Some advisory firms have already asked former CEO and co-founder Nandan Nilekani to return in a non-executive chairman’s role and clean the mess. The Infosys scenario of a stand-off between the founders and the board will increasingly play out in Indian corporates.
The dramatic events of August 18 have raised more questions than answers in the Infosys saga.
Beyond the immediate question of who next as CEO, what has come to the fore is the role of founders and the board in the new generation of firms started by professionals, funded by equity capital and in which, traditionally, promoters will have minority stakes (of 10-20%).
The immediate question is, will it now be an all-out war between the founders and the militant-sounding board, a continuation of the ‘intifada’ of the last 16 months, or a grand reconciliation? The tough stance taken by the two sides last week, with the board hijacking the narrative by putting out a laundry list of co-founder N R Narayana Murthy’s alleged sins and the latter deigning to not reply to such ‘canard’, it looks like war.
But many believe that total reconciliation or peace is also a possibility if both the parties believe Infosys comes first. This would, however, require intervention at a very high level from a powerful, well-respected person — someone who can get both sides on the same page and draw a line below this whole, messy chapter.
Some advisory firms have already asked former CEO and co-founder Nandan Nilekani to return in a non-executive chairman’s role and clean the mess. Nilekani has stayed well away from Infosys since quitting in June 2009 to join UIDAI. It is believed that he was asked by Murthy to consider returning when the latter came back to the firm in 2013. Nandan Nilekani is said to have declined.
Even as the disagreements between the Infosys board and the founders became public last year, initially, Nandan Nilekani stayed neutral and, at times, was at odds with Murthy. He voted in favour of Vishal Sikka’s tenure extension and salary hike in April 2016. However, last December, he’s said to have attended a meeting called by Murthy and is now aligned with his co-founders.
Most of the people TOI spoke to for this story are convinced that Nilekani will stay away. “That train has left the station. He’s got bigger fish to fry. Why will he dirty his hands in this mess?” said a person who knows him well. But as IiAS, a voting advisory firm, pointed out, he has skin in the game. The bulk of his wealth is tied to the Infosys stock. He is more than an interested party.
In fact, the question being asked now is: ‘Why did the Infosys founders not transition to a board role when they quit executive roles in 2014 instead of opting to be mere shareholders?’ Founders joining the board “would have stabilised the transition”, says another source. He adds the founders have to stay and play the trusteeship role on the board.
The void left on the board when they left en mass has led to this mess, said multiple sources. Microsoft is cited to show how this can be done well. Bill Gates gave up the CEO post to his friend Steve Ballmer but stayed on the board and when he thought it needed a new face, brought in Satya Nadella.
Another argument is that in picking the first non-promoter CEO, the promoters erred in looking at only technical credentials. “It is also important to have a valuefit,” says Manish Sabharwal, chairman of staffing firm TeamLease. “It’s important to have ‘Niyat’, which is match of mind as well as ‘Zehniyat’, a match of mind and soul,” he adds.
Meanwhile, the board’s aggressive stance is also coming under criticism. Anil Singhvi, chairman of Ican Investment, a corporate advisory firm, said, “The collective failure of the board in the past one year is bigger than Vishal’s. They didn’t advise him appropriately on Rajiv Bansal and David Kennedy matters. The board also failed to understand broader culture, which is built on Murthy’s frugal philosophy, and guide Vishal accordingly. Now, to single out Murthy for all the troubles is grossly unfair.”
He further says, “When founders who still own more than $4 billion in shares take a backseat, the independent board should have played an active role in understanding their views. Murthy is just not another founder. How many Indian founders own multi-billion-dollar shares and decide to take a backseat?” Sabharwal agrees. “It is not fair for the board so say that ‘voice of capital’ should not have a say. To argue that professionally run firms should not have voice of capital is wrong from an economic, intellectual and spiritual perspective,” he says. In these companies, large institutional shareholders like mutual funds cannot provide governance because if they are unhappy they will simply sell their shares.
The Infosys scenario of a stand-off between the founders and the board will increasingly play out in Indian corporates. Because, for the first time, a generation of equityfinanced founder companies are coming of age. They are different from the earlier generation of institutionalfunded promoter companies where majority ownership is the norm. These founders will typically be minority shareholders and how the boards treat them will set the tone for their success and longevity.