War for Infosys

The conflict between Infosys Board Members and its founder N R Narayana Murthy is being played out publicly.

The company’s stocks have come down and many former Board members appear to have aligned themselves to the warring factions. The relations between the Board and Murthy has deteriorated since the company’s CEO Vishal Sikka quit in August 2017.

Background

As of 2016, Infosys is the second-largest Indian IT services company. A multi-national corporation, it provides a number of services including information technology, outsourcing and consulting.

N. R. Narayana Murthy 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.

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.

Analysis

Omkar Goswami, who was on the board of Infosys from 2000 to 2015 has written a blunt open letter to Murthy that has been published in Economic Times. He has written, “Enough is enough. You have drawn first blood. Do not mortally wound the organization by persisting in your actions. Let Infosys get on with its business, heal itself from the injuries that you have inflicted and again grow shareholder value.”

Some of the former Board members have begun to speak critically of the current Board in defense of Murthy. V Balakrishnan, a former Board member has said that the current Board has “let down investors.” He has called on a few of them to step down by noting, “The board has failed on multiple fronts and that is why I said earlier that Seshasayee (Chairman R Seshasayee) should step down to make sure the board approaches the founder. I think the time has come for chairman, co-chairman (Ravi Venkatesan) to step down.”

Meanwhile, Murthy has claimed that he is “extremely anguished by the allegations, tone and tenor of the statements.”

Sikka’s departure triggered the stock prices to fall. The company, for the first time in several years, is no longer one of India’s top-10 most valued companies.

The current Chief Operating Officer UB Pravin Rao has been named the interim CEO, however according to media reports, the company has not started seeking out candidates for a new CEO.

Assessment

Our assessment is that the Infosys brand has come under scrutiny for the first time in several years. As long as the leadership continue to lock horns publicly, it will be difficult for the company to recover. The two factions are currently warring to wrest complete control to set the agenda for the company’s future. We feel that an important issue is whether the Board has performed its responsibilities to the fullest. The internecine conflict between the founders and the new genre is definitely an issue of governance. As we saw in the case of the Tatas, it just got murkier by the day.