Infosys’ co-founder Nandan Nilekani has been appointed non-executive chairman of the company, marking the return of founders at the helm of India’s second-largest software exporter and ending a short-lived experiment of an independent board and a professional chief executive at the company.
Nilekani’s return also forced the exit of Chairman R Seshasayee
and former CEO Vishal Sikka, who quit along with two other independent board members — Jeffrey Lehman and John Etchemendy. Ravi Venkatesan, who was elevated as co-chairman after Seshasayee lost the confidence of Infosys co-founder N R Narayana Murthy, remains an independent director. The shake-up also brings down the curtains on a year-long tussle between Murthy and the Infosys board over corporate governance concerns that led to Sikka’s resignation last Friday.
Infosys had put out a statement blaming Murthy’s “continuous assault and misguided campaign” for Sikka’s exit. The public spat led to investors exiting the shares, erasing Rs 23,000 crore of shareholder wealth of the company.
The founders hold 12.75 per cent of shares in the company and continue to be categorised as promoters.
While the American depository receipts (ADRs) of Infosys on the New York Stock Exchange went up 1.5 per cent on Nilekani’s appointment, the company’s stock closed 2 per cent higher on the BSE before the announcement came late evening.
An Infosys statement quoted Nilekani as saying that the board would engage with shareholders on priority as part of its engagement with stakeholders. This could also mean more involvement with Murthy and other shareholders of the company. Murthy did not respond to an email seeking comment.
Ground for Nilekani’s return
Nilekani was the CEO of Infosys from 2002 to 2007. Since he quit Infosys to head the Unique Identification Authority of India (UIDAI), Nilekani had maintained that he would not involve in the company’s affairs. But he was said to be riled along with other founders over last week’s outburst against Murthy. Venkatesan, who was negotiating between Murthy and the Infosys board, reached out to Nilekani and he relented.
At the same time, there was chorus from investors, both domestic and international institutions, and with Murthy also prodding, Nilekani agreed to return but on a non-executive role.
The first signs of truce emerged on Tuesday, when Murthy abruptly called off an analyst meet that evening, citing ill health. Senior members of Infosys management had also expressed lack of confidence in the board led by Seshasayee, sources said.
Soon after, talks began for the exit of both Seshasayee and Sikka. Sikka, who served for three years as the first non-founder CEO, will get $452,327 as his base and variable pay for 90 days.
The reconstituted board also signed a separation and mutual release agreement with Sikka, which includes a “non-disparagement obligation” that bonds the former CEO not to defame the company as well as defend Infosys against any disparaging remarks made by a third party during his tenure at Infosys.
Pravin Rao, the interim CEO and managing director, who was elevated to the role soon after Sikka’s resignation, will continue to hold the position. Infosys separately will begin hunt for a new CEO.
“Nandan is the ideal leader for Infosys at this stage in the company’s development. His appointment will allow Infosys to focus on the strategic changes it needs to make in order to capitalize on the attractive opportunities in the years ahead. Under Nandan, Infosys will build a cohesive management team that will no doubt take the company to a leadership position in the industry,” said Seshasayee in the statement.
Investors were also hopeful that Nilekani’s return will take the company out of internal squabbles and put focus back on business.
“Perhaps, it also marks return of frugality -- maximum work and minimum spending -- unlike recent trend of splurge on hefty packages. There are challenges which board and management have to address on a priority basis for better performance,” said the head of an institutional investor, which has a substantial stake in Infosys.
For Murthy, who has remained silent, Nilekani’s return would also be that of the return of its most illustrious sons.
“As a company that has always put the interest of the society ahead of itself, Infosys will accept his absence with a sense of duty to a larger cause, but with deep sadness at the departure of one of her most illustrious sons. We, the Infoscions, wish him the best in his new assignment,” Murthy had said when Nilekani quit in 2007 to head the UIDAI.