Shortly after Vishal Sikka, like a true digital savant, chose to announce his resignation on Twitter, Infosys put out a six-page letter to stock exchanges blaming his exit on founder and ex-chairman Narayana Murthy. Its arguments on why Murthy’s demand to put out all the investigative reports on the company’s website was unreasonable and unacceptable were cogent. Perhaps the most honest reply to Murthy’s earlier emails to the company. Unfortunately, the letter signed by the company secretary as a part of statutory information to the exchanges, has been laid open to public scrutiny.
There is a joke among Infosys insiders that some board members would get in battle mode whenever Murthy came back to Bangalore from his long overseas trips. The last few times, whenever in town, he reignited his issues relating to poor corporate governance standards and access to investigative reports often through the media.
This time around, Murthy landed back in Bangalore on August 6. A letter of July 8 reiterating all the earlier demands once again, to which the company responded on July 14 saying the board had done everything it needs to do and all his issues should now be considered closed had not made their way to the newspapers. The board members were ready for the tirade to begin. The question was when?
The e-mails that Murthy wrote and the company responded became available to the media early on Thursday. Another e-mail that Murthy wrote to his advisors on August 9 questioning Sikka’s capabilities as a leader also came to light. Murthy’s last letter made serious allegations. It said that three independent directors, including the current co-chairman Ravi Venkatesan, did not think Sikka was CEO material. The Mint newspaper, which ran the story on Friday morning, said no one from Infosys, its board or the company responded to a series of mails to them. Mint said even Venkatesan did not respond to its queries, though the allegations against him were very serious. Thursday’s silence suggests the Friday morning tsunami was expected, at least by some in the board.
Those close to Sikka say that in the last couple of days his body language had changed substantially – from one who was putting up a brave fight to someone who had given up. He seemed less bothered by things around him and he had “switched off”. A public scrutiny of a confidential board communication that cast aspersions on his capabilities finally acted as the Twitter trigger.
But, according to someone close to Murthy, the fundamental dislike for Sikka lay in his approach to the Indian business model of IT sourcing. This Murthy confidant says Sikka thought there was little future in the kind of business Infosys was used to doing as artificial intelligence will sooner than later replace a lot of programmers. He eventually wanted to shift base to Paolo Alto in the US, where cutting edge work on technology was being done. Murthy did not agree with this line of thinking. Says Dr. Sujaya Banerjee, chief executive officer of Capstone People Consulting: "It appears he was not allowed to carry out the changes he was bought in for. This often happens in companies where promoters bring in a new manager to effect changes but can't stomach the effects it has on the company they built."
Sikka’s exit has already spooked investors and the Infosys share price was down 13% as soon the news hit the market. It closed 9.6% down, one of its worst losses in a single trading day. This comes on top of the fact that in the last three years, FIIs have sold the most in Infosys, bringing their stake down by 5% to 37.53%. In TCS, India’s biggest IT player, their shareholding has remained stable at around 16.73%, while it increased by a percentage point to 10.20% in Wipro.
In the last six months, funds like Oppenheimer and GIC, long time shareholders, sold stakes in the company. Only in February this year, at the height of a management tussle with the management, Oppenheimer endorsed their support to Sikka and the board through a letter. Clearly, investors seem to think Infosys has more problems than its peers. Says a head of a large equity research firm: “I don’t want to comment on this. Let’s wait and watch as to how the situation develops and who the board appoints as the new CEO.”
With Sikka gone, can the board concentrate on the next course of action? In his own words, Murthy has said that he has no problem with Sikka’s management style but he has more issues with how the board handled several issues relating to Sikka. He came down on chairman R Seshasayee for failing to minute a severance pay discussed in a board meeting. Seshasayee, on his part, completely defended Sikka and even held a conference in Mumbai where all the Infosys directors showed solidarity behind the CEO. Now, there are several Murthy confidants still in the board and the company is saddled with two co-chairmen, one of whom is still in Murthy’s line of fire. On Friday afternoon, some of the erstwhile promoters of Infosys met at Murthy’s house to decide on their course of action and to perhaps give a reply to the public mail by Infosys that put the blame of Sikka’s dismissal on Murthy.
The next big event will of course be the search for Sikka’s replacement. If you look at global technology companies like Microsoft and Google, Indians like Satya Nadela and Sundar Pichai are calling the shots as they bring modern technology thinking to the table. In India, Infosys was the only company that could boast of a similar technology oriented CEO compared to others who are more operation oriented, equipped to run a tight ship backend. Sikka’s unceremonious exit will only make a similar aspirant cautious to take his position. For the board, the task only gets tougher to find a Sikka-like replacement. Says Sujaya of Capstone: “In these cases, the board will more often than not settle for an internal candidate.”
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Now, will there be consensus on that? The dust, surely, has not settled on this saga yet.