What now for Infosys?

The CEO of Infosys, Vishal Sikka has abruptly resigned.

He will now be the executive chairperson. His resignation has ignited a public war of words between its founder and its board.

Background

According to its revenues in 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.

The market capitalization of the company as of January 2017 was $34.38 billion.

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. When 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.

Analysis

There have been persistent rumors of friction between Murthy and Sikka for quite some time. This had existed despite the growth in the company’s revenue from $2.13B in Q1FY15 to $2.65B this past Q1.

Sikka in his resignation letter did not name Murthy by name but insinuated him through veiled statements. He said, “It is clear to me that despite our successes over the last three years, and the powerful seeds of innovation that we have sown, I cannot carry out my job as CEO and continue to create value, while also constantly defending against unrelenting, baseless/malicious and increasingly personal attacks.”

The Infosys board has also come out stating that Sikka had its strong support. It also strongly condemned Murthy for allegedly making false and misleading charges that were detrimental to the company. In a letter to the stock exchange it said, “The board declines to speculate about Mr. Murthy’s motive for carrying out this campaign, including the latest letter.”

In a mail dated August 9^th, 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.

Murthy too has hit back at his detractors noting that he is “extremely anguished” by the allegations. He said, “I am extremely anguished by the allegations, tone and tenor of the statements. I voluntarily left the Board in 2014 and am not seeking any money, position for children or power. My concern primarily was the deteriorating standard of corporate governance which I have repeatedly brought to the notice of the Infosys board… I will reply to these allegations in the right manner and in the right forum and at the appropriate time.”

Meanwhile, Infosys stock prices sharply fell following the resignation. It has tumbled over 13% to a one-year low of Rs 884.40 on BSE.

The current Chief Operating Officer UB Pravin Rao has been named the interim CEO.

Assessment

Our assessment is that the resignation of Sikka will be a blow to the company. Ever since he took the helm, the company’s revenues have consistently continued to grow. Additionally, the very public in-fighting between the board and its founder, Murthy, reflects poorly on the company and will affect its performance in the stock market as well.