At Infosys, it’s all-out war as Vishal Sikka resigns
At Infosys Ltd, the battle between the founders and the company’s board has just gone nuclear.
In an unprecedented attack, the board of Infosys on Friday blamed founder NR Narayana Murthy, who has often referred to Infosys as his “middle child”, for his “continuous assault and misguided campaign”, and said this was the primary reason behind the abrupt exit of chief executive officer (CEO) Vishal Sikka. Murthy denied the allegation in a short, terse statement.
“Mr. Murthy’s continuous assault, including this latest letter, is the primary reason that the CEO, Dr. Vishal Sikka, has resigned despite strong board support,” said a statement by Infosys to stock exchanges on Friday. “Mr. Murthy’s campaign against the board and the company has had the unfortunate effect to undermine the company’s efforts to transform itself. 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.”
Infosys co-chairman Ravi Venkatesan said later in an investor call that the company had no intention of asking Murthy to play a role in the governance of the company—reversing his and the company’s earlier position of wanting to reach out to Murthy and offer him a formal role on the board, according to an interview to a TV channel last week.
“The board has no intention to invite Mr Murthy to play a formal role in governance,” Venkatesan candidly said on an investor call on Friday.
According to at least two people directly aware of the developments, the board’s decision to issue the scathing statement on Murthy was not unanimous, but rather a majority decision—a clear sign that this tussle with the founder will test the unity of Infosys’s board over the coming weeks and months.
Mint could not immediately verify which board members did not vote in favour of the statement.
This marks the first time in the company’s 36-year history that the board of Infosys has strongly criticised any of its founders and is widely being seen as a point of no return for relations between Murthy and the board.
In a scathing six-page letter to the stock exchanges, Infosys pulled no punches and said that the board believed it should set the record straight on the false and misleading charges made by Murthy because the founder’s actions and demands are damaging the company.
“The board declines to speculate about Mr. Murthy’s motive for carrying out this campaign, including the latest letter,” said Infosys, referring to a letter that Murthy wrote to some of his advisers on 14 August.
Infosys even bluntly accused Murthy’s letter of containing “factual inaccuracies, already-disproved rumours, and statements extracted out of context from his conversations with Board members”.
“We are concerned that this type of campaign runs the risk of confusing investors and undermining the Company’s management efforts,” said Infosys.
Murthy swiftly responded by saying he was “extremely anguished by the allegations, tone and tenor of statements made by the board” and that it was “below his dignity to respond to baseless insinuations”.
He later released a copy of the 14 August letter which is an extended version of another letter he sent some of his advisers on 9 August, and which was first cited by Mint in an article on Thursday night.
Experts believe that this tussle between the two warring camps could intensify in the coming weeks.
“I am saddened in the manner in which Infosys put out the press release blaming Murthy. I expect more changes at the board as misalignment of views will intensify between founders and board because of Infosys blaming Murthy in the press release,” said Shriram Subramanian, founder and managing director of proxy firm InGovern Research.
A Mumbai-based analyst at a foreign brokerage firm said, “Now the board is blaming Murthy for the entire mess. But it was Ravi Venkatesan who until last week was quoted in the media, saying he is open to the idea of Murthy joining them at the board.”
“I believe going forward it will test the resolve of not just the board but even large institutional shareholders as founders will not take it quietly. Clearly, it is the start of another round of bickering,” said the analyst on condition of anonymity.
Murthy has publicly lambasted Infosys over the course of the past six-seven months for lapses in corporate governance. In his 9 August and 14 August mails, he criticized the board for failing to uphold the company’s famed governance standards and not “creating checks and balances required in any well-run company”.
He has in the past questioned the $200 million purchase of Panaya and generous severance payments made to former chief financial officer Rajiv Bansal (part of which was stopped later) and to former general counsel David Kennedy.
“A belligerent attitude towards the founders of an iconic company will keep friction levels high and make the search for an external CEO tough,” wrote Ankur Rudra, an analyst at CLSA, in a note on Friday.
Murthy made it clear that he has no intention of backing down.
“I will reply to these allegations (by the Infosys board) in the right manner and in the right forum and at the appropriate time,” Murthy said in his statement.