Bellwether in crisis

Bellwether in crisis

Conflict between managements and promoters or founders, in India or elsewhere, is not new. And it can be a bruising affair. But what is extraordinary about the abrupt decision by Vishal Sikka, MD and CEO of Infosys Technologies, to quit, is not just that he had the backing of the storied firm’s board but that his move has been triggered not by boardroom battles but by skirmishes involving one of the influential founders of the company, N.R. Narayana Murthy.
Sikka has said that the “continuous drum beat of distractions and negativity” over the last several months was weighing down the company’s and his own ability to carry out positive changes and to stay focused on value creation. The first non-founder CEO of Infosys has said that addressing the noise was by itself damaging and that he would prefer, instead, to allow the company to move on. The charges, aired mainly by N.R. Narayana Murthy, related to overseas acquisitions, spending, executive pay-outs, severance pay and deteriorating standards of corporate governance.
It is unfortunate that Sikka had to leave against such a backdrop — Infosys was, for long, perceived as not just a bellwether company for the IT industry but also as an exemplar of corporate governance standards. And it couldn’t have come at a more challenging time, given that India’s IT industry is attempting to make a break from the past so as not to be rendered obsolete. Infosys may find that transition more difficult now.
For someone like Murthy, seen as a role model by young entrepreneurs, it must surely hurt to know that the board of the company he helped promote has pinned the blame for Sikka’s exit on him, while also alleging that his campaign against the board undermined the company’s efforts to transform itself. The board claims that it had engaged in a dialogue to resolve his concerns. One of the issues which have been raised is whether he ought to have a disproportionate influence on the management of the company. From a moral equity standpoint, he certainly has a role, but leadership is also about letting go and allowing a new set of professionals and managers to take control and flourish while giving them time and space to make the transition.
It is commendable that the Infy board chose to back the professional CEO in this battle. But questions are bound to be raised about whether the board could have been more assertive earlier. What should worry investors, policy-makers and the government is that conflicts like these in some of India’s most respected firms run not just the risk of value destruction but in some ways are a mirror image of the underlying reality in many listed firms in India. The fracas in Infosys should serve as a reality check.