Murthy vs Sikka: Infosys is facing a clash of cultures

Reputation takes a knock

The controversy raised by N R Narayana Murthy and some other old-timers of Infosys over governance issues could not have come at a worse time for the company. The entire global information technology industry is mutating and Indian software exporters are under notice to reinvent themselves in order to survive. In these challenging times Infosys, India’s second-largest software company, has been trying to take the automation and innovation route under Vishal Sikka, with positive financial numbers and share price to show. The controversy will destabilise both Mr Sikka and Infosys, and it needs to be asked if Mr Murthy and those lining up behind him have done the right thing, the right way and at the right time. The charges Mr Murthy has made are serious indeed — in a newspaper interview, he has linked the severance payments to two senior executives to “hush money”. Considering the seriousness of the matter, the Infosys board has followed perhaps the only option open to it — it appointed a legal firm to look into the matter and engaged with shareholders. The choice of the firm cannot be questioned as Mr Murthy himself is part of its external advisory board. What is intriguing, however, is that Mr Murthy has simultaneously downgraded the chances of such an investigation uncovering anything substantial by saying that any trace of misdeeds can be erased within “that period of one year” when the payments were made. If Mr Murthy is convinced that an allegation involving financial irregularity cannot be established either way, what was he trying to achieve by making a public issue of it?

 
The two people who are in the line of fire, Mr Sikka and the current Infosys chairman, R Seshasayee, had Mr Murthy’s blessings when they joined. Both these appointments happened in October 2014 and Mr Murthy has said corporate governance standards started falling from June 2015, barely seven months after he removed himself from the scene. The parallel with the Ratan Tata-Cyrus Mistry affair is stark. Mr Murthy has of course taken pains to say that he has nothing against Mr Sikka but the fact that large severance pay was handed out under his watch makes the CEO a prime target of the whole affair. There is no doubt that cultural issues are at the root of this conflict. Mr Murthy belongs to a school that believes there should not be too great a differential between the remunerations of those at the top and those at the bottom. On the other hand, Mr Sikka belongs to the school of thought that sees remuneration being linked wholly to performance. Mr Murthy has often described India as a poor country where “capitalism is nascent” but the fact is that the software industry earns its bread globally and has to attract top managers from the international marketplace — a reason why many large overseas shareholders have publicly reposed faith in Mr Sikka.

 
Mr Murthy may have reasons to feel slighted at his interventions not being given due importance — sometimes not even properly replied to. That is one area where the Infosys management has been found wanting. After all, managing shareholder expectations is a vital part of its job. Founders as shareholders have every right to raise issues and in this case they remain promoters despite earlier having asked to stop being considered so. It is a fact that the huge exit payouts were a clear departure from Infosys’ policy of paying a three-month severance. The Infosys management and the board should have taken the founders into confidence about these decisions as much as the latter should have desisted from going public with their accusations based on impressions. It is sad that Infosys’ reputation has taken a severe knock because of these omissions.