In a recent article, I had relied on the Mahabharata to explain corporate Dharma in the context of the rather sudden, and coordinated, media campaign on the Infosys rift. I now have the benefit of time, and insights from the press conference by the Infosys board, and will again defer to the lessons in our epic to make some sense of the promoters ire (read Mr. N.R. Narayana Murthy and his protégés, as other promoters have wisely kept their counsel) in what is a truly bizarre happening unfolding before us.
But first the facts. In my view, non-executive chairman R. Seshasayee conveyed the board response admirably well, taking great pains to clarify all the sundry insinuations floating around to the extent of even referring to minor details on Sikka’s business trips. He clarified the fine balance between processes, business judgements and data in arriving at certain decisions, which was reassuring. His reiteration of deep respect for the promoters, despite the ill-advised decision to use their media clout to vent frivolous concerns, was statesmanlike.
Immediately after the presser, a former chief financial officer (CFO) of the Narayana Murthy camp continued the tirade against the board on various counts of governance: he raised issues of profligacy by Sikka including petty issues like costs of his home security, travel by corporate jets vis-a-vis the earlier culture of staying in “crappy hotels”; low productivity at Infosys, the demand for a public release of the investigation report on the severance pay paid to ex-CFO Rajiv Bansal, high levels of cash in the company and the call to replace the board as “trust was broken”.
I think he has erred in his opinion or got carried away in his need for defending the defenceless argument of dwindling governance in all this: as I have maintained over the past week, the Narayana Murthy camp is confusing (perhaps deliberately as it cannot be due to ignorance) between the typical issues of culture, management style and governance.
All the above points raised are to do with a changing culture and management style but not governance. Besides, Infosys had clarified that personal use of corporate jets was reimbursed by Sikka and I do not remember the issue of low productivity ever attracting the active attention of this group during the steady decline of Infosys for many years after Nandan Nilekani’s tenure as the CEO. High levels of cash were maintained in line with the established policy advocated by the promoters, who have consistently resisted requests to review their capital allocation norms, citing the theory that “cash is king” in overcoming the challenges and uncertainties in the operating environment, even though at relatively much lower levels than today.
The demand for changing the board due to “trust being broken” is an extreme case of hubris. In whose eyes has this trust been broken? On which issue? Has wrongdoing been proven beyond reasonable doubt? Has the board violated its fiduciary responsibilities to all classes of shareholders?
I am not sure if even the other promoters will back this argument within the broad catchment of the term “promoter grouping”.
Borderline decisions should not attract such extreme criticism even if considered ambiguous to some. Some of us who have an inconveniently long memory recollect the early to late 1990s when Infosys was embroiled in various controversies including the media expose that its statutory auditor, Bhaktal and Co., was the largest non-promoter retail shareholder pre-IPO.
Claire Barnes indicated in her 1995 book on Asian equity markets that a pattern of spikes in Infosys stock before results were announced indicated a high probability of insider trading or leaks. It would surprise many in the current generation that, in the initial years, Infosys did not account for contracts work in progress in its books, thereby implying that all contracts were fully completed each year on 31 March. The implications this had on declared profits and taxation is obvious. As regards the comment of “crappy hotels”, in any promoter driven company cost consciousness is a mandated policy as savings directly translate to higher multiples in the markets, thereby creating much higher proportionate value for those with large holdings of stock in comparison to the relative discomfort of a night’s stay.
My purpose of stating these facts from the public domain is to enlighten the audience to the current media onslaught of hitherto forgotten aspects of history of this great company during its evolution. The promoters and their protégés would do well to remember their moral dilemmas when they were creating destiny and allow the same leeway to the current board when loosely using the term governance.
Mahabharata is an epic whose relevance is not lost with time and it reminds us that we live in an imperfect world in which imperfect people struggle to act according to their perceptions and judgements relevant to a particular time, place and context. The war is the result of each individual having erred in judgement when faced with conflicting choices but harbouring the illusion that their actions were right in their specific situations and according to their understanding of Dharma.
The universal truth though is that Dharma cannot merely be studied but lived through by testing on one’s own self when confronted with making choices in conflicting situations. And since Dharma itself is relative to the dual forces of individual motivation and circumstances of time and place, there is the inbuilt scope for opportunism in the name of ethical conduct.
The learned and the wise do not fall prey to this temptation. One yardstick in the Shanti Parva of the epic to avoid such dilemmas is to adhere to the test that an individual’s proposed course of action must first be acceptable to him before applying it to others. And that is what must be applied in this situation.
The founders must also reconcile their minority shareholder status and accept that though their views as eminent promoters are valuable, the board is bound by its fiduciary duties to decide what is best for all classes of shareholders and thus cannot be bound only by the suggestions of the promoters.
Prabal Basu Roy is a Sloan Fellow from the London Business School and a chartered accountant. He presently manages a private equity fund and has formerly been a director and group CFO in various companies.