Infosys: A Tata-Mistry in making, but Vishal Sikka is no Cyrus Mistry
It takes more than just a boardroom coup to oust a company’s chairman or chief executive, though Rata Tata is different. It took him just one board meeting to remove Cyrus Mistry, the chairman of Tata Sons, whose family’s firm Shapoorji Palonji holds 18.4% in the Tata Group.Infosys Divide Updated: Feb 13, 2017 12:36 IST
It takes more than just a boardroom coup to oust a company’s chairman or chief executive, though Ratan Tata is different. It took him just one board meeting to remove Cyrus Mistry, then the chairman of Tata Sons, whose family’s firm Shapoorji Palonji holds 18.4% in the Tata Group.
But inside Infosys, the Vishal Sikka episode, despite having many similarities with what happened to Mistry, is shaping up to be a different story. Sikka is the CEO of Infosys, who has been at loggerhead with its founders.
The fundamentals of the Sikka versus Infosys’ founders, including the formidable NR Narayana Murthy, draws parallels from the Tata-Mistry boardroom battle, over issues of governance, disclosure norms, and transparency. And there is more – the founders have raised concern over Sikka’s compensation, and Rs 17-crore severance package paid to Rajiv Bansal, Infosys’ former chief compliance officer.
Experts, too, agree that the battle is somewhat panning out in a similar fashion. “The founders (like in Tata, where it was the family) sees that it their right to interfere, make comments, and direct the way the business should be done,” said Kavil Ramachandran, Thomas Schmdiheiny chair professor of family business and wealth management, Indian School of Business.
However, in Infosys’ case, the founders do not enjoy the power that Tata had. The founders all combined hold 12.75% stake. In Tata Sons, Tata Trusts holds 66% stake – of which Ratan Tata is the chairman.
This is not how it was in the beginning. A person who knows both Sikka and Murthy said that in the initial years, Murthy was along Sikka’s side and advised him. “Perhaps, Sikka didn’t pay much heed to those advises,” the source said, resulting in the clash.
To a financial daily, Murthy said that since Infosys was founded, till October 14, 2014, when he left, “we strove to be best governed company in India”, but after June 1, 2015, there has been a “concerning drop in governance standards”.
Murthy raises questions on payment of huge severance packages (with 100% variable component), and on transparency. In the interview he also said that other founders and “stellar” former employees, such as Mohandas Pai are disappointed.
The source quoted above that the battle between Sikka and Murthy is more of an “ideological” fight, where the founder wants the company to be run in a particular fashion.
“There will always be differences in how an organisation can be run and this is expected all the more when founders are no more at the helm. Separating ownership from control is one of the long-standing battles for founders and latter raising concerns post stepping down from the helm is both correct and expected,” said Sanchit Vir Gogia, CEO and chief analyst of Greyhound Research.
Sikka doesn’t agree. In a letter to his employees, he said “ignore all speculations about governance”.
Unlike the Tata-Mistry case,where Tata enjoys the support of the board, Murthy doesn’t. “The Board is fully aligned with the strategic direction of Dr. Vishal Sikka and is very appreciative of the initiatives taken by him in pursuance of this transformation,” said R. Seshasayee, chairman of the Board in a statement.
“The board is the ultimate delegated power. So long you are on the board, you can participate... He might have to get back on the board to exercise he powers,” said Ramachandran. “Washing dirty linen in public is creating confusion, that’s exactly what happened with the Tata-Mistry episode.”
Murthy’s comments, few take with a pinch of salt.
“These are claims, but the feedback is different from a majority shareholder... It is a cultural battle. It is a good question to ask why Rajiv Bansal was paid Rs 17 crore, but the decision is a management decision,” said Jessie Paul, former marketing head of Wipro, who runs the marketing firm Paul Writer.
She adds that the drivers of dispute in Infosys, on the face of it is the same as Tata. “The allegations, too, are similar,” said Paul, but the board composition is different. “In Tata’s case, he was an insider.”
While this is just the beginning of another boardroom battle between founders and management, Infosys might risk losing its “good employer and best governed company” image.
“Companies don’t want negative attention. The imagery built over decades go through a bit of a drubbing. They avoid unless it is unavoidable -- In both Tata-Mistry and Infosys this was inevitable,” said brand expert Harish Bijoor of Harish Bijoor Consultants.
Murthy stepped down, and trusted Sikka to run the company. Ramachandran said that after he stepped down, you are just a shareholder. “Then while running, you say that you are not running it the right way. That is not fair.”