Equity markets, industry experts and even some senior executives at rival technology firms gave a thumbs down to the resignation of Infosys' CEO and MD Vishal Sikka on Friday morning, with some blaming the company's founder Narayana Murthy for “hounding” the current management over governance issues.
Analysts remain convinced of a strong future for Infosys, but feel the issues raised by the resignation of Sikka, would have near-term impact. Finding a new replacement may not happen quickly, given the issues openly raised by Narayana Murthy as well as Sikka.
Infosys' shares tumbled 10 per cent on Friday, wiping off over Rs 17,000 crore in its market capitalisation, after Sikka announced his resignation citing continuous distractions and increasingly personal attacks. The broader market was also sharply lower, with the BSE Sensex closing down 271 points.
Over the last several months, Infosys' founder Narayana Murthy has been very vocal in criticising the board's corporate governance standards. Relations had also strained between the current Infosys board and Narayana Murthy over a large severance package given to former CFO Rajiv Bansal.
In a recent mail, he reportedly wrote to some of his advisors again claiming there were problems over governance at the company and also said that at least three independent directors had told him that Sikka was not a CEO material but a CTO material.
The company has repeatedly refuted the allegations of governance issues, but Sikka seems to have finally thrown in the towel, say experts.
“This seems a direct move to me at a time the company is battling against time to put itself back on the growth pedestal, as an embattled board and management face questions on poor corporate governance from some of the company’s founders, led by Narayana Murthy,” said Mahesh Singhi, founder and MD of Singhi Advisors.
In his resignation letter, Sikka had said that he “came here to help navigate the company through what I saw as a massive transformation opportunity. But, the distractions that we have seen, the constant drumbeat of the same issues over and over again, while ignoring and undermining the good work that has been done, take the excitement and passion out of this amazing journey.”
Over the last many months, they were “besieged by false, baseless, malicious and increasingly personal attacks,” he had added.
Some industry executives were concerned over how things had unfolded at the country's second largest software services exporter.
“It is sad to see Sikka being hounded out at Infosys. Back seat driving needs to stop,” tweeted Anand Deshpande, founder, chairman and MD of Persistent Systems.
He further said that he was “sad and disillusioned by the disregard to corporate governance standards set by leaders.”
Under Sikka, the company has outperformed its domestic peers, however, some analysts note that the company was still far from achieving the targets Sikka himself had set.
“Sikka’s exit draws a long drawn out board room battle to a close. While the company did better than the industry during Sikka’s tenure, it was no where near achieving Sikka’s own $20 billion (revenue) target by 2020,” said V.K. Sharma, head of PCG at HDFC Securities.
Sikka’s allegation that he was continuously being distracted “does not wash” as he had long enough a “honey moon” period to make his mark, Sharma added.
For now, U.B. Pravin Rao has been made the interim CEO and MD of Infosys and the company hopes to appoint a permanent replacement by March 31, 2018.
Will the founders make a comeback in some role? After all they still hold 12.75 per cent in Infosys. But, the board on Friday made it clear that there was no intention of asking Narayana Murthy to play a formal role in governance.
Management consultants feel this is a classic case where the old guard doesn't want to give in to the working and management style of the new generation, while at the same time the new managers find it tough to build a working relationship with the founders who have strong ideologies. Just like the Tata Group, which hired an insider in N. Chandrasekaran as the chairman of Tata Sons, Infosys may now look to some one the founders can trust for the top job, feels, Sujaya Banarjee, CEO, Capstone People Consulting.
“Instead of going and searching the best professional for the job, the mandate may now be to look for a trusted professional, someone who they know, someone who is grounded in their ideology and someone who they have a high comfort level with,” said Banarjee.
However, given the public spat, it will be difficult to find a suitable permanent replacement quickly, say analysts.
“This has been a battle over corporate governance and transparency and not about financial performance. The issue has been immaturely handled and Sikka's resignation leaves more questions than answers. In this context and the questions that have been raised, it will be difficult for the company to find a new MD soon,” said Sarabjit Kour Nangra, vice-president research at Angel Broking.
The uncertainty that today's developments bring will lead to some near-term pressures. But in the longer term, Nangra is confident that Infosys would continue to grow strongly.
“It is a near-term setback, but I don't think there will be any long term impact on the performance or the targets that the board would have collectively set,” she added.
