MUMBAI | BENGALURU: The dramatic departure of Vishal Sikka as chief executive of Infosys, following a months-long public battle with the tech giant's founders, has left the company with another messy problem: how to find someone willing to replace him.
7 things NR Narayana Murthy and other co-founders 'attacked' Vishal Sikka and Infosys for
7 things NR Narayana Murthy and other co-founders 'attacked' Vishal Sikka and Infosys for
After months of tussle with the co-founders, Infosys CEO Vishal Sikka has resigned. During his three-year tenure as CEO, Sikka faced several salvos from NR Narayana Murthy and other co-founders. The most recent being in a letter, dated August 9, where Murthy is said to have raised questions over Sikka's leadership. Earlier too, Murthy has publicly criticised Infosys over lapses in corporate governance, allegations that the company firmly denied repeatedly. Here are some of the things that NR Narayana Murthy and other co-founders 'attacked' Vishal Sikka and Infosys for over the last several months.
Using chartered planes to meet clients
Murthy is said to have criticised him for chartering private planes to meet clients.
Questioned pay hike given to Vishal Sikka
The founders questioned the pay hike given to Sikka. In February last year, the board decided to give Sikka a 55% pay hike to $11 million. The sharp increase in his salary is said to have been a big issue of disagreement.
Only 23.57% of promoter voted in Sikka's favour
Only 23.57% of promoter votes are reported to have been cast in favour of reappointing Sikka as managing director and CEO in April 2016.
Severance payout given to former CFO Rajiv Bansal
The co-founders also slammed the size of the severance payout given to former CFO Rajiv Bansal. Infosys board had approved Rs 17.38 crore severance payment for Bansal. In its defence the company said that the employment contracts of key members of the executive team include a severance clause, and such clauses are guided by the complexity of the role as well as country-specific regulations.
Vishal Sikka "not CEO material"
According to a report in business daily Mint, Narayana Murthy in an email quoted some independent directors as saying that Vishal Sikka was more chief technology officer (CTO) material than chief executive officer (CEO) material. "All that I hear from at least three independent directors, including Mr Ravi Venkatesan (co-chairman), are complaints about Dr Sikka. They have told me umpteen times that Dr Sikka is not a CEO material but CTO material. This is the view of at least three members of the board, and not my view since I have not seen him operate from the vantage point of an Infosys board member," Murthy reportedly said in the email.
Questioned the company's Panaya acquisition and some other decisions
The company conducted an independent valuation into the $200 million acquisition of Panaya after claims of inconsistencies in the deal. The investigation aimed to find out if any company executive benefitted from the acquisition.
With the boardroom row still simmering, the pressure will be on to do that fast.
The company's last CEO hunt in 2014 was a major challenge. Sikka, the eventual choice who was plucked from a top job at SAP, was the first chief appointed from outside the group of founders. His brief was to turn around a faltering business.
Three sources familiar with internal discussions three years ago said they expected an even tougher challenge now.
"It was extremely hard to find an external candidate last time, and the spat is going to make the job even more difficult now," said one of the sources.
"I think there is very little chance there will be an external candidate."
The new boss will be taking on a company in better shape than it was in 2014: Sikka has led efforts to diversify Infosys away from basic IT outsourcing services into more lucrative new areas, like cloud, automation and artificial intelligence.
Infosys' share price surged 22 percent between Aug. 1, 2014, when Sikka took office and Thursday, outperforming the broader Nifty IT index, which gained 6.3 percent in the period.
But his successor will also join during one of the most turbulent patches ever for the $150 billion Indian IT services sector. The industry is facing squeezed margins, Brexit question marks over European businesses, and uncertainty in the United States, thanks to visa policy changes.
Infosys' chairman, R Seshasayee, told reporters the company would not look for a major change in culture or strategy and was confident it could still attract talent.
"There may be some people who get excited by these kinds of challenging situations," said a senior Infosys source. "But anyone who is comfortable and doing well will think long and hard before taking this job."
The company has not publicly identified potential successors, though the interim chief executive Pravin Rao, CFO Ranganath D Mavinakere, deputy COO Ravi Kumar S and Mohit Joshi, the head of banking, financial and insurance services, are among the top internal candidates, according to the company source.
STAYING ON
In an unusual move, the board of India's No. 2 IT services company accepted Sikka's resignation, but named him executive vice chairman until a replacement was found. Rao reports to him.
The board also blamed Narayana Murthy - one of the company's co-founders, a heavyweight in Indian business and one of the most vocal critics of the board - for the exit and for undermining his efforts to transform Infosys.
That leaves any successor likely to continue to face a board at odds with powerful minority shareholders: the men who created the company and transformed outsourcing four decades ago.
Infosys and its founder executives, led by Murthy, have been at odds since February. Sore points include increases in Sikka's salary, what they argue was the overpriced acquisition of the Israeli automation firm Panaya and severance packages offered to some executives.
While the board has consistently backed Sikka publicly, some shareholders like Avinash Vazirani of Jupiter Asset Management say directors have not done enough to build investor confidence.
"I think the question is whether the board enjoys the support of the investors and shareholders," Vazirani said on an investor call on Friday. "There has clearly been a failure on the part of the board to get the company in the situation where it is now."
Infosys' co-chair, Ravi Venkatesan, told investors on Friday the board would seek to settle the dispute before making permanent changes at the top.
"We will have to find ways to put this decisively to bed, so that by the time we have a couple of viable candidates, there is more stability," he said.
6 biggest fallouts of Vishal Sikka's resignation as Infosys CEO
6 biggest fallouts of Vishal Sikka's resignation as Infosys CEO
Though the writing has long been on the wall, the resignation of Vishal Sikka as Infosys CEO on Friday still came as a shock for most. The turbulent relationship between the company's management and co-founders since past many months had been hinting towards an inflection point. The open personal attacks on the company and its first non-promoter CEO and MD by co-founders, especially Narayana Murthy, are said to be the key reason responsible for Sikka putting in his papers. As the news spread, Infosys stock touched its 52-week low and finally wiping out more than Rs 22,000 crore of investors' money. However, Sikka's resignation will have more repercussions than just hurting the company's stock price. Here are 6 biggest fallouts of Vishal Sikka's resignation as Infosys CEO.
Tough to find new CEO
The Infosys board has already begun the search for Sikka's replacement. However, it will not be easy to find a successor, given the hostile environment. Also, the fact that neither the board nor Murthy is backing down makes the prospect more bleak. The circumstances of Sikka’s exit also raise questions on the ability of the company's founders to give a free hand to the management. This is surely to deter potential talent from taking up the CEO's responsibility. “There is a massive effort required to succeed in the forthcoming disruptive wave wherein IT services vendors will have to make very hard choices. So the next Infosys CEO must have the backing of the full board to get there, “R Ray Wang, principal analyst and founder at Constellation Research told ET.
To hurt Infosys reputation
Most analysts are terming the crisis as a huge blow to the company's brand reputation. "This is a severe dent to brand reputation, client conversation, investor confidence, employee morale and business transformation, which would affect its financial performance in short-to-medium term," Rahul Jain and Ruchir Burde, analysts with Emkay, said in a report. The report downgraded Infosys to 'reduce' from 'hold.' Lingering uncertainty and lack of positive triggers in the foreseeable future would weigh on the valuations, Emkay report said. "Clients... would prefer more certain business partners that provide continuity of thought. We believe this event may benefit competitors such as TCS or Cognizant -- at least in short term," the report adds.
May mean end of investor rewards policy, at least for the time being
Under Sikka, Infosys rewarded investors more liberally. This policy of rewarding shareholders through dividend, bonus shares and buyback offers too now faces the uncertainty hurdle.
Infosys may lose the tag of most-sought-after Indian technology stock, at least temporarily
For years, Infosys stock has been a bluechip. Despite several ups and downs in the past two decades, the stock has largely been able to hold on to its tag of one of the most-sought after technology stock in India. However, Sikka's exit is surely to take away this tag from the company (at least temporarily). As Pramod Gubbi, head of equities at Ambit Capital told ET, "This development has taken uncertainty on the stock to a different level. Earlier, we had a semblance of financial performance, which was credited to Sikka. Now, there is more uncertainty on the fundamentals while the whole governance saga continues." Investors are quite likely to switch to some of the other top Indian IT companies until Infosys resolves its leadership crisis. The company has been one of the most-favoured technology stock, with 40% of the industry's overall technology sector allocations reportedly being made in Infosys.
Employees attrition to increase; may also see exodus at top level
Sikka's resignation is sure to increase employee attrition levels at the company. The blow to the company's image and the ongoing uncertainty are sure to hit employee morale. Company is also likely to face exodus at top, with many senior executives following Sikka.
May hurt company's 'transformation strategy'
Many market-watchers are also concerned about Sikka's transformation agenda, which had sought to steer the company away from cost-focused delivery model to automation, robotics, machine learning and artificial intelligence.
Yet the abrupt departure of the man seen as an innovator in the global software industry has raised fresh questions over Indian corporate governance practices.
India will be the battleground for many such corporate tussles as companies transition from founder- and owner-led companies to entities run by professional CEOs and boards, said Shriram Subramanian of InGovern, a shareholder advocacy group.
The public row at Infosys is reminiscent of Cyrus Mistry's unceremonious ouster in November as boss of Tata Group: another professional chief executive exiting over differences with a key shareholder - in that case, the Tata family patriarch, Ratan Tata.
"A belligerent attitude towards the founders of an iconic company will keep friction levels high and the search for an external CEO tough," Ankur Rudra, an analyst with CLSA, warned in a note.
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