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Vishal Sikka’s surprise resignation leaves a gaping hole and a power flux at Infosys

With Vishal Sikka’s surprise announcement, the company has several critical issues to deal with – primary among them is finding his successor and secondly, possibly facing more top-level departures.

business Updated: Aug 19, 2017 07:25 IST
Anirban Sen and Varun Sood
Anirban Sen and Varun Sood
Livemint, Bengaluru
Vishal Sikka,Sikka quits Infosys,Infosys
Infosys executive vice chairman and former CEO Vishal Sikka announces the new interim CEO through a video-link from California, as co-chairman Ravi Venkatesan looks on at the company's headquarters in Bengaluru on August 18, 2017. (PTI Photo)

As Infosys Ltd searches for a successor to Vishal Sikka, who quit on Friday as its first non-founder chief executive, the company confronts the risk of more top-level departures, executives and analysts said.

It is one of the three issues that Infosys needs to address even as its board scours the resumes of internal and external candidates who could potentially replace Sikka, according to two executives and two analysts.

Infosys may see significant flux at its Silicon Valley office where top executives such as Navin Budhiraja and Abdul Razack help generate business from new areas such as digital, they said.

“Now I worry for the California-based executives he (Sikka) brought on board — this will be a power shift back to Bangalore, and most of the guys Vishal brought on board will either jump ship or be pushed out very quickly,” said Phil Fersht, chief executive officer (CEO) of US-based HfS Research, an outsourcing-research firm.

Sikka’s departure followed months of friction between the board of Infosys and founders led by NR Narayana Murthy, who has alleged corporate governance lapses, including in the $200 million purchase of Israeli automation technology firm Panaya Ltd.

That’s at the centre of the second issue flagged by the executives and analysts. The tussle between the founders and board is expected to test the unity of the company’s board, where some members still remain loyal to Murthy, raising the prospect of board-level changes.

“I expect more changes at the board as misalignment of views will intensify between founders and the board because of Infosys blaming Murthy (for the departure of Sikka) in the press release,” said Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research.

Murthy said in a 9 August email to some advisers that at least three Infosys board members had told him Sikka was chief technology officer and not CEO material, Mint reported on Friday.

“Murthy’s remarks had put Vishal in an awkward position, but this is the right time for changes at the top. Vishal was the right man to take the helm when he did, when the company needed to shift its culture to one of more out-of-the-box thinking, and needed to find its technical roots,” said Fersht.

“However, the changing tide of the industry in recent months had made it increasingly difficult for Vishal to steer the ship at a time when the company desperately needs to shift its cost base, while investing in growth areas,” he said.

“In many respects, Vishal was in an impossible position, and he simply wasn’t the right man anymore to make the painful changes Infosys needs to make to stay ahead of the game. He came across as a dead man walking at Confluence (an Infosys event) in May, and it’s surprising he lasted this long,” said Fersht.

Third, analysts tracking Bengaluru-based Infosys have warned that in the light of Sikka’s decision to step down, the company could lower its revenue guidance for the current year when the firm declares its second quarter results, on account of business taking a hit.

“We do not believe the event (CEO resigning) brings closure to the (founders’) demands. The board now has an uphill task of addressing (a) founder group concerns, (b) investor concerns about succession planning, finding a ‘culturally fit’ CEO and avoiding business disruptions in the interim and (c) not ceding ground (once again) to competition while addressing internal challenges,” Aniruddha Bhosale, an analyst at Deutsche Bank, wrote in a note.

“In our view, these distractions will lead to further attrition in the middle management of Infosys, resulting in the company ceding market share to competition (as happened in FY11-15),” Bhosale wrote.

He warned investors to brace “for another round of turbulence”.

“Dr Sikka’s resignation could not have come at a worse time for Infosys. It remains to be seen if the current crisis and time taken by the new CEO to steady the ship pushes Infosys towards another period of business underperformance versus peers (as experienced in FY11-FY15).”

How well Infosys addresses these three challenges in the near term under interim CEO UB Pravin Rao may well determine whether India’s second largest software services firm continues to be a relevant force at the top of the country’s over $150 billion IT industry.

First Published: Aug 19, 2017 00:20 IST