Narayana Murthy made inappropriate demands: Infosys board

The board said Murthy's continuous assault was the primary reason that CEO Vishal Sikka had resigned

Infosys’ board on Friday said it took “great umbrage” to a letter authored by co-founder N R Narayana Murthy attacking the integrity of the board and management of the company, alleging falling corporate governance, and said Murthy’s continuous assault was the primary reason that CEO Vishal Sikka had resigned. Murthy’s latest letter released to some media houses, the board statement said, contains factual inaccuracies, already-disproved rumours, and statements extracted out of context from his conversations with board members. 

It assured the shareholders, employees and customers it was committed not to be distracted by the “misguided campaign” by Murthy and would continue to adhere to the highest international standards of corporate governance as it executed its strategy of profitable growth for the benefit of all Infosys stakeholders. Also, Murthy’s campaign against the board and the company has had the unfortunate effect to undermine the company’s efforts to transform itself.

The board, the statement said, had been engaged in a dialogue with the co-founder to resolve his concerns, trying earnestly to find feasible solutions within the boundaries of law and without compromising its independence. These dialogues have unfortunately not been successful. While not wanting to speculate about Murthy’s motive for carrying out this campaign, the board said it must set the record straight on the false and misleading charges made by Murthy because his actions and demands are damaging the company and misrepresent its commitment to good corporate governance.

The board issued point-by-point rebuttal of some of Murthy’s charges:

FACT: Since Vishal Sikka was appointed as MD and CEO in August 2014, Infosys has delivered competitive financial performance through profitable revenue growth.  

• Infosys has, under the leadership of Sikka, developed and articulated a strategy to transform itself to meet the rapidly changing needs of the marketplace in the 21st century. The company was lagging significantly behind industry in growth rates when Sikka took over and now is in the top quartile from a performance perspective.

• Infosys has grown in revenues, from $2.13 billion in Q1FY15 to $2.65 billion in this past Q1. This was done while keeping a strong focus on margins, closing the past quarter at 24.1 per cent operating margin, beating some competitors for the first time in many years, and improving against nearly everyone in the industry. 

• The revenue per employee of the company has grown for six quarters in a row. Attrition has fallen, from 23.4 per cent in Q1FY15 to 16.9 per cent this past Q1, and high performer attrition is much lower than the overall company attrition.  

• The company grew its $100 million-plus clients from 12 in Q1FY15, to 18 in Q1FY18, and increased its large deal wins from $1.9 billion in FY15 to $3.5 billion this past year. This was done while improving overall utilisation (excluding trainees), to a 15-year high in Q1FY18, and an all-time high including trainees, while improving cash reserves, rewarding Infoscions with a new equity plan, and returning Rs 19,000 crore as dividend (including dividend distribution tax) over the past three years. This was been done while improving standing with clients, to the highest ever in the 12 years with a jump of 22 points in CXO satisfaction.

FACT: Infosys has continued to maintain the highest standards of corporate governance.

• The board of Infosys is carrying out its shareholder mandate to be an independent board, working towards the best interest of the stakeholders. 

• The board has sought the counsel of some of the most respected governance experts and legal advisors in the world, which have thoroughly investigated all anonymous allegations and concluded that no wrongdoing occurred.  For Murthy to imply — with no evidence whatsoever — that three well-respected international law firms, members of the Infosys board and certain employees are engaged in some grand global conspiracy to conceal information is not tenable on its face. It is important to mention here that Murthy was interviewed as part of the investigation by Gibson Dunn & Crutcher LLP in pursuance of the investigation in the Panaya acquisition, and was invited and welcomed to provide any information or evidence he believed would support the allegations being investigated. He did not provide any evidence since none exists. However, he has not mentioned this is his media communication against the investigation. 

• As previously announced by the company on June 23, 2017, the board thoroughly investigated each anonymous allegation with the assistance of highly respected external counsel and experts and determined that the allegations were entirely without merit. The board will make no additional disclosure of the investigation report because further disclosure would be inconsistent with best corporate audit practices and would compromise the confidence of employees that they could report honestly, openly, and candidly to the company in any future investigation or legal matter. 

• The board also believes that any further use of resources and time on these matters would be a distraction for the company and would enable those wishing unfairly to attack company personnel to continue this harmful conduct.  Therefore, the board has formally closed the investigations of the anonymous allegations so that the company can focus on strategy, performance, and the creation of shareholder value. The board remains focused to continuing to support Infosys’s strategy, which it believes is in the best interests of the company’s shareholders, employees, clients and communities. 

FACT: Murthy has repeatedly made inappropriate demands which are inconsistent with his stated desire for stronger governance.  

Illustratively:

• Murthy has demanded that the board adopt certain changes in policy, else he will attack board members in the public, which threat was carried out when the board did not acquiesce;

• He has demanded that the board appoint specific individuals on to the board under similar threat, without appropriate disclosure and without regard to basic determinants of appropriateness or fit of the candidate for the role as a board member

• He has demanded operational and management changes under the threat of media attacks;

• Notwithstanding that the remuneration package of senior management was approved overwhelmingly by shareholders (including members of the promoter group), Murthy preferred his dictat to prevail with no place or tolerance for the outcomes of shareholder democracy.  

• Murthy wanted the demands to be adhered to without attribution to him. 

The board has, in its fiduciary role to consider all shareholder inputs, treated each demand from Murthy as a suggestion and only acted on suggestions which it believed was in the best interest of the company and declined to act on others. Over time the demands have intensified, which when declined by the Board resulted in the threats of media attacks being carried out.  

FACT: Murthy may be in the process of engaging in discussions with certain key stakeholders of the company to further his criticisms of the board and management.

The board is concerned that this type of campaign runs the risk of confusing investors and undermining the company’s management efforts.

FACT: The board is a fully independent board, with professionals as its members who have been appointed by a clear majority of the shareholders. 

• Given the commitment of the board to remain independent and pursue a chosen strategy, the board currently has no intention of asking Murthy to play a formal role in the governance of the organisation.

• Co-chair of the board, Ravi Venkatesan has repeatedly over the past few weeks publicly stated his and the board’s support for Sikka. The company categorically rejects any speculation or allegation of discord between the Infosys board and Sikka.