Infosys- It’s Money Honey!

article

In the garb of ensuring ‘corporate governance’, the truth is that the old guard in Infosys is fighting for the kind of cash that new age CEOs like Vishal Sikka are getting

Vikas Kumar

Vikas Kumar

The author is a senior former journalist with more than 15 years of experience. He has worked as a Special Correspondent in The Sunday Indian and as Assistant Editor in NewsBench

“Vishal Sikka means lots of money,” said Infosys founder Narayana Murthy on the day the announcement of the appointment of Sikka as the CEO of Infosys. He was the natural choice for the Infosys board as he was not just seen as an agent of transformation but also fulfilled the criteria of highest educational qualification – he is a PhD in computer science from Stanford University. Things changed drastically after three years.

In their changed role, the old guard minced no words to criticise the incumbent management in the company by raising uncomfortable questions about corporate governance and other decisions in the company. It seemed that the Mistry-Tata saga would be repeated in the India’s most prestigious name in the IT industry. Though boardroom battles are nothing new to corporate India, they add the necessary spice to otherwise boring pink paper headlines. And when these battles are pertaining to giants, the interest grows manifold.

What is worse is the timing of the eruption of the controversy. It has broken out at the most inopportune moment as the Indian IT services industry faces the most challenging times in the US, in the middle of the big technology transformation wave of automation, cloud and an emergence of new technology such as machine learning and Internet of Thing.

The news of the friction between the old guard and new of India’s most iconic IT companies is not only disastrous for the future of the company, but it will also affect the future of the whole IT industry. Suddenly everything started to change. NR Narayana Murthy levelled allegations of the slippage of corporate governance standards. He raised questions about the exorbitant salary hike of CEO Sikka and the huge severance pay to Rajiv Bansal — the other top executive.

Though there is no word from Nilekani, it seems Murthy had the backing of others.

Rockstar Sikka

Not long ago when Sikka assumed office, one of the founders quipped, “He is a rockstar, and we needed one.” Considering the stock performance of the company, he has lived up to some of the promises. The company’s market capitalisation has increased more than 37 per cent since his appointment, while rival TCS grew by just 16.5 per cent and HCL Technologies by just 20 per cent. It’s share price also almost doubled from Rs 736 in June 2014 to Rs 1260 in June 2017, which is impressive considering the huge market size of the company.

So what is this brouhaha about the performance all about? The reason behind Murthy’s outburst is “the drop in corporate governance standards” at Infosys, which he spoke about in an Economic Times interview.

This relates to the Rs 17.38 crore severance package for Bansal, which he got after quitting, and the Rs 73 crore compensation for Sikka for 2017. And the third reason is — which very few people are talking about — is the Rs 36,483 crore idle cash in the company’s balance sheet.

Many founders, including past CFOs TA Mohandas Pai and K Balakrishnan, are of the view that the money should be used for higher dividend payout or to buy back shares to improve Infy stock prices.

CASH CRASH

The root of all of the controversy lies in the four letter word ‘CASH’. And this cash is linked to emotions and ego. The general feeling in the old guard is that they were the people, who established the company and made sacrifices, but it’s the new guard who is getting away with all the money (or malaii), an analyst told the Parliamentarian on the condition of anonymity.

However, the cost of hiring a talent has increased disproportionately and there is hardly anything the company can do about it. If you have to hire a CEO like Sikka, you will have to pay a certain amount of salary. This is the norm almost everywhere. Yet, there is also a feeling that those who stayed loyal to the company are now getting less. But this is again an industry norm.

Often people moving jobs regularly end up getting more than those loyal to a company. So raising questions about salary does not have substance. And Murthy is well aware of these things.

Infosys independent director Kiran Mazumdar Shaw, who is also founder-chairperson of Biocon, recently clarified in a media interview: “Just because Sikka’s payment is higher than before does not mean there is a breakdown in the value system. It is all linked to performance. If you consider the performance he is supposed to give us, it is a daunting one. The kind of goals you are giving Sikka if he pulls it off, he deserves it. If he cannot deliver on the goals, he would not get it.” This is as simple as it gets.

So the criticism is ultimately related to just one thing — which is the lack of its effective utilisation of the cash. The founders are restless that in spite of having strong cash on the balance sheet, the value for shareholders is not being created. Under Sikka, the company has adopted a more liberal payout policy, but cash is still growing. The founder promoter shareholding is 12.75 % in Infosys. If founders got less salary, then they were compensated by giving huge shareholding.

Krish Gopalakrishnan, SD Shibulal and other founder promoters have huge number of shares of Infosys which Sikka does not have. People like him have to just stay content with the salary – which is again linked to their performance.

Value Veils

Yes, it seems. This is quite normal, as the old guard does not want to lose its power and influence while the Young Turks want to do things in their own way. This is just the battle of inflated egos. That happened in the Russi Modi-Ratan Tata controversy, Tata-Mistry confrontation and in many other non-descript companies. Probably, the old guard doesn’t want to accept it, but they are fighting their battle in the veil of values.

“This is a company with a $34 billion market value that we’re talking of. It always put value systems before performance. I’ve spent 22 years in the company and been its CFO. What more secrets could Bansal hold that I don’t?” thundered Balakrishnan, former CFO of the company.

Peter Drucker, the world’s most iconic management guru, has a famous saying that culture will eat strategy for breakfast. When Sikka is strategising to reinvent the company, Murthy and other promoters are trying to preserve its old culture instead of helping the company in easing out transformation from an outsourcing firm to an innovation-driven technology firm.

Infosys Chairman R Sheshasai, who is also facing the most scathing attack from the promoters, said in a press conference: “Differences in opinions are certainly there and these differences will always be there between one generation and the other. They have to be recognised and managed within proper governance frameworks.”

Acquisition Failures

Not long back, Infosys was the first to announce its financial results and it reflected the status of the IT industry. That means if the company posted stellar performance, other companies such as Wipro, HCL and TCS will also post good results. That’s not the case now. The company started slipping once new technology like cloud and automation started gaining ground. That signalled that the old days of labour arbitrage is just over and company needed to invest in R&D and innovation.

Unfortunately, the old guard of the company did not see the writings on the wall. The company started floundering. Infosys founders have always had a very conservative approach to acquisitions. It hardly made any worthwhile acquisition. So there was no gameplan to leverage new-age technology like automation, artificial intelligence and analytics.

Sikka’s background and his acumen can help the company to position itself as a leader which really understands the technology. Considering his robust credentials, he can convince clients as well. However, promoters going on the warpath won’t help the company, as this will send wrong signals to the clients. If promoters and the board have no confidence, why should they trust? That’s a big question. In that sense, the role of the old guard has not been supportive at all.

It is to be noted that Sikka is the first CEO who comes purely from the technology background. He had hardly any experience in governance and operations. Sikka, being a resident of the Palo Alto, who left the country in his teens, may have wrongly assessed the intricacies of running a traditional and conservative organisation like Infosys, but he should have been given more time to assimilate the culture.

However, he also needs to understand the importance of governance in a company like Infosys. That becomes all the more important, as 80 per cent of the senior management resides in India.

Technology Vs Culture

Sikka understands the importance of innovation, which is very important for a technology company’s survival. The wave of change in a technology company is so fast that a company likes Nokia (which did not realise the power of Android) almost vanished from the market. So CEO Sikka fostered the culture of innovation. A senior project manager in Infosys who handles a big client in the company told to this writer: “Sikka has inculcated design thinking among developers, project managers, analysts and architects. They are more driven by innovation. He has been able to convince their clients that it also improves their business. This was not the case earlier.”

The Palo Alto office of Sikka is like a startup. It has some 50 Infoscians who showcase the proof of concept in a new technology like 3D printing, apart from a lab for virtual reality and augmented reality. So a major company is on the cusp of a major transformation. And these are the changes that will drive the future of the company.

Everything is not right for this biggest conglomerate and appointment of a co-chairman has clipped the wings of Sikka. He knows that he will have to work under the latter’s gaze and his every move will be publicly scrutinised and every minor lapse will be reported in the media, which will further erode his credentials. However, he plays down such fears by comparing himself with a “kshatriya warrior” which meant he is here to stay.

Having said that, more fierce battles may be just around the corner, and what we have seen till now may be just a trailer. However, we would be happy to be proven wrong.

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