Infosys seeks to buy peace with new co-chairman, Rs13,000 crore payout promise
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Bengaluru: Infosys Ltd named Ravi Venkatesan as co-chairman and decided to payout Rs13,000 crore to shareholders through dividends and/or share buyback, in an attempt to buy peace with its promoters and other shareholders. Starting this year, the company will use 70% of its free cash flows (as against 63% earlier) to award dividends or buy back shares.
The company made both announcements while declaring its results for the fourth quarter of 2016-17 and the full year. In the January-March quarter, Infosys reported a 0.7% sequential rise in dollar revenue to $2.57 billion (about Rs17,000 crore), allowing it to end fiscal 2016-17 with a 7.4% growth and $10.21 billion in revenue. Net profit declined 0.8% to $543 million in the March quarter, from $547 million in the October-December period. For the full year, the net profit was $2.14 billion.
But the big news in the company, which has, over the past few months witnessed an unseemly scrap between its promoters and board and management over issues related to corporate governance, an irregular and very generous severance package given to its former chief financial officer, and salaries of the chief executive and chief operating officer, was the elevation of Venkatesan, now an independent director, and the shareholder payout.
The appointment of a co-chairman was one of founder N.R. Narayana Murthy’s demands when hostilities between the promoters and the board, led by chairman R. Seshasayee and management were at their peak in early February. At the time, an Infosys spokesperson termed Mint’s query on this “speculative”.
It isn’t clear whether Venkatesan, former chairman of Microsoft India and the chairman of Bank of Baroda who has been on the board of Infosys since 2011, is the person Murthy wanted as co-chairman. Murthy didn’t respond to a query. Venkatesan responded with a text message saying: “Big challenges; bigger opportunities.”
Analysts have also argued that the promoters could be seeking a share buyback. Two of Infosys’s former CFOs, T.V. Mohandas Pai and V. Balakrishnan have articulated this demand.
Analysts see three possible reasons for the announcements made on Thursday.
One, the board wants to buy peace so that the management can be insulated from what CEO Vishal Sikka calls as “distractions”, which were partially responsible for a poor 0.7% sequential growth during the January-March period.
Two, Venkatesan’s elevation suggests that the board is working towards a succession plan, which could possibly even see Seshasayee stepping down in coming months, well before his term ends in June 2018. This too, was a demand raised by the promoters at one time.
Three, the sudden elevation of Venkatesan could suggest that the founders have won their 10-month long battle to regain control of the board.
Infosys’s board has Sikka and COO U.B. Pravin Rao as executive members and eight independent directors. Other than Seshasayee, Venkatesan and D.N. Prahlad, a former employee and a relative of Murthy who was appointed last year, the other independent directors are Punita Kumar-Sinha, John W. Etchemendy, Jeffrey Sean Lehman, Roopa Kudva and Kiran Mazumdar-Shaw.
Some analysts and executives in the IT industry who know both Murthy and Venkatesan say the two share a good rapport.
“Knowing Ravi, I believe he will certainly be able to bring both parties (together) and (get them to) agree on things (so) that public spats don’t happen and consensus between the founders and the board and management is reached”.
One proxy advisory firm said the appointment sends out the wrong message.
“The appointment of Ravi Venkatesan as co-chairman may be construed as signs of Infosys’s board listening to feedback. But, in doing so, it has courted another controversy. IiAS believes that Infosys is now fighting the wrong battle: instead of focussing on its performance, it is now spending more time focussing internally and quelling perceptions,” IiAS, a proxy advisory firm, wrote in a note on Thursday.