The fallout and blowback following the resignation of Vishal Sikka as CEO and MD Infosys is underway. For all intents and purposes, the Infosys Board is now in open warfare with some of the company's co-founders and N.R.N. Murthy in particular.
But before we get to that, I have repeatedly criticized the Indian media as lazy and sensationalist. Here is a good example. Five reasons why CEO Vishal Sikka had to leave Infosys. It never addresses what Sikka had to say in his leaving letter. How about this. In a highly aggressive story posted by Mint that talks about Board pronouncements in its first press release on Sikka's resignation, the author says:
This “Grinch-stole-our-CEO” narrative doesn’t wash.
If the board had simply made a point-by-point rebuttal of a whistle-blower’s detailed allegations of impropriety in a $200 million acquisition of Israeli automation-tech specialist Panaya Ltd in 2015, it would have been relatively easy to shift the blame to N.R. Narayana Murthy.
This is raking over co-founder Murthy's repeated claims in the media and which the Infosys Board has debunked on numerous occasions. Later, the author acknowledges that Infosys issued an additional company statement (and BSE filing) although there is no link, I believe it is this one. Mint goes on to make the claim that:
By being miserly with disclosure, the board has allowed the scandal to fester. Gadfly said Thursday that either the culture at Infosys, once admired as India’s most transparent company, gets a reboot, or investors should give the board the boot.
It now appears that one course may depend on the other. That’s because a second press release from Infosys, holding the 70-year-old Murthy responsible for the mess, makes any compromise impossible.
No. By not accepting the findings and taking to the media, Murthy has kept a hungry media well fed.
Adding spice to the mix, Murthy, co-founder and at the center of the drip feed of media speculation is reported to have made a statement that was read by the Infosys Board during an analyst call earlier today:
I have read the statement issued by the Board of Directors of Infosys.
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.
It is below my dignity to respond to such baseless insinuations. However, several shareholders who have read the whistle-blower report have told me that it is hard to believe a report produced by a set of accused, giving a clean chit to the accused, and the accused refusing to disclose why they got a clean chit! They say that this is not the way an impartial and objective investigation should be held.
I will reply to these allegations in the right manner and in the right forum and at the appropriate time
Picking apart the arguments
Let's pick this apart given that the Band-Aid has been well and truly ripped off the festering sore.
In the second company statement, Infosys sought to address - again far too late in the day IMO - specifics that Murthy has claimed in public. It prefaces remarks saying:
The Board has been engaged in a dialogue with the Founder to resolve his concerns over the course of a year, trying earnestly to find feasible solutions within the boundaries of law and without compromising its independence. These dialogues have unfortunately not been successful.
Another way to look at this is to say that Murthy wants things his way or no way. And so it seems. More serious statements come next:
The Board has sought the counsel of some of the most respected governance experts and legal advisors in the world, which have thoroughly investigated all anonymous allegations and concluded that no wrongdoing occurred. For Mr. Murthy to imply – with no evidence whatsoever – that three well-respected international law firms, members of the Infosys Board and certain employees are engaged in some grand global conspiracy to conceal information is not tenable on its face. It is important to mention here that Mr. Murthy was interviewed as part of the investigation by Gibson Dunn & Crutcher LLP in pursuance of the investigation in the Panaya acquisition, and was invited and welcomed to provide any information or evidence he believed would support the allegations being investigated. He did not provide any evidence since none exists. However, he has not mentioned this is his media communication against the investigation.
In short, Murthy is using unsubstantiated claims and, more importantly, cannot produce ANY evidence to back his claims. That is an extremely serious statement when weighed agains the continued questioning of the report outcome by Murthy and parroted by the media. There's more:
- Mr. Murthy has demanded that the Board adopt certain changes in policy, else he will attack board members in the public, which threat was carried out when the Board did not acquiesce;
- He has demanded that the Board appoint specific individuals onto the Board under similar threat, without appropriate disclosure and without regard to basic determinants of appropriateness or fit of the candidate for the role as a Board member;
- He has demanded operational and management changes under the threat of media attacks;
- Notwithstanding that the remuneration package of senior management was approved overwhelmingly by shareholders (including members of the promoter group), Mr. Murthy preferred his dictat to prevail with no place or tolerance for the outcomes of shareholder democracy.
- Mr. Murthy wanted the demands to be adhered to without attribution to him.
It is inconceivable that the Board would issue such a strongly worded statement without documentary evidence to back up those points. This goes to the heart of governance. When a Board is faced with a shareholder acting in this manner, it is very difficult to fight back although it is possible. The Board should have called his bluff on every occasion, setting the record straight, pointing to undue influence and meddling in matters governed by law.
Specifically, it is not up to shareholders to demand changes of the kind being suggested. If it feels strongly enough, then shareholders need to muster enough votes to force change. That has never been possible.
But then we have seen Murthy's response - all emotion and zero substance.
The last year or so, Indian media has been on a feeding frenzy at Infosys and Murthy has been more than happy to keep throwing enough incendiary tidbits to keep the hacks gainfully employed. It now turns out that some of Murthy's repetition of claims about Sikka as unqualified as CEO were taken out of context. I am so not surprised when considering how lazy Indian media has been on this topic. But those words were in the mix somewhere and were highly damaging.
The elephant in the room
Regardless of the merits of any discussion on this topic, the Infosys Board has put itself in a difficult position. It claims support for Sikka, with some suggestions that they asked him to reconsider before he pulled the resignation trigger. Too late. This set of problems has been ongoing for many months and while co-chairman Ravi Venkatesan has appeared on Indian TV from time to time making soothing sounds, those have largely been drowned out by the much more titillating stories emanating from Murthy's drip feed, aided and abetted by former executives who have long gone from the company but who are eminently quote worthy.
In short, Murthy has played both the Board and the media, succeeding in largely winning the PR battle that led up to Sikka's resignation.
This was a topic that Sikka and I talked about a few times in the past. Neither he nor the Board could understand the motivations for Murthy's actions. Even now, the Board is not clear because to claim a lack of governance and then to shoot down the very work Murthy wanted completed makes no sense.
I was always under the impression that Infosys was like a sieve, leaking continuously from multiple orifices and that someone needed to get in front of the media fallout. That never happened. Now the Board is playing hardball in a game where it is 10-0 down in the 9th inning. The chances of salvaging this one are remote.
The only way to understand this right now is to go back to my quote from Vinnie Mirchandami on my earlier post:
Infosys must be an extreme example of how founders and early execs continue to meddle years after they should have retired and played golf. They insist on showing up in customer visits, speeches at events, shareholder events etc
Must be incredibly tough to be an outsider exec like Vishal Sikka
One Infosys employee pinged me to characterize recent events as:
Murthy was like that dissatisfied mother-in-law who didn't like her son's choice of bride.
Except it was Murthy who selected the bride in this case.
In the meantime, we have to wait and see how investors respond. About the only thing that Mint is right to consider is whether the share price tanks enough for the founder-promoter group to acquire enough shares to forma block that can unseat the Board. If that happens then all bets are off for the future of this iconic but now dysfunctional company.