Exclusive – Sikka breaks silence as he exits a bruised Infosys

SUMMARY:

VIshal Sikka speaks exclusively to diginomica in the aftermath of a board shake up following his recent resignation.

Vishal Sikka at Oracle Open World

Vishal Sikka’s has broken his silence after finishing his short term as an advisor to Infosys while the company searches for his replacement as CEO. He has left the company completely, just a week after he resigned as CEO. What happens next, now that co-founder Nandan Nilekani has been confirmed as coming on to the Infosys board in a non-executive chairman’s role is far from clear.

The company’s press release of the event was the usual larding of praise on outgoing people accompanied by a strong rallying cry from the incoming chairman:

“I am happy to return to Infosys, now in the role of non-executive chairman, and look forward to working with my colleagues on the Board and in executive management on the business opportunities we see before us and delivering benefits to our clients, shareholders, employees and communities. I thank Vishal for his service as the CEO of Infosys over the last 3 years and wish him well in his future endeavors.”

Mr. Nilekani also stated that the Board will actively consider a broad based shareholder consultation process as a critical part of its overall engagement initiatives with all the stakeholders of the Company that are being taken up on a priority basis.

Mr. U. B. Pravin Rao who will continue as Interim CEO and MD and, also was pleased to welcome Mr. Nilekani to Infosys. The Infosys Board will continue with its earlier stated plan to identify a permanent CEO and MD.

Nilekani was CEO from 2002-7 and has been widely regarded as one of the best CEO’s in Infosys history. Based upon what I have seen in over 45 years in a variety of industries, I can say that it is easy to be a good leader when the sun is shining. It is much harder when it is pouring down like an Indian monsoon. And whether Nilekani has a second act in the company he really did not want to return to, is another matter altogether. He has plenty going for him, not least the support of the Murthy clan, widely held responsible for forcing Sikka’s resignation. Some sources believe that today, Nilekani is the only person who can keep a lid on co-founder N.R.N. Murthy’s predeliction to use the media as a foghorn for his agenda.

A few hours later, and still polishing off necessary paperwork work, Sikka called me up. Relaxed and clearly relieved that the turmoil of the past week is over, he said:

The work that Nandan did with Aadhaar ID is very impressive and I’m sure he is a very good choice at this time. He has to succeed for the good of the many thousands of people who work hard every day in the company for what Infosys stands for. Some of the things we were doing are truly world changing and I hope that work continues. It has to. I remain convinced that the transformation strategy we embarked upon three years ago is the right approach but there is no getting past the fact that a transformation on this scale is incredibly difficult and especially in a company with such a deep rooted culture as Infosys. It is achievable.

Asked about the turmoil of the last few days, he said:

In one sense this was inevitable. The distractions I have referred to in the past made it very difficult to get the job done, pretty much impossible. Hopefully that changes now.

Sikka is referring to the ongoing sniping that Murthy undertook over a number of actions he believed represented poor governance.

Asked what’s next, Sikka was more circumspect:

The phone has been busy but my next appointment is with a class in Stanford tomorrow afternoon which I am very much looking forward towards. After that we will see but I am not making any quick decisions. One thing is for sure, there’s no point in looking backwards. That does no good.

And that was pretty much it, other than some joking about whether he’s now got time to go surfing.

One question that may well be answered in the coming days: what role will Nilekani play, beyond brokering the peace between the board and management?

With the founders now having a much greater degree of control over the board, finding two replacement independent directors may not be easy – the two independent directors resigned from the board at the same time as Sikka resigned. Co-chairman Ravi Venkatesan stepped aside from the co-chair role although he stays on the board for the time being.

People I canvassed believe that while his role is slated as non-executive, Nilekani will act as the ‘hidden hand’ behind the throne of whomever is picked as CEO. While that may sound odd, it makes a lot of sense and allows for a good degree of stability among leadership that is dealing with a well known person.

The bigger problem comes from how the customer base responds to the  changes. In the Americas, where Infosys has approximately 65% of its revenue and among customers I met along the way, Sikka was seen as a breath of fresh air. His ideas aligned to their twin needs to reduce IT costs while still following an innovation pathway. The ‘renew and new’ strategy. Much of the original thinking behind the ‘new’ came out of Palo Alto, an office where the future must be in doubt. Fortunately, the company had embarked upon an extensive design thinking teaching program in India and has shown that it can invent in areas like autonomous automotive design. It will need to show much more than this.

Nilekani’s team will need to make a strong impression for Infosys to avoid customers falling into the hands of rivals TCS, Wipro and Cognizant.

On the consulting front, they will have to pretty much restart from scratch and assemble a team that can match IBM, Accenture and Deloitte who are cleaning up in broad based digital transformation projects. Both IBM and Accenture have good marketing stories and, increasingly, good reference customers.

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    1. Vivek Gupta says:

      it is far from obvious if Sikka is the hero and NRN is the villain. In fact, it well might be the other way round.

      The Infosys founders have a very special connection with the company. None of what NRN asked for (make investigation report public, do not pay outrageous severance packages or exec salaries) are out of the norm. Culture is a very big deal and once you start disregarding values, it becomes a slippery slope.

      Even if Vishal was upset about these comments, the best way to address them would have been with the founders in private. If there was nothing wrong with the report, why not release it in public?

      And why get upset over criticism and resign so abruptly? The average common shareholder has lost serious money and the board/CEO need to have shown more composure and equanimity.

      No one comes out of this smelling like roses.

      1. says:

        Vivek – you have a VERY short memory. There were plenty of occasions in the past where requests for things to be made public were ignored.

        This was not an issue between Sikka and the founders. This was an issue of the founders and the Board. That had not been going on a few days or weeks but virtually the whole of this year.

        Like others I have spoken to, I am surprised he stayed on as long as he did. Just how much public abuse do you put up with?

        The average common shareholder has NOT lost out. Good dividends have been paid every year and the payout has been lifted substantially – how is that losing money? And just what entitles ANY shareholder to make money all the time? That’s a ridiculous notion.

        Now – can we all move on?

    2. Vivek Gupta says:

      I have a simple question. What is the hesitation in making the report public, especially if it clears the management of wrong doing?

      Every company has a set of founding values and it is incumbent upon the non-founder CEO to work with the founders to assuage their concerns, even if some of these might seem too traditional or non-capitalistic. Murthy and Nandan are icons of the industry and have non-trivial equity stakes. It is hard to believe that they would intentionally sabotage a CEO and not support the right things.

      30000 crores of rupees of value have vaporized over the last few days. Maybe it might come back, maybe it won’t. But hard to not argue that all parties involved (including Sikka, board, and the founders) have handled this poorly. My point here is that there are no heroes in the story and there is a lot of blame to go around.

    3. says:

      You miss the point – Did you notice how much the shares tanked after Sikka’s resigned? You’d think that with his past track record, Nilekani’s appointment would be seen in a very positive way by investors. Not so given the market price changes today.

      Have you seen the latest US investment analysis? I’ll quote you one, I have others that are equally negative:

      “Our entire BUY stance on Infosys was based on the ability of the outgoing CEO to drive revenue growth, which was higher than peers, and margin contraction, which was lower than peers during his tenure. With the change in the CEO, and more importantly, pending clarity on the appointment of new CEO, we now downgrade our rating on Infosys from BUY to REDUCE. The best option for Infosys Board, if there is any, would be to get an external CEO at the earliest, as internal options are very limited and unexciting, and this would help investors to get comfort on any likely changes to strategy and FY19 revenue growth and margin profile would not get impacted massively. The next six months would be filled with noise and fundamentals would take a back seat and the founders can only redeem themselves by getting an external candidate and reducing the interference with the company.”

      In short – this is not a done deal by any stretch.

      As I have consistently said, the founders need to shut up, put up with their chosen board and let Infy do its work. It doesn’t matter how ‘iconic’ the founders are, none of the picks between 2007-14 were capable of putting down let alone executing on a vision for growth.

    4. RT says:

      Is Vishal headed to HPE as its next CTO?

      1. says:

        No idea – seriously.

    5. says:

      And this from no less than JP Morgan after VS resigned:

      “We treat the unfortunate event of Dr Vishal Sikka’s resignation as the CEO/MD as thesis-changing and downgrade our recommendation on the stock to Neutral with a Mar-18 PT of Rs905. The war of words between the founders and board has intensified, precipitating a crisis. Under the circumstances, Infosys may likely find it hard to attract a suitable, well-qualified professional from outside, who can be confident enough of managing the politics within and outside, particularly given the influence the founders are appearing to bring to bear on the company’s operations. The outgoing CEO, Dr Vishal Sikka, articulated a renewal-cum-growth strategy for the firm that we deemed appropriate. But there is now a real risk that with his departure as the CEO/MD, the force and ability with which the strategy gets executed will suffer at least near term, a risk that Infosys can ill-afford in the current difficult climate for India IT.

      Also, the longer it takes for the board to find a suitable, willing candidate to step into the departing CEO’s shoes, the greater the likelihood that Infosys can drift. The buyback event can be a short-term respite for the stock, but cannot be a fundamental trigger as we’ve seen with other buybacks in India IT.

      Vacuum of leadership and lack of direction with likelihood of more departures likely to hurt. Dr Vishal Sikka has brought in a vision for the company. We believe he had a reasonable chance of executing the vision given his technology prowess, vision and ability to blend the OLD with the NEW, while adequately respecting Infosys’s culture. While some aspects have shown progress (articulation of NEW, instilling a sense of urgency, attrition considerably moderated from where it stood at when he took charge, improving engagement levels with key clients, customer satisfaction levels), there was
      much still left to be done (making automation more effective and pervasive, sustaining initial client mining success which stalled, reversing the trend of pricing decline, powering the NEW to contribute more meaningfully, controlling senior management attrition, etc.)…

      …Dr Vishal Sikka’s departure renders the job undone, while creating the risk of whatever has been achieved breaking down. Additionally, we worry that key employees (especially those brought in from outside by Dr Sikka for building the NEW) might press the EXIT button.

    6. Vivek Gupta says:

      I do not disagree with what you are saying and have seen many of the same analyst reports. Vishal’s exit is a real loss to Infosys.

      But… being a successful CEO is not just about vision and strategy. It is also about managing the founders and the board, understanding sensitivities related to governance, finding a way to get things done, and most importantly, having a thicker skin. Vishal had more leverage than he thought and should have really stuck it out. The NEW had just started to take shape but his legacy now is more talk of transformation than actual transformation.

      I am an ex-employee of Infosys (left in 16) and am very aware of the dynamics here. My point is that there are more nuances than the storyline you are pursuing which is “Vishal did everything right, but the founders could not let go of the past and made it really tough for him”.

      The reality is more complicated. And you still do not answer my question on why Vishal and the board could not make the report public.

    7. Vasu says:

      I am a current Infosys employee and j agree with Vivek here.

      There are many sides to this story and simplistic narratives miss the point.