-Tarun Deep Dutt
The founder of Infosys NR Narayan Murthy dropped a bombshell on Feb. 10 when he told an Indian newspaper that he was “distressed at what is happening at Infosys” and voiced concerns over “drop in corporate governance”. This was followed by a whistleblower letter to media houses and market regulator Securities and Exchange Board of India (SEBI) with a long list of complaints against Infosys chief executive officer Vishal Sikka and the board.
Murthy founded Infosys – along with Nandan Nilekani, S. Gopalakrishnan, S.D. Shibulal, K. Dinesh, N.S. Raghavan and Ashok Arora – in 1981, retired three decades later, came back as executive chairman in June 2013 and stepped down in a year after handing over charge to a professional management led by CEO Vishal Sikka. In the process, he also left the board, which today comprises a non-executive chairman (R Seshasayee), seven independent directors and two executive members (Sikka and COO Pravin Rao).
This was the first time the founder raised red flags against the board on four contentious issues: a sharpe increase in Sikka’s compensation early last year; Rs 17.4 crore severance package to former CFO Rajiv Bansal; appointment of Punita Sinha, wife of Union minister of state for finance Jayant Sinha, as an independent director; and growth through acquisitions.
When Murthy spilled the drama at Infosys into public domain, tongues began wagging, some even questioning the founders’ right to interfere, make comments and indicate how business must be done. There were obvious comparisons with the Cyrus Mistry-Ratan Tata boardroom battle.
But, in Infosys case, hectic activities followed – in public and in private – to quell the tension between the board and the founder. On Monday, at a marathon media briefing in Mumbai, several kilometers from the It giant’s headquarters at Electronic City in Bengaluru, Sikka called Murthy an “incredible man” and said his relation with the founders was wonderful. “I meet Mr Murthy four to five times a year… we talk about quantum physics and Apple watch,” he later told a newspaper.
In private, Seshasayee called on Murthy at his Bengaluru home to thrash out the difference that have so bitterly and publically played out over the last week, before taking the flight to Mumbai for the media briefing.
But the same day, after a news wire service reported that Murthy was “calling off his fight with the board of Infosys”, the founder issued a statement, saying, “No, I have not withdrawn my concerns.”
Let’s return to the case’s comparison with the Tata battle.
Cyrus Mistry, whose family’s firm Shapoorji Palonji holds 18.4% in the Tata Group, was removed as the chairman of Tata Sons in a board meeting. At Infosys, Sikka’s ouster doesn’t seem even a distant possibility with some co-founders backing him. Also, because the Infosys founders don’t enjoy the power that Tata has. The Infy founders hold 12.75% stake. In Tata Sons, Tata Trusts – of which Ratan Tata is the chairman – holds 66% stake.
Infosys is no family-run business, but because of the founders’ collectively stocks, their position is not too different from a business in which the promoters step back to leave day-to-day operations to a team of professional managers. Most groups in which the family steps back to let the board carry out day-to-day management without interference.
“We believe the family has a trusteeship role to follow and, from time to time, give suggestions to the professional team, but the final decision on whether to implement that suggestion or not rests with the professional management. The founder family, regardless of the percentage they own, is equal to all other shareholders,” says Amit Burman, vice chairman of Dabur India.
“Founders who step out should stay out,” declares M Damodaran, former SEBI chairman and now heading a corporate governance advisory firm, Excellence Enablers. “Airing concerns in the media in a confrontational manner, especially if coming from persons closely identified in the public mind with the company, can be destabilizing,” he feels.
Murthy’s criticism led to the board appointing legal firm Amarchand Mangaldas to act as an official communication vehicle among its members, the company’s founders and key stakeholders. It will also guide the board on matters such as the appropriate form of engagement and sharing of information, while adhering to regulatory norms.
Chairman Seshasayee has admitted to subjectivity in Bansal’s severance package but promises there will be no more Bansal-like cases in the company.
Despite the criticism to Murthy’s destablising interference, Sikka and the board are trying to bury the hatchet but the fire doesn’t seem to be dying out anytime soon.