At the outset, let me thank each of you for attending this call to hear what I have to say. Also, I appreciate your patience as I had to postpone this event from last week to today. The barrage of opinions expressed in the media by various constituents have been an affront to the many time-tested principles that I have espoused regarding corporate governance. It is hurtful, to say the least, that this has been directed as a personal attack on me instead of looking at the facts. For the sake of brevity, I will stick to only a few alleged, serious violations of governance practices involving the previous Board.
Today, I would like to make my position on these matters clear to all of you and also suggest what, in my opinion, are the actions required to move this forward constructively. My wish is to ensure that our company, Infosys, regains its stature of being a globally-respected corporation.
The core philosophy of corporate governance, which the company has consistently demonstrated since 1981, can be summarized as:
1. We will be the most respected corporation in the eyes of all stakeholders.
2. When in doubt, disclose without any hesitation.
3. Under promise; overdeliver.
4. In God we trust, everybody else brings data and facts to the table.
5. Bad news must take the elevator and good news can take the stairs.
6. The softest pillow is a clear conscience.
Living by these principles has resulted in Infosys being the torchbearer of corporate governance over the last three decades. Let me give you a few key examples of our voluntary effort to be a leader in transparency and corporate governance.
01. The first company in India to give quarterly reporting.
02. First in India to give topline and earnings guidance on a quarterly and yearly basis.
03. First in India to adopt the stringent disclosure standards of US GAAP in 1995 much before our NASDAQ listing to give comfort to our global investors.
04. First in India to publish what were considered company secrets in the 1990s like data on employee attrition, on segmentation of revenue by geography and industry, on customer concentration and on billed man-months.
05. Proactively disclosed bad news like losing a large customer contributing 25% of our revenue due to price negotiations in 1995.
06. Appointed a lead independent director for the first time in Indian corporate history.
07. First to voluntarily institute annual directors’ evaluation.
08. First to introduce a retirement policy and a fixed term for all directors, be they executive or independent.
09. First to produce a governance report on all board committees.
10. First to follow Sarbanes Oxley Act among all non-US filers.
11. Among the first companies globally to file IFRS compliant financials with SEC.
And several more. It is precisely because of such strong governance practices that the company has been able to evolve through multiple transformations of the business. In other words, business transformation and corporate governance have to co-exist and are not at odds with each other. Consequently sustainable profitable businesses can only be built on a foundation of values. That is how the company achieved a CAGR of 53.9% in market capitalization over 21 years between 1993 and 2014. Several analysts tell me this is the best performance in the corporate history of India. I hope they are right.
Contrary to the views of many, my actions always keep in mind the long-term interests of all shareholders. It has never been and never will be for my individual or personal gain. As far as I know, there is no parallel in the Indian corporate world where founders with significant shareholding voluntarily left their company leaving behind nothing but culture, values and good will. Even when I was requested by the Board in 2013 to return to the helm of the company, my position was that once I had fulfilled the objectives of my return, I would hand back the reins. During my brief tenure of 15 months, Infoscions:
01. Doubled the revenue growth rate from 5.8% in 2012 – 2013 to 11.6% in 2013 – 2014 (not achieved since then).
02. Introduced innovations and enhanced productivity to improve the operating margin by 200 basis points by Q4 of 2013 – 2014 (not achieved since then).
03. Successfully completed the first project using machine-learning based automation for a European telecom customer in March 2014.
04. Provided a dignified and courteous exit for people not seeing a bright future for themselves in the new direction of the company.
Even though the term of my reappointment was five years, I left as soon as Infoscions fulfilled the above objectives in just 15 months.
At this critical juncture of the company, I am pleased that Mr. Nandan Nilekani has taken over as the Chairman of Infosys representing ALL shareholders. I have known Nandan for over 38 years ever since he walked into my office for a job. I gave him a very difficult IQ test and he passed it with flying colors. He is also a value-based person. He is the first among the hundreds of thousands of professionals who symbolized the byline of Infosys – Powered by Intellect; Driven by Values.
I am confident that the management team and the professionals at Infosys will rally behind Nandan and bring back the glory days. Infoscions are second to none in competence and character. Given the right environment, encouragement and leadership, they can walk on water.
You would all agree that the rejuvenation of the Board has already begun with the resignation of Mr. R. Seshasayee and some other board members. However, it is still work-in-progress.
Now, let me explain my concerns as a shareholder, whether they have been answered, how they need to be answered in the future, and what the next steps could be.
01. My concerns as a shareholder.
My main concern is the poor governance practised by the previous Board. This point has been missed in the entire commentary of this episode and in the “Summary
Finding Statement” published by the company on June 23, 2017.
The previous Board reported in its 20-F in May 2016 and through other communication channels that the company had entered into an unusual agreement to pay an excessive sum as severance to the ex-CFO, Mr. Rajiv Bansal, in October 2015. On June 18, 2016, Mr. Seshasayee told the shareholders of Infosys at the AGM that the Board agreed to pay that sum to Mr. Bansal because he was “privy to a lot of price sensitive information as CFOs are”. Please note that no previous CFO of the company, nor the current CFO had or have such an excessive severance pay clause in their contracts.
As there were several adverse media reports, Nandan, the other cofounders and I asked Mr. Seshasayee on June 28, 2016 how the Board arrived at this strange decision to pay such a large sum as severance. Mr. Seshasayee told us that the decision was taken by Mr. David Kennedy, the former General Counsel. When we probed further whether the Remunerations Committee, the Audit Committee and the Board applied their mind to this issue, there was silence from Mr. Seshasayee. On July 15, 2016 when I asked the board members, in the presence of Nandan and Dinesh, why they agreed to pay such a huge severance amount, Mr. Jeff Lehman said it was confidential and could not be disclosed to us! Ms. Roopa Kudva said that we had to sign an NDA if we wanted to know the reason! So much for shareholder transparency and democracy! On October 14, 2016, Mr. Seshasayee told us that the Board agreed to pay this sum because they felt generous!
Given such a set of inconsistent responses from the Board, would not any concerned shareholder come to the conclusion that the Board was not being transparent and was, perhaps, misleading us, the shareholders? Furthermore, according to media reports earlier this year the board did not record minutes of the severance to ex-CFO, at the time the decision was taken. This concern was dismissed by the former chairman as a mere “housekeeping” matter. So much for good governance! During every interaction with the Board, my colleagues and I have consistently requested them to make public to ALL shareholders the full truth on this matter.
It gets curiouser and curiouser - as Lewis Carroll said in 1865.
On February 12, 2017, a whistle-blower complaint appeared in the public media. It questions, in detail, the events surrounding the severance payment made to the exCFO with alleged actions of the main actors – Chair of the Board, CEO, COO, General Counsel and Chief Compliance Officer, and the ex-CFO (Mr. Rajiv Bansal).
To me, what was most worrisome was the failure of governance at Infosys in this episode as alleged by the whistle-blower. Amongst the many allegations raised by the whistle-blower, the following were most striking, and I quote the whistle-blower verbatim:
01. “Any contract and modification of the contract with a KMP has to be approved by the Audit Committee. No resolution of the Audit Committee or the board exists for this transaction.”
02. “No mention of the transaction with the KMP was made in the press release. KMP transactions [are] to be disclosed as soon as they are entered into.”
03. “We don’t know which board member knew about the settlement and who approved and when.”
04. “Why did the Chairman not question about the payment or the quantum?”
05. “Every board member who was involved made false statements about the reason for the ex-CFO’s settlement.”
06. “The former General Counsel started an investigation into the allegations made by the ex-CFO. Why did they pay the ex-CFO before the investigation was complete?”
07. “The former General Counsel wrote a lot of mails to the CEO as to how the entire thing will get revealed.”
08. “In the AGM in July, Seshasayee lies about the reason for payments made to the ex-CFO claiming it was made in consideration of his long service and to protect the company from its secrets being compromised. In reality, it was paid to protect to the secrets of the CEO and the Board.”
Please note that these are the allegations of the whistle-blower and not my allegations. Hence, the engagement that I have had with the Board has primarily been about corporate governance of the Board and it is surprising to hold somebody raising questions on these serious matters as being responsible for the CEO’s resignation. And the very Board members to whom I have put forward questions on their governance deficit have instead misdirected it towards the CEO, perhaps to avoid answering my questions.
02. Whether my concerns have been answered by the Summary Finding Statement.
On June 23, 2017, the Board published on the company website a “Summary Finding Statement” following the conclusion of an independent investigation into the allegations made by the whistle-blower. This Summary Finding Statement exonerates the management from allegations regarding benefiting directly from Panaya and other acquisitions. However, this statement does not mention whether the investigation addressed the allegations of the whistle-blower regarding the serious governance deficits of the Board and the CEO in the matter of the severance agreement with the ex-CFO.
Like any other concerned and logical shareholder of the company, my hope was that the detailed report would contain a full rebuttal of the claims of the whistle-blower that I have quoted earlier. I was also hoping that the full report would point out gaps in governance and suggest corrective actions. These are the only reasons why I asked for the full report to be disclosed. In the absence of full disclosure, it is difficult to believe that, under the previous Board, “Infosys has continued to maintain the highest standards of corporate governance that the Company is known for”, as claimed by the Board in Moneycontrol.com dated August 18, 2017.
03. What are the next steps?
Once again, let me reiterate that my primary concern about the Summary Finding Statement was that it missed covering the governance deficits and corrective steps to be taken, if any. The previous board refused to take any corrective action. Having worked with Nandan for long, I know that he is a stickler for good corporate governance. Now, we can all sleep better knowing that, under his leadership, the corporate governance standard practised by Infosys will be on par with the global best standard. In fact, based on Nandan’s media interviews and the recent changes in the board, I believe that corrective actions have already begun. As explained earlier, it is this kind of corrective and decisive action that I was looking for in the detailed report. These actions are now being taken. Therefore, we can all move forward from here and look to the future.
I am confident Nandan will determine whether the members of the current Board who were involved in the events alleged by the whistle blower exercised their proper and expected role in governance; and that he will take appropriate corrective actions. These actions will bring back the rigor of governance standards at Infosys. I would also like to re-iterate my confidence in the current senior management of the company, which has several excellent people with whom I have worked. I know the company is in good hands.
I wish Nandan the best of everything in his effort to bring back Acche Din to Infosys.
What can we shareholders learn from this entire episode? What is our role in protecting the long-term interests of a corporate body? Businesses will always have ups and downs. Business decisions are sometimes taken as bold bets that may not pan out as expected. That is par for the course in any company. However, when there is a cloud around how the organization is being governed, we must speak up. This is the key ingredient to keep an institution healthy in the long-run and hold it accountable to all stakeholders. I will not be here forever but I do hope that all of you, shareholders, will speak up, question, and protect this institution.
Folks, it is not lost on me that the choice I have faced was to keep quiet, not raise these questions, and let the company suffer OR to stand up and ask questions. While keeping quiet may make me seem gentle and “good”, it had the potential to mortally wound the company in the long-term. Therefore, I chose to speak up and question because, like every one of you on this call, I wish to see this company flourish as an institution.
In the final analysis, whatever I have stood for is in the interest of Infosys and the idea that it stands for – that any group of well-meaning people when powered by intellect and driven by values can build a globally respected company with the highest level of corporate governance in India. I am reminded of what John F. Kennedy said, “A man may die, nations may rise and fall, but an idea lives on.”
Narayana Murthy (firstname.lastname@example.org)
August 29, 2017