Why Infosys needs to clear the air

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Infosys is the original start-up success story for a generation of Indians, who grew up in 90's and the first decade of the 21st century. Infosys was feted not merely for being a financial success story but also for the high standards of corporate and ethical governance it pioneered. Driven by the founders own personal values, Infy as it is commonly called was seen - by and large at least as setting governance standards.

So when media reports started emanating that the highly regarded founders of Infosys, have expressed concern about issues related to pay and governance issues, it is time for the company to come clean.

The alleged concerns are fairly straight forward. That the first non-founder CEO and MD of the company Vishal Sikka, hired with much fanfare, is paying himself too much, viz an annual compensation of around $11 million. Also that executive compensation for the top management has been increasing at a fast clip, without proportionate growth in the company's business and profits. That he has surrounded himself with a clique, which followed him from his earlier employer SAP. Most damaging insinuation, of course from media reports, have been around high price of acquisitions and to what extent they have helped the company and whether the deals have all been above board.

A source at the company this writer spoke to and who does not want to be identified, defends Sikka and points out that compensation is in line with global competitive benchmarks and all of this has been approved by the board. That even the $11 million compensation is mainly through restricted stock units, whose value will do well only if the company does well (and therefore share prices, thus benefiting everybody). On charges of nepotism, it is dismissed as case of sour grapes of old time non-performers, who have been weeded out or chose to go voluntarily and claims that there must be less than "30 ex-SAP employees at senior levels.'

On the question of overpaying on acquisitions, the same person points out, "For years we have been paralysed not making M&A moves. If one acquisition (hinting at Skava) doesn't turn out good it doesn't mean we abandon the whole strategy. They (founders) need to try and stop micro-managing."

InGovern a proxy advisory and corporate governance firm started by an ex-Infosys employee had pointed out conflict of interest, when D N Prahlad (a relative of Chairman Emeritus N R Narayana Murthy) and who is also CEO of Surya Software was brought into the board of the company as an independent director. This was seen as a move to keep a close watch on board developments by the founders. There was also talk whether this was a preliminary move for a board lead coup d'etat on Sikka, if ever it was required. In between there has been also talk of a Rs 12,000 crore worth of buyback, which the company has denied.

Infosys and Indian IT in general are at a challenging phase in the evolution of the industry with threats from a protectionist Trump-led America, automation upending the traditional people heavy model as well as shifts to digital. The company and its top management needs to be fully focussed on the job at hand, rather than any kind of internal squabbles.
Both Infosys and the founders need to speak up. Clarify on all the issues being raised, as the corporate governance reputation earned over the decades by both the founders and the company, is at stake.

Business Today mailed a questionnaire to the company seeking comments on these issues and below is the company's response. 

"The Board receives suggestions and inputs from various stakeholders, including Promoters, which are evaluated with due importance. The Company will continue to be guided by the overall interests of all stakeholders. With regard to concerns on governance being discussed in the media, we would like to reiterate that all decisions have been made bona fide, in the overall interest of the Company, and that full disclosures have already been made thereon."

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