Infosys and its game of thrones
MintAsia uncovers some of the behind-the-scenes manoeuvrings that led to the hiring of Salil Parekh as the new Infosys CEO and the challenges before him
Bengaluru: It would have seemed absurdly impossible, if someone had told Salil Parekh that he would get the top job at Infosys Ltd a little more than three years after he was passed over for the position in favour of Vishal Sikka.
How Sikka’s tenure ended at India’s second largest software services company is now public knowledge. But the way Parekh’s fate has turned is a stunning example of the vicissitudes of corporate life, especially at the top.
On Saturday, 2 December, roughly 100 days after Sikka’s acrimonious exit from Infosys, co-founder and chairman Nandan Nilekani, along with the Infosys board, handed over the reins of the company to Parekh, an executive with plenty of experience in the world of information technology (IT) outsourcing, unlike his more high-profile, Silicon Valley-based predecessor.
The moment proved to be especially sweet for Parekh, a top executive at French software services firm Capgemini, who has always harboured aspirations of becoming the chief executive officer (CEO) of a top IT firm.
That said, Parekh had his own share of disappointments over the years, coming off second-best in a number of CEO races in recent years at companies, including Wipro, iGate and Conduent. He will now steer Infosys, starting 2 January for a period of five years.
Parekh’s second chance, the crowning moment of a nearly three-decade-long career, could also be just what Infosys needs at a time when the company is attempting to move on from a period of unprecedented tumult, amid a bitter and public battle between its founders and the previous board of Infosys.
His appointment also marks the second time that Infosys has chosen an outsider to helm the company, after being run by its founders for the better part of its first three decades of existence.
Unsurprisingly, Infosys has played it safe this time by naming Parekh, who unlike Sikka, comes with plenty of experience in negotiating multi-million dollar outsourcing deals, which are a staple for Infosys and its rivals such as Tata Consultancy Services Ltd, Wipro Ltd and US-based Cognizant Technology Solutions Corp.
Sikka, in contrast, came to Infosys in 2014 with the reputation of being a strong products and technology leader, but with virtually no experience in the outsourcing industry.
Hearteningly for investors, Parekh’s appointment drew immediate praise from Infosys founder N.R. Narayana Murthy, who had a rancorous, public fallout with the previous board of the software services company and Sikka during the months preceding his unceremonious exit.
“I am happy that Infosys has appointed Mr. Salil Parekh as the CEO. My best wishes to him,” Murthy said in a statement.
To Nilekani’s and the senior management’s credit, Infosys, in the past three months, has exceeded the expectations of even the company’s staunchest supporter. Infosys has retained almost all of its senior executives and, despite the chaos the company was forced into after the abrupt exit of Sikka in August, it managed to grow its fiscal-second quarter dollar revenue by 2.9% from the preceding three months.
Parekh’s appointment also marks the culmination of an eventful eight months that started in April.
Behind the scenes
In April, at Infosys’s Palo Alto office, when Sikka was increasingly getting disillusioned about his future at the company, Parekh, stationed on the other side of the globe—roughly 8,400 miles away—at Capgemini, was starting to feel equally uneasy about his own future.
Parekh, who joined Capgemini in 2000 after the company bought out the consulting arm of Ernst and Young (now EY), had risen through the ranks to become the CEO of Capgemini’s UK, Asia and financial services businesses.
Like any smart and hard-working executive, Parekh harboured ambitions of landing the role of global chief executive at his firm. However, sometime during the month, he learnt that Capgemini was planning to pick two other executives for the role of joint chief operating officers later during the year—a development that would potentially deal a severe blow to his own ambitions.
Around the same time at Infosys, the board named Ravi Venkatesan as co-chairman and then appointed a three-member panel to “support and advise” Sikka in executing strategy.
As MintAsia reported on 21 August, Sikka was “deeply unhappy” with Venkatesan’s appointment, even telling some executives close to him that he “wanted to leave”, given that he and Venkatesan had a tough working relationship on the board.
Back at Capgemini, Parekh knew that he was not one of the two executives the French firm had in mind to take over as joint chief operating officers later during the year—a development that effectively snuffed out his chances of being elevated to the role of global CEO of the Paris-based IT giant.
Capgemini said as much in a brief statement on Saturday, 2 December, announcing Parekh’s departure from the company and attributing his exit to “recent managerial evolutions communicated in October”.
Over the next few weeks, Parekh privately made up his mind to move on from Capgemini and seek opportunities elsewhere.
Calls, emails and texts to Parekh went unanswered.
One door of opportunity would open up at International Business Machines Corp. (IBM) in June, when CEO Ginni Rometty was looking to hire a top executive to lead the firm’s multi-billion dollar IT infrastructure business.
While accepting the role would mean a step-up for Parekh, it did not quite fit the stature of his own ambitions. Parekh would eventually pass on the job, and IBM would pick former Wipro joint-CEO Suresh Vaswani for that role.
These accounts of the past eight months have been obtained from interviews of at least six executives directly familiar with Infosys’s CEO search process. All these executives requested anonymity.
Next, around September, came an offer from US-based DXC Technology, which was formed earlier this year by combining Computer Sciences Corp. and Hewlett-Packard’s (HP’s) enterprise services business.
A spokesperson for DXC Technology said the company had no comment to offer, while an email sent to IBM seeking comment went unanswered.
According to two of the people cited above, Mike Lawrie, CEO of DXC, made an offer to Parekh to take over the $7-billion Americas business of the company. The offer was generous. If Parekh had taken up the role, he would stand to make at least $5 million in annual compensation, which is a significant jump from the estimated two-and-a-half million he made at Capgemini.
Even before Parekh could seriously weigh on this offer, Sikka decided to put in his papers at Infosys on 18 August. Less than a week after this development, Parekh asked a friend for an introduction to the board of Infosys, according to two other executives directly familiar with the development.
However, it was a while before the Infosys board itself reached out to Parekh.
On 25 August, Infosys named co-founder Nandan Nilekani as chairman. Nilekani would soon depart for the US for a long-planned trip. Infosys director and head of the board’s nominations committee, Kiran Mazumdar-Shaw, who also made a trip to the US around the same time, and Nilekani stayed in touch and coordinated the search.
Over the next few weeks, the board started creating a list of potential candidates, with the help of search firm Egon Zehnder. That list contained 10 names, including that of Parekh, according to a fifth and sixth executive directly familiar with the search process that was being spearheaded by Mazumdar-Shaw.
The board of Infosys had three clear mandates this time, unlike in 2014. Firstly, they wanted a leader who was a reputed sales guy with a strong grounding in the IT outsourcing industry—traits that Sikka did not possess.
Secondly, the new CEO had to be based out of Bengaluru. No two ways about it.
“The overseas experiment (with Sikka) proved to be a disaster for Infosys. The new CEO could not be based anywhere outside Bangalore. Period,” said the fifth person that MintAsia spoke to for this story.
And, finally, Infosys wanted to play it safe and opted to take a “conventional and conservative” route, said this person.
“When Sikka came into Infosys in 2014, he had the reputation of being a maverick change agent. That didn’t work out so well, and Infosys learnt its lessons. They chose stability this time around,” he said.
The final shortlist
Mazumdar-Shaw and Nilekani further whittled down that list of names over the next few weeks. Parekh was on the final shortlist that the board began to consider seriously in early October.
“The pool of IT services executives with global experience has shrunk and become smaller and smaller over the years. You just don’t have any global leaders based out of India anymore—Salil was probably the only exception. And it has become impossible for companies like Infosys to get global leaders to relocate to India—a case in point being Abid (Ali Neemuchwala) at Wipro and Sikka at Infosys,” said the sixth person.
With Parekh, all three criteria were met. Parekh, a Gujarati from Mumbai, possesses decades of global experience in the world of IT services, having sat across the table with CEOs of Fortune 500 firms and having negotiated complex multi-year, multi-million dollar outsourcing deals over the years.
And more importantly for Infosys, Parekh, a father of three young boys, was more than happy to relocate to Bengaluru from Mumbai.
After the initial set of conversations, Nilekani, Mazumdar-Shaw and the board of Infosys decided to meet Parekh. In the October-November period, Parekh would travel to Bengaluru a number of times and meet the board at plush, five-star hotels in the city.
By the second week of November, the board made up its mind—as had Parekh—and over the first weekend of December, Infosys named the 53-year-old as its second non-founder CEO.
“With his (Parekh’s) strong track record and extensive experience, we believe, we have the right person to lead Infosys. He was the top choice from a pool of highly qualified candidates,” said Mazumdar-Shaw.
Marriage of convenience
Unlike Sikka, Parekh is not flashy or gregarious and is considered to be more amenable to the founders of the company, according to two executives. Parekh being a more understated executive is reflected by the fact that there is not much publicly available about the CEO-designate, an IIT-Bombay graduate and Cornell University alumnus.
“He (Salil) has a strong track record of executing business turnarounds and managing very successful acquisitions. The Board believes that he is the right person to lead Infosys at this transformative time in our industry,” said Nilekani on Saturday, 2 December.
Some of the immediate challenges that Parekh will wrestle with will include his ability to retain senior executives from an already depleted senior management team and also to see that business continues uninterrupted.
For this reason, many believe both Parekh and Infosys non-executive chairman Nandan Nilekani, who is expected to mentor the CEO for at least a year, could replicate the playbook of Tata Consultancy Services, where the combination of Natarajan Chandrasekaran and Rajesh Gopinathan has so far facilitated a smooth transition.
Eight months after TCS elevated chief financial officer Rajesh Gopinathan to the rank of CEO, India’s largest IT services firm has retained senior executives even as business continues uninterrupted. Gopinathan replaced Chandrasekaran, who took over as chairman of parent Tata Sons Ltd in February.
Gopinathan and Chandrasekaran’s approach has been simple: give independence to senior leaders and respect the team.
Parekh’s predecessor, Sikka, failed to build a stable senior management team, with as many as 10 executives of the rank of executive vice-president and above quitting the company during his three-year stint.
A churn in senior management ranks is one of the primary reasons behind Infosys’s recent struggles with consistent growth. Infosys has already trimmed its revenue outlook to an at-best 6.5% in constant currency terms, as against the 8.5% growth it outlined at the start of the financial year.
Parekh starts with Infosys in January, which indicates he will have a three-month period to familiarize himself with the nearly 200,000-strong company before Infosys outlines its annual growth forecast for 2018-19 in April.
“You’ve got to give credit to Nandan for he has already taken pressure off from the new CEO by cutting back growth,” said a Mumbai-based analyst at a foreign brokerage, on the condition of anonymity.
Some experts tracking Infosys said that Parekh would be careful in bringing a number of his trusted lieutenants from Capgemini to Infosys—unlike his predecessor Sikka, who hired a slew of former executives from SAP at fat pay packages during his first six months at Infosys.
“We’ll see a measured approach,” said Ray Wang, founder of Constellation Research, a technology research and advisory firm. “Infosys is a conservative culture and Salil will adapt as needed and make the case if need be. Infosys in many cases will need to augment its talent for digital skills, AI capabilities, and also design skills. That cannot be organically grown in time for client requirements.”
For now, most experts tracking Infosys have lauded Parekh’s appointment, but cautioned that the new CEO would need to be given the freedom to effect a meaningful transition without interference from the founders.
“Infosys appears to have played it safe as the company had a bad experience of earlier appointing an American CEO based out of the US,” said Shriram Subramanian, founder and managing director of proxy firm InGovern Research. “Salil has grown along with the Indian IT services industry, and has experience working out of India.
“One hopes that promoters give the new CEO his own space and do not interfere,” added Subramanian.