Sikka, Weak Board or Murthy – Who’s to Blame for Infosys Mess?

Troubled by allegations, Murthy, who along with other co-founders hold an approximately 13 percent stake in Infosys

Was Vishal Sikka sacrificed at the altar of the founder’s ego or did he take the fall for an incompetent board? Or did Sikka pay for inadequate disclosures regarding the Panaya acquisition, one that he led?

More questions than answers surround Sikka’s resignation as the chief executive officer and managing director of Infosys Ltd, one of India’s leading information technology companies.

Who’s To Blame?

Everyone has failed the minority shareholders

Anil Singhvi, founder of proxy advisory firm IiAS told Bloomberg

Singhvi pointed to the failure of Sikka and the board to adequately answer co-founder NR Narayana Murthy’s questions regarding corporate governance standards surrounding the Panaya acquisition and the departure of Infosys’ chief financial officer and general counsel.

Singhvi referred to the board’s statement blaming Murthy for Sikka’s resignation to pose two questions –

1. If no wrongdoing had occured why did the board not protect Sikka better?

2. And why does the board refuse to make public the full investigation reports on Panaya and another acquisition?

Is the Infosys board so incompetent that it could not protect the CEO and made him a sacrificial lamb? On the one hand, they say Murthy is completely wrong, then why did Sikka have to go. If the entire board feels Murthy is creating a problem, the entire board should have quit.

Anil Singhvi, Founder, IiAS

He also wondered why Murthy wouldn’t share more evidence to support his allegations of poor governance at Infosys.

Why Not Make The Investigation Reports Public?

At the heart of the battle between Infosys founder NR Narayana Murthy, the company’s board, led by co-chairman R Seshasayee and Ravi Venkatesan, and Sikka are allegations made by a whistleblower regarding kickbacks and conflict of interest in two acquisitions made by the company.

Troubled by the allegations, Murthy, who along with other co-founders, holds an approximately 13 percent stake in Infosys, insisted the board investigate the allegations. The investigations found no wrongdoing.

Murthy asked the board to make the reports public...but the board declined to do so prompting a rebuke from the founder. That spark lit the fire that eventually singed Sikka.

A company’s board is not obliged to defend every decision, said Prabal Basu Roy, a commentator on corporate developments, in the BloombergQuint discussion.

When you are entrusting a company to be run by a board, and the board has decided that a certain method of investigation take place, it is not necessary to put it in the public domain. It can do it if it wishes to, but that cannot be held as the reason for doubting everybody in the system.

Prabal Basu Roy, Corporate Commentator

Should The Infosys Board Be Reconstituted?

In not sharing the investigation reports and in not being able to retain Sikka ,did the Infosys board fail to do right by the company’s shareholders?

Singhvi argued that the “weak” board is an outcome of leadership problems at the company a few years ago that eventually prompted the return of Murthy as chairman.

I think the problem arose in 2013-14, when Murthy could have set this whole thing right. KV Kamath came back as chairman, he then got Sikka. He then had to go so he got Seshasayee appointed as chairman. Since then, this has been a messy journey. Seshasayee is a poor chairman to run a company like Infosys.

Anil Singhvi, Founder, IiAS

A strong chairman would not have first praised Sikka for his performance and then let him leave, explained Singhvi.

Roy agreed the board had displayed weakness, but attributed that to other reasons entirely.

The board led by Seshasayee and Venkatesan, if anything, was perhaps too magnanimous and professional to continuously placate a particular set of shareholders – which was Narayana Murthy and the rest of them. I cannot recall any case where ex-founders, with such a small shareholding, have had such a disproportionate influence on the final outcome.

Prabal Basu Roy, Corporate Commentator

Who Will Agree To Lead Infosys?

Sikka maybe be wounded but hasn’t fully exited the battleground. He continues as executive vice chairman till 31 March 2018.

That may give the board and its nominations committee enough time to search widely for a successor, but will any suitable candidate want the job after all this drama?

How will you have the next man come in unless you protect him, asked Singhvi, reiterating that a weak board is at the heart of the current problem.

Roy argued that the board had done a fairly creditable job in keeping Sikka on for seven more months as it could take that long to find the next leader. He also stated that the board’s defence of Sikka would help rectify the company’s narrative to potential candidates.

I was frankly very happy with the way Seshasayee and Venkatesan and the rest of the board rallied behind Vishal. This is the first time I have seen them take a stand against Murthy, which is necessary.

Prabal Basu Roy, Corporate Commentator

Singhvi argued in favour of the return of Infosys co-founder Nandan Nilekani to lead the company out of the current mess. Roy agreed that Nilekani was the “best-best” under the current circumstances.

Nilekani has refused to comment on Infosys for months now, and did not respond to calls on the day Sikka quit. If, board and Nilekani willing, he does return, it would seal the failure of a rare attempt by an Indian company to be professionally led and not promoter dependent.

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