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The exit of Ashok Vemuri, board member and Head of Americas and Manufacturing from Infosys seems to have shaken up the company's 'much prided' succession plan.
For a company that appeared to have a foolproof leadership succession strategy, it is now left with only two options for the top job. Under such circumstances, industry experts are of the view that Infosys may be firming up plans to hiring a CEO from outside.
'Murthy’s return as executive chairman suggested that Infosys’ leadership planning clearly didn’t work out as expected. Ashok’s exit has only exacerbated that issue. We believe Infosys needs to show greater openness to external candidates for senior roles, something which it has been highly resistant to,' said Nimish Joshi and Rohit Kadam of CLSA in their report published on Thursday.
Infosys rarely has an executive that has been hired externally as most of the senior executives are groomed internally. According to the CLSA report, one of the arguments for considering external candidates for leadership positions at Infosys is that change could be more important than continuity especially as things have not been going that well.
'While outsiders would have some clear disadvantages: not knowing the company culture, need to spend time building trust among others, Murthy’s presence can help paper over that,' it added.
Infosys, has seen three senior-level exits over the past 50 days. In July, global sales and marketing head Basab Pradhan quit. That was followed by the resignation of senior VP and head financial services business in Americas Sudhir Chaturvedi last week.
'I am not surprised at all. I knew that the succession plan has failed the day the company called back NRN. If a company has to call back an ex-chairman to save itself, it is clear that their much-prided succession plan has failed,' said a former top executive of Infosys. 'Ashok was a strong pillar in this master plan for succession. It's a huge lapse in their strategy. Senior leaders now need to introspect to find out what had gone wrong,' he added.
Vemuri who resigned from the company on Wednesday was perceived as a strong contender for the post of CEO when the incumbent S D Shibulal retires in 2015. With his exit, Infosys now has left with to contenders for CEO position, going by the company's statements in the past. They include B G Srinivas and V Balakrishnan, both members of the board of directors. According to industry experts, the exit of Vemuri may have strengthened the prospects of Balakrishnan for this top position, if the company considers an internal candidate. The company has already strengthened Balakrishnan's position by giving him the chairmanship of Lodestone, the Switzerland-based management consultancy firm which got acquired by Infosys in September last year. This development happened just before the return of Murthy to the company in June this year.
'From what we are hearing that Bala (Balakrishnan) is clearly been given a bigger role. Since his mandate to head the India business, he also heads the BPO unit (which is doing very well), Finacle and also Lodestone,' said a source on condition of anonymity. Balakrishnan heads Infosys BPO, Finacle, and the India Business Unit of the company apart from being the chairman of Infosys Lodestone.
With three high-level exits in Infosys over the past few months, experts who believed that Murthy's presence meant all is well are now having second thoughts. Street now remains 'cautious' about Infosys and most observers are in a wait-and-watch mode.
'This only means that problems are not yet over they are still some or the other issues going on at that company. People were hoping that all will fall in place and everything will be hunky dory with one management howsoever big change it was. But it doesn't look like that,' said Sudin Apte, CEO & Research Director at advisory services firm, Offshore Insights.
According to experts, the company needs to formulate a fresh leadership succession plan, the need of which is felt greater since this would be the first time a non-founder would become the CEO of the company. Besides, they also believe that any upheaval at the top is likely to have a ripple effect on the company, especially among the second-rung leadership. If a stable plan for leadership succession is not put in place soon, there may be more exits, as Infosys' employees are always high in demand outside given their grooming at the company.
'Because of this lack of confidence, a lot of people were sitting on a periphery and they are likely to be pushed out than pushed in after NRN's return. This may be taken advantage of by rivals as Indian talent is in demand especially by global multinationals,' said Yugal Joshi, practice director, IT Services at research and consultancy firm Everest Group.
