launched the Mac. The birth of Infosys is the stuff of legend, as its seven penniless founders, set out to build a global company in 1981. And indeed by 1999, at the height of the dotcom era, Infosys became one of the top twenty most valuable companies globally, listed on NASDAQ. Its journey is the journey of India’s gaining pre-eminence as an IT super power on the global stage. As an early pioneer, it played a big role in enhancing India’s brand as the outsourcing and software services leader. It climbed the ladder from coding to consulting to innovating. It went from mere cost arbitrage to pricing for quality. India’s knowledge workers became globally acknowledged. Software became part of brand India. Infosys also created immense shareholder wealth through the stock market. It was one of the pioneers in sharing that wealth with its employees, through stock options, a practice which was emulated by many others.

This column is not about stock tips about Infosys shares. It is also not about the specific merits of the dispute between its outgoing Chief Executive Vishal Sikka, and founder N. R. Narayana Murthy. Rather it is about some lessons that emerged from the latest rumbling around this software company.

Firstly, Infosys looms very large in our imagination, disproportionate to its actual size. Undoubtedly it is big, with more than two lakh employees, 10 billion dollars in revenues and a market value close to 35 billion dollars. But it is not for these financial reasons alone that it has iconic status. It is because it set a high benchmark for itself in transparency and governance. Its annual reports are like PhD theses, with so much data, analysis and disclosure, that some detractors call it a “fog of data”. It spawned many dollar millionaires among its employees because of stock options. It built and encouraged a meritocracy. It emphasised the foundation of values and culture. It became an aspirational employer to many engineering, science and commerce graduates. Murthy often said, “I don’t want Infosys to be the bigest or most profitable company. I want it to be the most respected company”. This vision it tried to live up to in the three decades of its existence. Hence, we care about what happens to it, and want it to do well. In later years, there were many other companies who took the Infosys benchmark and perhaps exceeded it too. But the early trailblazer was Infosys.

Second, the many analysts and experts who are scrutinizing the company threadbare, need to ask themselves: do they apply even ten percent of that attention to examine other companies and their governance? Just because Infosys is more transparent, it does not mean that only it should be studied threadbare. It’s like searching for lost keys under the lamppost, because other places are dark! Should we not apply the same standard to other companies, should they also not be subject to the same rigour and tough questions. As an aside, it must be said that anonymous and frequent leaks from Infosys are also too much. Too much dirty linen spills out on the street. Other companies would simply not tolerate such indiscriminate leaks, and would impose stricter internal discipline.

The analysts might well remember, that Sikka’s exit means extensive headline coverage for a few days; the real task is to keep asking those tough questions on an ongoing basis. And to many more companies.

Third, it is worth noting the importance given to non-financial parameters. Murthy said that Sikka’s performance was not an issue. In fact, he beat industry peers. But there were questions about governance at the company. This column is not going to evaluate these claims. The Board of Infosys has given a detailed response to Murthy. The main learning is that such non-financial governance related questions need to be raised in the context of many other companies as well. Murthy also said something about “values and culture”. For instance, Infosys founders believed in an upper cap on the ratio of CEO compensation to median salary. This is not mandated by law, nor is it required by market efficiency. But long-lasting companies sustain on foundational values and culture, not just on short term financial performance. What are these for Infosys? Are they cast in stone, or can they change? Is Infosys still stuck in a time warp, and not adapting to changing times, context and competition?

Fourth, is the role of the board. The founder Murthy, who is no longer in the company nor is on the board, raised some questions. These were answered. But he persisted (and Sikka said the “attack” was relentless and distracting). Some have called Murthy’s actions as “nagging” or not being able to let go, unlike, say Bill Gates and Microsoft. The Board stood solidly behind its CEO. But then why did it accept his resignation? Why did it not persuade the CEO to stay on, since the Board’s support was solid and unstinting. These are just illustrative questions, and not in any way meant to cast aspersions on anybody. But these lessons must be learnt and adapted in the context of future spats at other companies.

We are here not to take any sides in the founder versus the Board battle. It is mainly because Infosys is an iconic company which we admire and want to succeed, and because its benchmark for transparency and governance needs to spread widely across the corporate landscape. We want the analyst community to take up their forensic interest and scrutiny and apply it to others as well. Early trailblazers have an extra responsibility and burden that they carry for rest of the industry. Maruti played a pioneering role in the automobile industry, that made India the global hub for small-car manufacturing. The white revolution by Kurien and Amul led to immense growth in production and to prosperity for farmers, became a benchmark for milk and cooperatives in India and abroad. Similarly Infosys too has such a place in India’s corporate history, in setting great benchmarks for wealth and job creation, financial performance, and most importantly for transparency and governance.

The writer is an economist and Senior Fellow, Takshashila Institution (Syndicate: The Billion Press)