Sikka exit: Murthy's reputation irretrievably damaged; Infy needs a new CEO and quickly!

Last Updated: Tue, Aug 22, 2017 11:53 hrs
Infosys - Vishal Sikka (AFP Photo)

The Indian corporate world received another jolt when Vishal Sikka announced that he had enough and was stepping down as the CEO of Infosys. The news seemingly took everyone by surprise. The stock market has been quick to register their unhappiness with the unseemly exit and Infy's share price has been plunging ever since the announcement.

The pot has been simmering for a while now with founder Narayan Murthy and Sikka growing increasingly uneasy of each other. The company’s board and Murthy too have not been getting along well – a fact that was broadcast to the world when the board blamed Murthy for Sikka’s decision to quit.

The questions that then need to be answered are - Who is to blame for the situation that the company now finds itself in? And what are the next steps Infy needs to take to provide a fitting answer to all their shareholders?

Blame game is ultimately to no one’s advantage.

R Sukumar in an op-ed for Livemint states the battle has tainted all involved –

“From the beginning, it was clear that Sikka (he had been a wunderkind at SAP AG) had the technology vision and the appetite for bold decisions regarding acquisitions.”

“As for Murthy, he simply refused to let go. Infosys was the best thing he’d done in his life. He only wanted the best for it but he seemed to be unable to move beyond it. Friday’s events have left Infosys without a CEO, irretrievably damaged Murthy’s reputation, and highlighted the dysfunctionality of the board.”

The Infosys board too has come under fire; questions have risen as to whether they could have shielded Sikka and taken the initiative in resolving differences with the founders. All this comes amid investor worries about the company. Four US law firms - Bronstein, Gewirtz & Grossman; Rosen Law Firm; Pomerantz Law Firm and Goldberg Law PC - are investigating if Infosys directors have committed any securities fraud or other unlawful business practices, which would help them to launch class-action suits.

Many commentators have criticised the board for allowing this saga to play out in the open with the back and forth between them and Murthy.

Writing for the Business Line, Raghuvir Srinivasan had this to say on Narayana Murthy’s decision to go public with his side of the story –

“NR Narayana Murthy’s inability to let go is proving costly. Not just for him and his reputation but also for the company he founded and holds dear, its 2, 00,000 employees and over 7 lakh shareholders. His repeated allegations of corporate governance failure at Infosys despite all that the company has done to address his grievance…”

“It is difficult to believe that the board, made up of people of eminence, integrity and rich experience, would have hurled such a big charge against the iconic promoter without substantive proof. Murthy often says that his favorite rule is: “When in doubt, disclose”. It is now time for him to disclose if what the board says is true.”

The resignation of Sikka could bring the leadership back to Bengaluru from Palo Alto, California, which was where Sikka was based and called the shots from.

As for the fortunes of the Infy stock, Peter Bendor-Samuel from the consultancy Everest Group said, “In the short run this is going to be a loss for Infosys impacting negatively its stock price and short-term growth prospects. In the longer run it remains to be seen what the impact is…”

The Economic Times editorial commented on the palace intrigue within the top tier of the company and called for stability going forward –

“Infosys is going through an internal convulsion, beating down its stock and contributing to the fall of the overall market index. For investors in the company and for the rest of the information technology sector, what matters is that the transformation in the business model initiated by Sikka, leading to steady rise in revenue per employee, should continue.”

The editorial also commented on Narayana Murthy’s recent actions –

“Narayana Murthy’s return from corporate self-exile to activism raises serious questions. Should a founder retire at all, unless other shareholders find him a hindrance to growth? Having handed over the wheel to someone else, why do backseat driving? But the real challenge is to keep Infosys growing and evolving.”

Narayana Murthy, in some ways the face of the company for many years, yet again blamed the board of lapses in governance. He has pressed the company to release the reports of investigations into Infosys’s Panaya acquisition and the severance package originally offered to former chief financial officer Rajiv Bansal. After whistleblowers sounded the alarm, law firms investigated the charges and Infosys said there is no evidence of wrongdoing.

What comes next is vital; for the company, the shareholders and for the corporate India. Prabal Basu Roy, a fellow from the London Business School in an op-ed for Livemint states that it’s now time for the board to step up –

“The hiring process for a new CEO would be a difficult one but the board must not succumb to the quick fix of a convenient internal candidate without the skill set necessary for this phase of strategic transformation.”

“It is time for the board to ignore all distractions. In the interest of the company he founded, and nurtured, Murthy must now reciprocate the civility of the board in patiently engaging with him over the past year. He must display his famed wisdom and sagacity as a doyen of the industry which is commensurate with his carefully crafted image of a leader.”

The short term could go one of two ways; an all out war between the founders and the board or a reconciliation. Short term it looks like it could be the former given the public comments made by both sides. The board has a daunting task in choosing the next CEO, but who could that be? Will they look from within or seek the advice of the founders and choose an outsider?

One internal frontrunner is Pravin Rao, a long-time Infosys hand who was named interim chief executive on Friday. Another possibility is the Chief Financial Officer Ranganath D Mavinakere. He has been at the company for more than a decade and worked closely with Murthy during his second stint as Infosys chairman. He could be someone who mediates between the board and the founders.

The last time they needed to recruit a CEO was 2014 where Sikka was brought in from SAP; he was the first chief appointed from outside the group of founders. The company has little time to waste in choosing a successor.

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