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Infosys battle lines drawn, Sikka and Murthy factions near all-out war

Infosys Divide Updated: Feb 13, 2017 22:05 IST
Varun Sood
Varun Sood
Livemint, Bengaluru
Vishal Sikka

Infosys Ltd appears to be headed for an all-out war between two warring factions, one jointly led by CEO Vishal Sikka and chairman R Seshasayee, and the other led by founder NR Narayana Murthy as the board holds a press conference in Mumbai on Monday.

Sikka and Seshasayee, along with board members, will hold a press conference, in a show of strength, after Murthy publicly expressed his displeasure with some of the decisions taken by Seshasayee. The two are also expected to show letters of support from large investors having confidence in the current management and board, after Murthy questioned some of the decisions taken by the board in the last 10 months, terming them corporate governance lapses.

Infosys has hired JP Morgan to garner support from company’s large institutional investors in favour of the current management and board, according to an executive familiar with the development.

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Emails sent to Infosys and JP Morgan seeking comment went unanswered.

“I don’t know if this is the best decision by them (Sikka and Seshasayee) to address issues in this way (in a press conference) because you don’t want these things to be done in public,” said an executive, on the condition of anonymity. “But I would believe they have been advised to do this after the founder of the company decided to go public.”

Seshasayee is backed by most members of the board, although he does not have unanimous support from all the eight independent directors as a few directors see “merit in the suggestions made by Murthy”, according to two people familiar with the development. Infosys has eight independent directors. Sikka and chief operating officer UB Pravin Rao are the two executive members of the board.

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On Friday,Mint reported that Infosys founders had expressed their displeasure with Seshasayee over some of the board’s decisions and asked him to consider stepping down.

The developments at Infosys will decide the future of India’s second-largest software company, which employs close to 200,000, and the shareholders.

Only five of the seven original co-founders, Murthy, Nandan Nilekani, SD Shibulal, Kris Gopalakrishnan and K Dinesh are categorised as promoters, who together hold 12.75%stake in the company. Foreign institutional investors hold 39.02% stake, insurance companies have 11.26% and mutual funds hold 7.42%. Foreign non-institutions hold another 16.78% stake, others have 2.87%, and retail investors or public have 9.9% interest.

“We are an independent board. How can we agree to these demands of removal of chairman and someone else from the board because all these are collective decisions,”said an Infosys board member, on the condition of anonymity.

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For this reason, the founders need to seek majority support on the board or get approval from shareholders in an annual general meeting or extraordinary general meeting if they want their demands accepted. “It is a hypothetical question for now,” said the head of a large domestic institutional investor in Infosys, on the condition of anonymity, when asked if investors will side with the founders or the management team, if a resolution is sought before shareholders. “We still believe that this situation won’t arise and a solution will be found. We are still reading the developments, and will hear out all sides before deciding what to do next.”

There are three big challenges ahead of Sikka and Seshasayee for now. Firstly, to make sure the issue raised by Murthy does not flare up and an amicable resolution can be reached. Secondly, Sikka and Seshsayee need to muster enough support from large institutional investors for they will need the backing of these large shareholders, in case some of the founders or a large shareholder decides to bring in a resolution demanding the removal of Seshasayee at an annual general meeting or extraordinary general meeting.

Finally, Sikka will have his task cut out in managing his staff and clients, some of whom may fret over the ensuing drama.