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Why India Inc. needs to listen to N R Narayanamurthy more carefully…

Companies and Sectors | Published on Feb 13th 2017 | Comment(s) 0
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What has been transpiring at Infosys over the last few days is not something we often see. An iconic company in many ways, Infosys has typically stuck to its core values of performance, consistency, transparency and governance. Be it adopting global accounting standards or giving detailed guidance on earnings or sharing a wealth of information in the annual reports or even in creating marquee boards; Infosys has been the undisputed pioneer. Over the last 35 years, the Infosys has typically spoken in one voice and that is why it generates a lot of emotions in the market when we hear two voices coming out in the last few days. As Murthy and his co-founders raise red herrings over corporate governance issues at Infosys, there are some important reasons why Indian companies, analysts and the media must listen to what Murthy says a lot more carefully and intently…

 

Murthy and his team built Infosys to what it is today…

 

Today it is quite fashionable to criticise Infosys for going too slow on the digital opportunity. It is also common to criticize Infosys and other Indian IT companies for not creating proprietary property like Google, Facebook, Amazon and Microsoft. But what cannot be denied is that Infosys along with a handful of other IT companies nurtured the IT industry to a revenue size of $150 billion over the last 3 decades. An industry that almost did not exist in the equity markets 20 years back has a combined market cap of over $200 billion today. Under Murthy, the original promoter group built Infosys into a company with $10 billion of revenues and nearly $30 billion in market cap, after starting out almost from scratch. Irrespective of what analysts and journalists may opine, Murthy still remains the most credible voice to raise concerns over Infosys as well as over the IT industry.

 

Remember, Murthy voluntarily stepped down from the board…

 

It is quite easy to argue that Murthy represents the breed of industrialists who just refuse to give up control. Remember, Murthy and his entire team of founders including Nandan, Kris and Sibulal voluntarily stepped down from active management of the company. It was not just that Murthy wanted to take a sabbatical. He had the wisdom and astuteness to foresee that the future of Infosys’ IT strategy will require a thinking that is divorced from the founder’s legacy. That was the reason that Vishal Sikka was brought in and that is precisely the reason that Murthy continues to back Vishal Sikka as the best person to run the company today.

 

Murthy raises an important issue of governance trade-off…

 

To be fair, Murthy has voiced concerns over 3 very important issues. His first concern is over the stupendous severance package given to the former CFO Rajiv Bansal. A CFO is a crucial position with access to confidential financial and business information. Paying an abnormal 30-month severance package to an outgoing CFO, against accepted norms, raises difficult questions. As Murthy rightly points out, it raises the needle of suspicion that transparency to shareholders has been compromised. Secondly, the 12-month severance package to their legal head also raises similar questions of fairness and transparency. Like in case of the CFO role, the legal role is also a delicate position with access to highly confidential data. Lastly, despite his support for Sikka, Murthy has been candid enough to question the salary increase for Sikka. More than the money, Murthy raises questions on whether such a move is aligned with the company’s interest. We have repeatedly seen in the case of US companies that aggressive targets and attached incentives have coaxed CEOs to take business decisions that are too aggressive and risky and not in the larger interests of the company and its shareholders. To be fair, Murthy is bang on target on each of the issues raised.

 

Future proofing businesses: family versus professional management…

 

There has been a long time debate in Indian markets over whether the practice of businesses passing on the baton to their family members works better. There are no clear answers; either from India or from abroad. Most large business houses have had a clear cut family succession plan. Then there are companies like ITC, Hindustan Unilever and L&T which are managed and passed on entirely on professional lines in a hands-off manner. Murthy represents the modern dilemma of many entrepreneurs who have built their businesses over the last 3 decades. Should they hang up their boots and walk away into the sunset? Should they continue to be actively involved in day-to-day management despite having a professional board in place? Or should they still rely on good old family succession planning to ensure that the DNA and the culture of the business group is perpetuated in a more acceptable manner. And if they hand over to professional boards, how do they still exercise control over corporate governance issues? These are questions that will come back again and again and Murthy has surely triggered off this all-important debate.

 

In the Indian corporate context, the importance of being Infosys and the importance of being Mr. Narayana Murthy cannot be overemphasized. The points that Murthy has raised are really critical issues confronting Indian businesses today. It is time for corporate India to sit back a do a serious rethink!




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