What went down at Infosys?17 min read . Updated: 03 Sep 2014, 01:11 AM IST
Mint pieces together the intrigue and behind-the-scenes manoeuvring that took place at Infosys as it battled unprecedented internal tumult
Bangalore/Mumbai: On 25 April 2013, directors on the board of Infosys Ltd received an email from Baburaj Pillai, chief investment officer of Singapore-based Arohi Asset Management Pte. Ltd, who described himself as a “long time shareholder and well-wisher of Infosys".
The tone of his email was polite but the message was tough—bring back (founder) N.R. Narayana Murthy in an executive role, or else....
“I feel very strongly that if any other shareholder were to initiate a resolution nominating Mr Murthy, it would receive an overwhelmingly favourable vote. This however would not cast the board in good light, which I feel will hurt Infosys."
And then, for good measure, he warned that “if the board collectively decides that status quo is the best decision, then, at the very least, the board is prepared for any potential shareholder activism."
Pillai, also the founder of Arohi, attached another detailed letter to his email, elaborating his case, starting with a plea to bring “Mr Murthy" back and stressing his own long association with the company, first as a portfolio manager for Government of Singapore Investment Corp., and then, on behalf of his clients at Arohi.
Mint has a copy of the email and the attachment.
Within hours of receiving the email, K.V. Kamath, chairman of the Infosys board, reached out to all board members to seek their advice. One former board member remembers the call. “This is the best thing for the company. We should do it. There is no other choice," he says he told Kamath.
Kamath said in an interview that he doesn’t remember having this conversation.
But there’s a backstory to the email, according to this person; like many others who spoke to Mint for this article, he wished to remain unidentified.
The email and the backstory were clearly incendiary enough for Infosys, once one of India’s most media-savvy companies, to issue legal notices to three publications owned by Bennett, Coleman and Co. Ltd and The Indian Express Ltd for ₹ 2,000 crore each. The legal notices claimed that articles published by these newspapers had defamed the company, but people familiar with the matter said these were shots across the bows of their newsrooms, to prevent them from publishing the backstory.
Infosys also exhibited the kind of nervousness not usually associated with the company about the Mint story. A senior executive at its newly appointed public relations (PR) agency, Mumbai-based Adfactors, known for its fire-fighting skills and expertise in ensuring initial public offerings (IPOs) get the right kind of publicity, reached out to Mint twice, once presumably to stall the story, and a second time to express concern over the direction the story seemed to be taking (questions were mailed to Murthy who, through Adfactors, declined to participate in the story).
Here’s the backstory that Mint pieced together from interviews with board members and others who have knowledge of the matter.
The former board member cited above met Murthy in the middle of April 2013, at the latter’s house in Jayanagar, Bangalore, where he declared his intention to leave the company.
“Shibulal is running the company to the ground," he told Murthy.
S.D. Shibulal was the chief executive officer (CEO) and managing director of Infosys then, one of the company’s co-founders, and an early protege of Murthy.
On 13 April, after its earnings announcement, the Infosys scrip had fallen by 21%, its worst decline in a decade. This event had spooked several insiders, including the board member cited above (Board Member #1).
“The company is not going anywhere," continued Board Member #1. “You should come back. We need a good anchor to energize the company. Bring the growth back. The leadership is loyal to you and they will align to what you say."
Murthy was reluctant.
This wasn’t the first time the board member had tried to get Murthy to come back.
A month earlier he tried the same argument, but through a different approach—using the offices of Pillai, who was visiting Bangalore at the time.
Pillai met with Murthy, who refused to even consider coming back to Infosys.
Pillai did not respond to a detailed email questionnaire.
Now, Board Member #1 was trying again, this time directly, and leveraging the threat of quitting the company.
“Shareholders are unhappy, the board is dysfunctional, not able to take any decision, employees are unhappy. You should come in to create some breathing space," he told Murthy.
This time though, Murthy was amenable to the suggestion.
A few days later, Board Member #1 got a message from Murthy that he would consider coming back “if there was external pressure".
Immediately, Board Member #1 called Pillai.
Kamath said that any theory about any board member orchestrating Murthy’s return “is absolutely false".
Indeed, it is possible that Pillai acted on his own accord, and that the board decided to ask Murthy to return to an executive position because that was the best option before it.
Whatever be the case, by the end of the month, the board of Infosys asked and convinced Murthy to return.
His return, as has been widely reported, broke two rules Infosys’s co-founders had set for themselves: that they would retire at 60 (Murthy was coming back to an executive position at the age of 67); and that none of their family would be employed at the company (Murthy wanted his son Rohan to be his executive assistant).
Once he had decided to come back, Murthy, Board Member #1 says, reached out to his former A-team.
Responding to a call from Murthy, Nandan Nilekani, who was then running the government’s Unique Identification Authority of India, said he had moved on.
Nilekani did not respond to an email seeking comment.
Murthy then reached out to T.V. Mohandas Pai, former chief financial officer and director of human resources at Infosys. He too declined.
On 1 June 2013, nearly a month and a half after the events detailed above were set in motion, Murthy announced his comeback. In a statement issued by the company, Murthy said: “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."
Only, it wasn’t really sudden or unexpected, and doesn’t really show Infosys’s board in the best light.
A failure of the board
How did an $8 billion company, a former bellwether of the information technology (IT) industry, get here? Why did it turn as desperate as to seek the return from retirement of its first CEO?
One of the most important responsibilities of any board is planning for succession—identifying at least one leader who can immediately take up the role if the current CEO gets hit by a bus.
What happened at Infosys? “They have known for nine years that Kris and Shibu are the last in the line (among founders preordained to head the company)," says a former board member of Infosys (or Board Member #2). Kris is S. Gopalakrishnan, Shibulal’s predecessor as CEO.
“If things were not working out under Shibu, then the next CEO should have been appointed then and there," says another former board member (Board Member #3). But it clearly didn’t happen, and more on that later.
A current board member, who spoke on condition of anonymity because he is not authorized to speak with the press, says that the directors were caught in a situation where there were just too many moving parts. While the board was preparing for succession planning, keeping in mind Shibulal’s date of retirement (early 2015), two things changed in quick succession—growth petered out and the company got ensnared in a messy legal battle about visas in the US. That was in July 2012; by then, Shibulal had been in charge for less than 12 months.
“You did not have too many quarters to take the decision on what is the corrective," says the board member. “And then Infosys faced this other challenge, probably the biggest challenge, of the US visa. I have not seen anybody question and go into the root of it; when did that happen, it did not happen under Shibu. It happened under somebody else and somebody else is responsible for this activity. So all governance issues have come on Shibu’s shoulders; 40% of his energy was on that. We as a board were trying to cope with all this."
That is, till things became too hot to handle. And Murthy came in.
Botching up succession planning was not the only lapse of the board. The appointment of Rohan Murty as his father’s executive assistant (EA) was another low.
Way back in 1994, Infosys started a programme called Voice of Youth. The idea was to harness the creative energy of its young employees and also develop future leaders. Then there is the Infosys Leadership Institute in Mysore—an institute that was supposed to churn out 500 leaders at one point in time.
What stopped Murthy from picking an EA from within? asks Board Member #3.
“What happened to these hallowed institutions? They couldn’t produce one EA."
All about compliance?
The (current) board member says that Infosys did not cross the line on any governance issue. According to him, governance implies disclosure. “As long as you disclose, there is no governance issue," he says. “And I don’t think Rohan enjoyed any more authority than an EA should."
Most people that Mint spoke to who’ve served on the board of Infosys in the past agree on one thing though. When Narayana Murthy says something, everybody agrees.
“It was always about compliance, you know," says Board Member #3. “Compliance for regulators, compliance for financials, and it is one of the best paying boards in the country. A director makes about ₹ 80 lakh. Despite all of this, it was always about compliance, never about commitment."
In early 2014, about six months after Murthy came back at Infosys, the nominations committee of the company was changed. Jeffrey S. Lehman, Ravi Venkatesan and Ann M. Fudge were replaced by Kamath, R. Seshasayee and Kiran Mazumdar Shaw, chairperson of Biocon Ltd. No reasons were given for the sudden change.
According to Board Member #2, Fudge, among others, was alarmed by the changes at Infosys. She eventually decided not to seek re-election after completing her three-year term.
Fudge did not reply to a detailed email questionnaire seeking comment.
Lehman said there was nothing unusual or untoward about the appointment of a new committee . Lehman, who has been on the board of Infosys since April 2006, also said he intends to remain on the board until he reaches the term limit imposed by Securities and Exchange Board of India (Sebi) rules.
Is it because, as a former Infosys employee who worked closely with Kamath says, he felt he was an “outsider"?
Kamath denies this. “Never," he says. “I was very conscious of the fact that you had people who know this business for the last 30 years. And you have to respect that."
Still, it remains that Kamath never really critiqued Shibulal’s performance as CEO. Maybe because to have done that would have been tantamount to questioning Murthy’s philosophy of management at Infosys—that every founder would have a go at the wheel.
The Shibulal story
Sarojini Damodaran Shibulal, now 59, will possibly go down in corporate history as one of the most vilified CEOs in the history of Indian IT. On Glassdoor, an employee-rating website, his approval rating stood at 50-60% in May 2014—the lowest among CEOs.
One of the seven founders who attained rock-star status after Infosys rose through the 1990s and 2000s to become India’s most admired company, Shibulal appeared clueless as Infosys lost its exalted bellwether status, underwent the worst financial performance in its history, surrendered its premium pricing position and was compared—unfavourably—with rivals it once used to ridicule.
Such was the state of affairs under “Shibu", as he is popularly known, that within a year of his tenure as CEO, Infosys started missing its own annual revenue guidance. Soon after, investors and analysts started speculating on when Infosys would start looking for a replacement for Shibulal. No other Infosys founder had to undergo such ignominy.
Current board members also started to feel the heat.
In October 2013, all the independent directors on the board of Infosys received an email from an angry US-based shareholder—one of several mails the board received from worried shareholders over the course of the last 18 months.
In the letter, the shareholder questioned the board’s decision to retain Shibulal as CEO even after Murthy came back and why Shibulal and even vice-chairman Gopalakrishnan were not held accountable for Infosys’s poor performance between 2011 and 2013.
One board member thought the shareholder’s questions had merit.
In a letter to Kamath and other independent directors, independent director Omkar Goswami said the board should not ignore the email.
“Clearly (the shareholder) has marshalled fairly sound data. I believe an appropriately correct and possibly assuaging response may be warranted. I leave it to you, my other colleagues and General Counsel to choose the correct path. But we shouldn’t ignore it," Goswami wrote in the email.
Mint has seen both letters.
During his term, Shibulal, the only founder to have taken a break from Infosys to work at a different company (Sun Microsystems Inc.), doggedly pursued a widely criticized business strategy—the so-called Infosys 3.0—that snowballed into disaster.
This strategy, touted as a bold bet when it was announced, was the company’s attempt to separate itself from the rat pack by venturing aggressively into newer areas of technology such as cloud computing, software application products and platforms.
“Infosys fell into the classic Founder Trap and that’s what has put it in its current predicament," said the CEO of one of India’s top five IT firms, which competes with Infosys. He requested anonymity. “It should’ve got an outsider or a non-founder as CEO at least five years ago."
The 3.0 strategy was akin to changing the engines of a plane mid-flight.
The problem was its timing. Oh, and the execution, too. Which eventually led to Infosys dropping the ball with its traditional outsourcing business, as Murthy made it clear on his comeback at Infosys.
To add to that, Shibulal promoted leaders whom he favoured and sidelined others who were overseeing important portfolios and were seen as threats to his position, according to several Infosys executives, who requested anonymity.
Several Infosys insiders point to an instance when Shibulal, sometime in 2012, swapped the portfolios of banking and financial services, and manufacturing that Ashok Vemuri and B.G. Srinivas—both were seen at the time as potential future CEOs—were overseeing, respectively. “That decision defied logic," says an Infosys executive.
To be fair, Shibulal’s tenure also coincided with the post-recession period when top Fortune 500 clients had tightened their IT budgets. And for an industry where traditional plain-vanilla software and desktop maintenance projects were getting increasingly commoditized and automated, and customers were increasingly demanding more for less.
The 3.0 strategy indicated a willingness on Infosys’s part to undertake bold transformations in a rapidly evolving technology landscape. But customers had not drastically reduced outsourcing traditional software development projects. Nor were they interested (just not yet) in making bold new, expensive bets.
Shibulal though vehemently defended his tenure during recent press briefings.
“Infosys today is much stronger than it was when I took over," he said in an April interview with Mint.
Publicly Kamath, non-executive chairman of Infosys between 2011 and 2013, continued to back Shibulal through all these decisions. In private, it was a different story altogether.
The current board member quoted earlier and another current board member say that privately Kamath was unhappy with Shibulal’s performance and jumped at the opportunity to bring Murthy back when the suggestion came up.
Celebrations around Murthy’s comeback lasted just about a month.
Then global sales head Basab Pradhan was asked to go. At the time, Murthy spoke about the need to take “tough decisions" to return the company to its former health. No eyebrows were raised. It was assumed that Pradhan’s exit was part of an early shake-up that Murthy was orchestrating. Next to go was Sudhir Chaturvedi, a man who oversaw some of Infosys’s most important financial services accounts and was responsible for over a billion dollars’ worth of business.
The trickle became a stream.
Even when Vemuri quit in August 2013 to join iGate Corp., nobody was ready to press the panic button yet. Vemuri had a simple choice before him. A three-in-one chance to become the CEO of Infosys. Or the top job at iGate. He chose the latter. This happened after nearly half-a-dozen more exits, capped by V. Balakrishnan’s departure in December that effectively left only Srinivas as a viable internal candidate for the post of CEO.
Balakrishnan’s departure was anything but pleasant. According to a person familiar with the development, from the time Murthy came in, the two had been discussing the idea of three co-chief operating officers (COOs): Vemuri, Srinivas and Balakrishnan himself. While Murthy seemed agreeable to the idea, he wasn’t acting on it. On 20 December 2013, after a make-or-break discussion that told him that he was not getting his way, Balakrishnan quit.
It was also his last day at Infosys.
Meanwhile, Murthy was continuing to ask people to go.
“You see, Murthy left the executive position at Infosys in 2001-02," says Board Member #1. “When he came back, his mindset was: ‘Why do all these sales guys get paid so much? Let us replace them with freshers’."
Murthy for one continued to believe that most people who had left were not “adding value" to the company.
Even as all this was happening, the board seriously started considering the possibility of an outsider CEO. In early 2014, Kamath suggested Vishal Sikka’s name. It was then that Srinivas approached Murthy and asked him about his chances of becoming CEO, according to Board Member #4. He was told he would not become CEO and there were others who were ahead in the race; he quit.
That was on 28 May 2014. Srinivas didn’t respond to an email seeking comment.
Srinivas’s departure was the 11th top-level exit from Infosys from the time Murthy took over. And with him went an entire generation of leaders, most of whom had ironically been hand-picked by Murthy and the other founders themselves.
In June, with the appointment of Sikka, the first non-founder CEO at Infosys, Murthy and his son moved out of the company.
In the midst of the hoopla surrounding Sikka’s appointment as CEO, no one really asked why Murthy, who had suggested that he would stay for five years when he returned in 2013, left barely 12 months later.
There are two explanations.
One, Murthy’s presence may have been a deterrent to potential CEOs who did not want to operate under the shadow of an active chairman. So, Murthy had to go—at least from his executive role. Once Murthy decided to leave, the other founders followed suit.
Two, having zeroed in on a successor, Murthy felt the time was ripe to cut his losses and move out.
“He couldn’t work the magic and did not want this to be widely known. So he decided to cut his losses. He is a man famous for his oft-repeated line: under-promise and over-deliver. This situation was the opposite. He wanted to go out in a blaze of glory. Like Steve Jobs. Instead, things had spun out of control and trust (in him) plummeted," said Board Member #3.
There is yet another theory, a contrarian one, and this suggests Murthy did just what was expected of him.
A third current board member of Infosys conceded that while Murthy could not solve Infosys’s growth problem, he successfully cleaned up the “deadwood" that was dragging Infosys down.
“What he did was clean up the ship. One can easily argue that the current set of leaders who replaced the lot that left are easily a brighter set. He’s cleared the decks for Vishal."
The second current board member echoed similar sentiments and said Murthy was instrumental in solving Infyosys’s succession-planning dilemma.
“Murthy had the challenge of putting a proper succession plan in place, which he executed. And that was most important, given that the issue of succession planning wasn’t exactly addressed under Kris and Shibu," added this person.
In the 2000s, as a procession of founders had their go at the top job at Infosys, the chairman of the company’s rival across town told a reporter that while Infosys had democratized ownership (by going public; he continued to hold most of his company’s shares at the time), he had democratized management.
With Sikka’s entry, Infosys can finally claim to have democratized management, too.