Nilekani returns

Nilekani returns
Nandan Nilekani, the former Chief Executive Officer of Infosys is likely to join the firm’s Board. It’s a contentious period for the company marred by infighting between Board members..

Nandan Nilekani, the former Chief Executive Officer of Infosys is likely to join the firm’s Board.

It’s a contentious period for the company marred by infighting between Board members and former founders.

Background

As of 2016, Infosys is the second-largest Indian IT services company. N. R. Narayana Murthy co-founded the company in 1981 and served as its CEO till 2002. From 2002 to 2011, he was the chairman of Infosys. After he resigned from that position, he became chairman Emeritus. On 1 June 2013, Murthy was appointed as Additional Director and Executive Chairman of the board for a period of five years.

Nandan Nilekani, is one of the co-founders of Infosys. A respected leader, he was the company’s CEO from March 2002 to April 2007. In the five years that he served as the CEO, Infosys' topline grew six-fold to $3 billion.

On June 2014, Vishal Sikka was appointed as the new CEO and MD of Infosys. Prior to that he had been a member of the Executive Board and the Global Managing Board of SAP AG.

In a mail dated August 9th, 2017, Murthy had written to some of his advisers noting that he had been told by three independent directors at the company that Sikka was more suited to be a Chief Technology Officer (CTO) than a CEO. Not long after, Sikka resigned from his position while making thinly veiled accusations against Murthy. The Board has blamed Murthy for Sikka’s departure and have spoken against Murthy in a strong six-page letter to the stock exchange. The Board and Murthy have since engaged in war of words.

Analysis

The stock prices for Infosys fell sharply after Sikka’s resignation. Additionally, the conflict between those supporting the Board and those supporting Murthy is being played out publicly in the media. The firm has also lost its value in billions of dollars and it is steadily losing the confidence of its investors.

A group of 12 major institutional investors in the company, had made a formal request to bring Nilekani back in the fold. They believe this would effectively bring an end to the ongoing feud.

According to multiple media reports, this is likely to happen soon. According to the Times of India, Nilekani will become Infosys' non-executive chairman. The market has responded favorably to the news. The stock prices have risen for the third day in the row on August 24, 2017. He will be coming onboard for a predetermined period of time.

The Economic Times has reported that three to four current Board members are likely to quit when Nilekani joins.

Much of the tension between Murthy and Sikka is reportedly to do with Murthy’s son, Rohan. According to anonymous sources within the company, Murthy and some other senior members in Infosys had wanted Rohan to be inducted into the company. Sikka reportedly did not respond to these requests.

Assessment

Our assessment is that Nilekani’s return is likely to stabilize the company in the coming months. Nilekani brings with him immense experience of managing both the business enterprise and can seamlessly handle matters with the government. We believe, at this point, Nilekani will be the most preferred choice for the shareholders, founders and the institutional investors. 

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