From pay package to Panaya acquisition: What Infosys crisis is all about

Murthy has called off his battle with the Infosys board after change in severance pay rules

India's No.2 IT services company has been locked in an escalating public war of words with its founders and former executives, who have accused its board of lapses in corporate governance.Infosys' founders, who own 12.75 percent of the firm, have questioned the pay of Chief Executive Vishal Sikka and severance payouts given to others, including former finance head Rajiv Bansal. According to local media reports, the founders have also questioned the appointment of an independent director.

While Infosys founder N R Narayana Murthy appears to have called off the battle with the software major's board, albeit still reasserting that the company should ensure corporate governance norms are not diluted, the recent changes made by the company in its severance pay norms could mean that there was substance to what the founders were pointing out.

The whole saga, especially surrounding the high severance pay package given to former chief financial officer Rajiv Bansal, could in fact centre around Infosys' $200-million acquisition of Israeli software company Panaya in 2015, The Economic Times has reported. According to the financial daily, Bansal had questioned the validity of the deal before resigning from his position. 

With Chief Executive Officer Vishal Sikka meeting with institutional investors on Monday and a press conference scheduled in the evening by the board of directors, here is a recap of what caused the tussle in the fist place and what has happened since then.   

1) Bansal, hush money and the Panaya deal: According to ET,  former Infosys CFO Rajiv Bansal could have raised uncomfortable questions about the Panaya acquisition. Speaking to the financial daily, a former senior employee said, "Bansal was not happy about the acquisition, especially the price." Further, the report said that Bansal had told analysts in an earnings call that the price paid by Infosys meant that the company was valued at six times its revenue. Citing sources, the ET report said that the deal was a crucial element in the plot as it was linked to Bansal's exit, and the founder's objections were linked to the quantum of his severance pay. In another interview, Murthy had told ET that the amount given to Bansal could be perceived in some quarters as "hush money". 

2) Infosys blinks, changes severance pay rules: As reported earlier, Infosys has changed the severance pay rule of its management team. "As for the quantum (of compensation to Rajiv Bansal, then the finance head, at end-2015), while it is not ordinary, when we look back in hindsight, lessons could have been learnt and action has been taken,” said Roopa Kudva, independent director at Infosys and managing director of Omidyar Networks, a company that looks at social impact investments, in a phone interview to Business Standard. "We have done benchmarking for severance pay, according to each country and reworked the senior management contracts to reflect it," Kudva added. The development came ahead of today's shareholders address by Sikka. (Read more) 

3) Ex-CFO calls for an interim director: As the rift between the founders and its board widened at Infosys, its former CFO V Balakrishnan on Sunday said an interim chairman should be appointed at the earliest to "effectively" engage with its billionaire co-founders. He also added to the demand, previously made by Murthy, that board chairman Ramaswami Seshasayee step down. Balakrishnan had said the chairman should take responsibility for the "lapses" in corporate governance at the Bengaluru-based company. (Read more)

4) Chairman under fire: Infosys Chairman R Seshasayee came under fire on Friday, last week, with two former directors, T V Mohandas Pai and V Balakrishnan, publicly asking him to step down over alleged governance issues and disclosure lapses. While the company remained silent on the charges, it appears to be standing by Seshasayee. (Read more)

5) Murthy pitches for NYU's Marti Subrahmanyam's appointment to Infosys board: Murthy told a financial daily that the software giant needs to bring in Marti Subrahmanyam, who is a professor at New York University's Stern School of Business, as co-chairman in the board and appoint DN Prahlad, an independent director with the firm, as the chair of the nomination and remuneration committee. Murthy's contention of a drop in governance and disclosure standards has primarily revolved around the quantum of money paid to Bansal, and to Infosys' former chief compliance officer David Kennedy. Further, in his interview with ET, Murthy had squarely laid the responsibility on independent director Jeffrey Lehman's feet. Lehman is the head of the nomination and remuneration committee. Murthy had also said that R Seshasayee, the chairman of the board, should take responsibly. (Read more) 
 

6) Sikka vs founders split: The other issue raised by the founders was the high salary package given to Infosys CEO Sikka. However, while this was one of the objections raised by the founders, Murthy had clarified in his interview with ET that there was no personal split between him and Sikka, or for that matter between the latter and the other founders. During his shareholders address on Monday, Sikka too asserted that he shared a warm relationship with Murthy and the founders. 

"All this drama that has been going on in the media, it's very distracting - it takes away attention - but underneath that there is a very strong fabric that this company is based on and it is a real privilege for me to be its leader," Sikka said at an investor conference in Mumbai on Monday.

Sikka, a former member of the executive board at German software firm SAP, took the top job at Infosys in 2014, becoming its first non-founder CEO.

The board has backed Sikka, and has brushed aside concerns over CEO compensation, the appointment of independent directors and severance pay relating to former employees, saying those were old issues and that full disclosures had been made.

7) Law firm in the middle: On Thursday, the Infosys board of directors asserted appointed law firm Cyril Amarchand Mangaldas to engage with the company’s founders over concerns raised by the latter on disclosures and transparency. The law firm, along with corporate governance experts, is to recommend to the board the next steps. (Read more)

With inputs from Agencies