By Priya Kumari
[su_pullquote align=”right”]With time, it has become evident that such dilution of ownership has not really worked in favour of the company in the long run.[/su_pullquote]
Nothing seems to be going right between the Board, the management and the founders at one of the leading IT giants of India, Infosys. Perhaps the most surprising event was the Executive Chairman, Mr. Narayan Murthy, handing over the controls to Vishal Sikka, the Chief Executive in June 2014. Notably, Sikka is the first non-founding Chief in the firm. With time, it has become evident that such dilution of ownership has not really worked in favour of the company in the long run.
A series of not so fortunate events
The recent row concerning Infosys is multifaceted but corporate governance problems are at its heart. Sikka’s style of working doesn’t seem to be in sync with that of Murthy’s. To elaborate, the founders were known for managing the expenses to stay modest and frugal. Whereas, the Infosys Board’s decision to award Sikka with a 55% increase in salary to $11 million seems to be a significant departure. Similarly, lack of transparency and prudence can be traced to the Board’s decision to give away an enormous severance package of INR 23.02 crore to the outgoing CFO Rajiv Bansal. However, the appointment of D.N. Prahlad, a relative of Narayan Murthy, to act as an independent director can be unwillingly considered as one of the attempts of the Board to make peace with the promoters of the firm. Notably, Prahlad has been added to the Nomination and Remuneration Committee that supervises the pay-scale of senior executives, including the CEO.
Speculations had it that Sikka is unable to infuse stability in the senior ranks, as some senior executives’ roles were changed in a short span of 18 months from their appointment.
A conflict of interests?
[su_pullquote]Many instances establish that there is a lack of cooperation and mutual dependency from both sides of the table.[/su_pullquote]
When a statement hinting at eroded corporate governance comes from a founder who is a public figure, it impacts the morale of employees and the public alike. However, there is a more fundamental issue. The founders own only 12.75% of Infosys’ shares, though the promoters have stepped back to give charge of conducting daily business to the management. Many instances establish that there is a lack of cooperation and mutual dependency from both sides of the table. In such cases, the policy and standards concerning the powers and responsibilities of founders and appointed managers should be drafted in a manner to accountability between them. Further, all communications between the opposing parties should be streamlined to preserve the esteem of the company in the public.Vishal Sikka’s style of work is not in sync with that of Murthy’s | Photo Courtesy: Infosys Blogs
What did Infosys do about it?
The founders certainly have the right to voice their concerns through the Board. Hence, the Board did employ transparent investigations to answer the issues raised by the founders. Following the criticism of Murthy, the Infosys Board of Directors has appointed the legal firm Cyril Amarchand Mangaldas to act as a communication channel among its members, company’s founders and key stakeholders.
As mentioned by R.Gopalakrishnan, a former director of Tata Sons, “The golden rule to remember is that communication, persuasion and influence are hugely valuable in the governance triangle among shareholder, board and CEO.”
Featured Image Credits: Financial Times
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