Infosys board reiterates confidence in CEO Sikka, denies 'governance lapses'

Image: Abhishek Chinnappa / Reuters

The board of directors at Infosys, India’s second-biggest software services provider, has come out strongly in support of chief executive Vishal Sikka, and has again denied it did anything wrong, after media reports alleged that founder NR Narayana Murthy, the largest promoter shareholder, was unhappy over certain decisions at the company.

“The Company is in the process of a formidable transformation journey. The Board is fully aligned with the strategic direction of Dr. Vishal Sikka and is very appreciative of the initiatives taken by him in pursuance of this transformation,” R. Seshasayee, the chairman of Infosys’s board of directors, said in a press statement late on Thursday.

The company has pulled itself up to industry-leading performance on many parameters, but there is much work to be done, and “we will remain undistracted with this focus," he added.

The media reports alleged the founders were unhappy over an increase in CEO Vishal Sikka’s compensation, and severance payouts given to former CFO Rajiv Bansal and David Kennedy, the Bengaluru company’s former general counsel.

“The Company denies any governance lapses alleged by some sections of the media in reports that have appeared in the last few days on purported rifts among the founders, the board and the management,” Infosys said.

These allegations at a company once seen as India’s belwether IT company, are cropping up at a time of massive change that is making the IT services outsourcing model itself obsolete.

Television channel CNBC-TV18, in a report on February 7 that didn’t name sources, said that Infosys founders NR Narayana Murthy, Kris Gopalakrishnan and Nandan Nilekani had made these concerns known to the board in a letter in January. On Friday, Economic Times alleged that the payouts could represent “hush money,” citing comments from an interview that Narayana Murthy gave the paper. Infosys had denied any wrong doing in its statement on Thursday.

Murthy brought in Sikka, a former SAP SE executive, in July 2014 to turn the company around after its growth had lagged the industry and larger peer Tata Consultancy Services in the preceding two years or so. Sikka took over as Infosys’s first non-promoter CEO on Aug. 1, 2014 and made close to $7.5 million in compensation for the year ended March 31, 2016.

In February last year, Infosys revised Sikka’s pay upward, giving him a chance to earn as much as $11 million in the current fiscal year, including performance-based variable pay and stock options.

The issues highlighted by the media reports including CEO compensation, appointment of certain Independent Directors, and severance pay relating to former employees, were several months old. The company had both repeatedly explained them and has had overwhelming shareholder approval where required, Infosys said in its statement.

"The members of the Board are deeply engaged with the Company and spend considerable time on the affairs of the Company. The Board has full confidence in the leadership of Seshasayee to steer this Company in these challenging times," said Jeff Lehman, the senior most member of the Board and Chairman of the Nomination and Remuneration Committee.

While the founders, who voluntarily walked away from running the company, could still provide inputs the board had a responsibility to act independently, the directors said in the statement.

The board has also recently appointed the law firm Cyril Amarchand Mangaldas, seen as corporate governance experts, to receive any such inputs and make recommendations to the board, according to the statement.

In a separate earlier statement to the stock exchanges, on Wednesday, Infosys also declined to comment on reports of a Rs-12,000 crore share buyback terming them “rumours and speculation.”

“To me the most important factor is the buyback. He’s (Vishal Sikka) has been firing many small and large shareholders for not agreeing for a buyback for a very long time,” Anil Singhvi, founder and non-executive director of corporate governance and proxy advisory firm IiAS (Institutional Investor Advisory Services), said in an interview with Forbes India.

“Infy is sitting on $5 billion of cash and they are neither declaring high dividend nor going for a buy back. And they don’t have any acquisitions plans. And they definitely aren't doing a $2 billion acquisition. They have been investing in startups but that I can say it is like day-to-day cash,” Singhvi added.

The Times of India newspaper reported on the issue on Wednesday, comparing it with the rift between Tata Sons’ (then Chairman Emeritus) Ratan Tata and (then Chairman) Cyrus Mistry, who was ousted in November.
 
“No I don’t think it will be a Tata versus Mistry kind of a thing (battle), but definitely I think the founders are having a problem with Vishal. And Vishal seems to be at least giving this kind of impression that the board is completely with him. Which may not be entirely true,” IiAS’s Singhvi said.

Shriram Subramanian, MD of InGovern, a proxy advisory and research firm that assists institutional investors on corporate governance issues had this to say: “It’s an orientation issue between the founders and the now professional board and CEO on issues pertaining to values and practises. Though they (the founders) are out of the board they continue to have an emotional connect with the company, which in a way is bad. At the end of the day they had stepped down to let the professionals run the company.”