Bangalore: Infosys Ltd, having fallen from its position as the premier example of India’s success in information technology in the past few decades, is bringing back the man mostly credited with building it up in the first place — N.R. Narayana Murthy— to try and restore some of the shine, seven years after he stepped down from all executive roles at the company.
Not only has this disrupted the succession plan set in place by him and his co-founders, it will also involve the recruitment of Narayana Murthy’s son, Rohan Murty, the first time that a second-generation family member of the company founders has gotten involved in its leadership. Rohan will be a member of the chairman’s office his father is setting up, the company said in a release on Saturday.
CEO and managing director S.D. Shibulal retains his post, and while everyone else at the top will be staying on, they move to new positions to accommodate the return of Murthy, who has asked to be paid a token `1 per year during his five-year term. His son will get the same amount as will the CEO and S. Gopalakrishnan, who has moved to executive vice-chairman from executive co-chairman.
The press release said that Rohan Murty’s term as executive assistant to the chairman would be co-terminus with that of his father. This latest move seems to run counter two oft-stated Narayana Murthy principles: that the founders of the company will retire at 60 and nobody from their families will work at Infosys.
Murthy insisted that his son would have no leadership role in the company.
“Post-retirement, I have been working with a small team of people...and one of them happens to be my son Rohan. He has no leadership role,” he said. “The only role that Rohan has is to make me more effective. That’s it.”
The 66-year-old Narayana Murthy has been reappointed executive chairman of the board, after the team led by ICICI Bank Ltd chairman K.V. Kamath that was put in place in August 2011 failed to help the company regain its bellwether status in India’s $108 billion information technology industry. Kamath stays on as lead director.
“This calling was sudden, unexpected, and most unusual. But, then, Infosys is my middle child. Therefore, I have put aside my plans-in-progress and accepted this responsibility. I am grateful to K. V. Kamath—the chairman, the Board, and every Infoscion for giving me this opportunity. I intend to do my best to add value to the Company in this challenging situation,” Narayana Murthy said in a statement.
The new appointments and changes are with effect from 1 June and subject to approval by stakeholders. The board will meet on 15 June to consider the resolutions for convening an extraordinary general meeting in order to seek approval from the shareholders.
Founded in 1981 by Narayana Murthy and six others, including Nandan Nilekani, Gopalakrishnan and Shibulal, Infosys held its own as India’s most high-profile IT company—although rival Tata Consultancy Services was always bigger—until three years ago.
“The board has taken this step keeping in mind the challenges that the technology industry and the company faces and in the interest of all stakeholders, particularly shareholders large and small, who have asked for strengthening of the executive leadership during this challenging time,” Kamath was cited as saying in the press release. “Murthy’s entrepreneurial and leadership record and the long experience he has had as a technology pioneer makes him eminently qualified to lead the company and provide strategic direction at this point in time.”
In the past two years, the company has missed its revenue and profit growth forecasts several times and has been overtaken by Cognizant Technology Solutions Corp. in annual revenue. It also pursued a so-called 3.0 strategy doggedly in an environment when outsourcing customers are only looking to save costs.
Last year, Infosys missed the lower end of its revenue forecast at least twice and stopped giving quarterly forecasts. The sluggish growth rates and increasingly impatient investors prompted Infosys to re-examine its strategy and it started cutting prices for select clients. The company also entered into revenue-sharing agreements with companies such as IPsoft Inc. to drive up business volumes, even at the cost of margins.
“Standing here today is very unusual for me,” Murthy said at a hurriedly summoned press conference in Bangalore on Saturday, soon after the announcement was made. “When I walked out of Infosys on August 20, 2011, I did not in my wildest dreams imagine that I’d be back here in an executive capacity. Therefore, when Mr Kamath invited me to come back to Infosys...I was in a dilemma. I had to think very carefully. Then I realized that I was fortunate enough to add value to whatever way I could to the previous CEOs too. After discussions with my family, I decided that as long as I have an opportunity to add value to Mr Shibulal in a manner that is most enjoyable to me, I said I had no objections... This is in some sense a second innings for me because it’s been seven years since I completed my executive responsibilities,” he said.
Murthy said he wasn’t forcing himself back on Infosys in any way, and he also appeared to back the CEO’s strategy. “It is not my strategy (to come back), it is the company’s strategy. It is a strategy that is being led by Mr Shibulal. And that strategy is Infosys 3.0.”
When asked about the 60-year rule, Kamath said: “As far as circumstances are concerned, we looked the external, the internal and the stakeholders responses as well. All these things were considered before the invitation to Mr Murthy. Our institution comes first, all these things regarding age are facilitative in a particular context. When the context changes you need to act in the interest of the institution...all these were deliberated on.”
As for the question of holding the CEO responsible for the current state of the company, Kamath said: “There are a whole lot of theoretical approaches...but we needed to take a practical approach.”
In an interview with Mint on 7 May, Narayana Murthy had denied any plans to come back to Infosys, but added that it’s “difficult to predict what will happen tomorrow”. Narayana Murthy served as chief executive officer from 1981 to 2002 and as chairman from 2002 to 2011.
“At this stage, looking at the data that I have, I wouldn’t say that. So, who knows what happens in the future, I am not gone, cannot say what I will do tomorrow, I may not be there tomorrow morning. So, it is not possible for me to predict what will happen tomorrow,” Murthy had said.
Former Infosys executives and other experts felt Murthy’s comeback at Infosys was a positive move for the company and would bolster the company’s sales team.
“It’s just like Steve Jobs coming back to Apple for a second time,” said T.V. Mohandas Pai, former director at Infosys and currently chairman of Manipal Global Education. “The company had become dysfunctional and was not operating properly, so he came back. Some companies respond to charismatic, strong leaders. They look up to such leaders, their voice is the law and they respond very well... The fact is things have not worked recently at Infosys, Murthy should come back and set it right. This time, the leadership team he puts in place, will be sustainable,” he said.
“The problem with the company (Infosys) has been that they’ve not been able to grow sales... Murthy during his time at the company always said that sales is the most important function at the company. And he’s a very externally focused person. So he understand what needs to be done and he’ll bring back the zing to the sales. His first goal will be to rebuild and refocus the sales team and bring sales home. Once the sales start increasing things will fall into place,” Pai said.
“Leaders have to take responsibility for the performance of the corporation they lead. That principle should be applied everywhere,” said Pai, when asked whether the board should have held the chief executive accountable for the company’s recent lacklustre performance.
Subhash Dhar, former head of sales at Infosys and currently chief executive of startup Enterprise Nube said, “He (Murthy) created a company that has re-written a lot of the rules... It’s clear that the board considered matters seriously before making this decision. Mr Murthy has also taken a very well-considered decision to come back, so this is not something which is a knee-jerk reaction and I hope that it works out well. This is not a usual decision, but a decision they’ve taken nonetheless.”
The challenge for the Infosys board is to ensure that the company does not become an outlier in an industry where top firms, including Tata Consultancy Services Ltd, HCL Technologies Ltd and Cognizant, continue to gain market share in the same industry, serving similar customers.
Experts had raised questions about the Infosys 3.0 strategy being pursued by CEO Shibulal.
Experts such as Partha Iyengar, who heads research at Gartner Inc.’s India office, said recently Infosys’s pessimistic stance at the beginning of the year is a cause for concern and it’s time the board gets aggressive.
“If you’re in a position of strength and you’re making changes, then it’s alright. But when your position is weak, you should not be making drastic changes. They made those changes at a time when they came to the realization that the market doesn’t see them at a premium,” said Iyengar.