Infosys board draws flak for 6-page note blaming Narayana Murthy for Sikka exit

The board’s six-page note blaming Murthy has upset all the founders. Large investors, proxy advisory companies, brokerages, top executives question the move.

business Updated: Aug 23, 2017 10:41 IST
Anirban Sen and Varun Sood
Anirban Sen and Varun Sood
Livemint, Bengaluru
Narayana Murthy,Infosys,Vishal Sikka
Infosys co-founder NR Narayana Murthy during an Interview in Bengaluru on June 30, 2017.(PTI File Photo)

Large institutional investors, proxy advisory firms, brokerages, top executives at the company and some of the company’s 200,000-odd employees have the same question: why did the board of Infosys decide to release the now-infamous six-page note blaming founder NR Narayana Murthy for CEO Vishal Sikka’s decision to quit.

After the initial days spent digesting news of the CEO’s abrupt decision to quit, the events in the run-up, and the consequent Rs 33,074 crore loss in market value since Friday, these stakeholders are now asking why the board lashed out at Murthy. Questions are being asked whether R Seshasayee should continue to remain chairman of the board. And, several investors have written or are in the process of writing to the board asking it to sort things out with Murthy.

“(This is) the biggest mis-management by any board of a large listed company in India,” said a former executive vice president of Infosys, on the condition of anonymity. “As a shareholder, I would say the chairman let me down by not performing his fiduciary duties. He could not retain his CEO; nor could he work with an influential group of minority shareholders. To make matters worse, the board went ahead and released a letter blaming someone else for its own mistakes.”

There’s also the real fear that Infosys’s proposed Rs 13,000-crore share buyback could be derailed if the five founders, who collectively own 12.75% stake in the company, vote against the resolution. Infosys’s share buyback is a so-called special resolution which needs approval from two-thirds of shareholders. Historically, not more than 70% of shareholders vote for any proposal, and if the founders vote against the resolution (and the overall vote remains at around 60%), then the buyback could fall apart.

To be sure, the company’s five founders have not yet decided if they will participate in the buyback. But the board’s six-page note, blaming Murthy has upset all the founders.

“It was pathetic. It was offensive and not befitting the board of a company like Infosys,” said one of the founders on condition of anonymity. “If the board had so much confidence in Vishal, why has it been constantly talking to others, including Mr. Murthy, and complaining about Vishal’s performance as a CEO?”

Murthy wrote in a letter dated 9 August to some advisors that Infosys co-chairman Ravi Venkatesan and two other independent directors had told him that Sikka was not CEO, but CTO material.

The board’s six-page release on Friday blaming Murthy, who has often referred to Infosys as his “middle child”, for his “continuous assault and misguided campaign”against Sikka has caused heartburn among the five founders.

Co-founders Murthy, Nandan Nilekani, SD Shibulal and K Dinesh did not respond to e-mails seeking comment while another co-founder Kris Gopalakrishnan declined comment. “The resolution for the share buyback should get 75% favourable votes of the total votes polled,” said an Infosys spokesperson, who declined to comment on other issues raised in this story.

“Until now, the promoters only stayed away from voting over some of the resolutions that came for voting. I won’t be surprised if, at some time the promoters also decide to vote against the board’s decision because they have lost their trust in the board” said another senior Infosys executive who spoke on condition of anonymity.

Murthy has been meeting heads of large institutional investors, mutual funds and a few brokerages over the past month in an effort to build pressure on the board, the second Infosys executive added. He met with representatives from Oppenheimer Developing Markets Fund, the third-largest institutional investor in Infosys in July, this person said. Oppenheimer trimmed its holding in Infosys to 2.16 per cent at the end of June compared to 2.36 per cent.

An Oppenheimer spokesperson did not respond to an e-mail seeking comment. On Wednesday, Murthy will be speaking to investors at a conference hosted by Investec India.

In February, when Murthy publicly lambasted the board over alleged poor governance issues, both large investors and company employees questioned Murthy’s move. At that time, the board was led by Seshasayee, who completely backed Sikka. Now, Infosys’s co-chairman Venkatesan is the face of board, and according to at least four executives at Infosys, including those mentioned above, he and Sikka have had a tough working relationship. Mint reported on August 21 that Sikka told some executives close to him that he wanted to resign when Venkatesan was appointed co-chairman in April.

A number of executives and employees, including senior leaders at the company have reached out to the Infosys board over the last two days, pressing the board for an early resolution to the ongoing tussle and expressing unhappiness over the board’s decision to issue the six-page statement against Murthy.

Moreover, the timing of this tussle between the board and the founders could not have come at a worse time, as the Infosys board is yet to officially start the process of finding a successor.

Privately, Venkatesan and other board members have agreed that the spat between the board and the founders needs to be resolved before the CEO search can begin in earnest, according to three of the four Infosys executives mentioned above.

First Published: Aug 23, 2017 09:58 IST