Institutional EYE

Commentary on Corporate Governance Issues

Infosys: War and Peace

August 18, 2017

Vishal Sikka’s resignation cannot come as a surprise. Despite best efforts, Infosys’ board was unable to protect him from the constant onslaught of Infosys’ highly-statured, yet petulant, critics. IiAS believes that to put the company back on strong footing, Nandan Nilekani needs to be brought back, as the Non-Executive Chairperson: he has the stature and gravitas to fit the pieces together.

 

Vishal Sikka’s resignation was expected. Most talented professionals will weigh where their time is being spent and if that is indeed worth it. Public comments from Narayana Murthy, with some of the other ex-employees joining-in on the chorus, have been distracting. The board, and Vishal Sikka, have spent considerable amount of time addressing the concerns -  to a point where the company, in its 20-F filing, disclosed distractions from ‘activist shareholders’ as a possible risk to achieving the company’s strategic goals. Investors could see the writing on the wall too.

 

While Narayana Murthy no doubt has a larger than life presence, he must know that with great power comes great responsibility. And therefore, power must be wielded judiciously. He may find solace in Vishal Sikka’s resignation, but shareholders have paid the price: his comments have been a constant distraction, periodically destabilising the company. Infosys’ investor call also raises some important questions – will a new leadership change direction of Infosys again? And will it undo what Vishal Sikka has attempted to achieve?

 

The resignation brings Infosys back to where it started – in search of a new CEO. In its earlier search, the board concluded that several internal candidates were not suitable for the role. Given that the company needed to transform itself, getting someone from the outside was indeed the right decision. However, this time, the search will be far more difficult. Any potential candidate will be concerned about being watched and publicly criticized – an idea that cannot be pleasing to anyone on the outside. Given this, perhaps internal candidates that remain faithful to the old guard are an easy choice – but risks compromising competence for peace.

 

Infosys’ board has attempted to play the hand it has been dealt, but has been unable to protect its CEO. It has one more hand to play in selecting a successor, but to play it right, it must begin by reinventing itself. It must convince Nandan Nilekani to join the board once again, as its Non-Executive Chairperson.

 

Nandan Nilekani is possibly the very best candidate Infosys can find globally. He has kept pace with technology advances, has been instrumental in digitalizing the country, and is well-networked with the bureaucracy and global leaders. He also has skin in the game: having started with Infosys early in its journey, Nandan Nilekani will intuitively understand the corporate culture, and as such also have ‘matching of minds’ with some of Infosys’ founders. He is best-positioned to shepherd the company as it finds a successor and reinvents itself. And, he possesses the stature to bring an end to the public discourse.

 

To our mind, this is an optimal solution, given the multiple agendas the board and the company need to manage. The challenge is to convince Nandan Nilekani to return.

 

Nandan Nilekani should not see this as any other corporate job:  given that Infosys remains at the heart of Indian IT, the company’s success will foretell how the sector will position itself for the future. 

 

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