5 min read.Updated: 13 Feb 2017, 03:49 AM ISTVarun Sood
CEO Vishal Sikka, chairman R Seshasayee likely to show today letters of support from investors having confidence in the management and board
Bengaluru: Infosys Ltd appears to be headed for an all-out war between two warring factions, one jointly led by chief executive officer Vishal Sikka and chairman R. Seshasayee, and the other led by founder N.R. Narayana Murthy as the board holds a press conference in Mumbai on Monday.
Sikka and Seshasayee, along with board members, will hold a press conference, in a show of strength, after Murthy publicly expressed his displeasure with some of the decisions taken by Seshasayee.
The two are also expected to show letters of support from large investors having confidence in the current management and board, after Murthy questioned some of the decisions taken by the board in the last 10 months, terming them corporate governance lapses.
Infosys has hired J.P. Morgan to garner support from company’s large institutional investors in favour of the current management and board, an executive familiar with the development said on condition of anonymity.
An email sent to Infosys and J.P. Morgan seeking comment went unanswered.
“I don’t know if this is the best decision by them (Sikka and Seshasayee) to address issues in this way (in a press conference) because you don’t want these things to be done in public," said a second executive, on the condition of anonymity. “But I would believe they have been advised to do this after the founder of the company decided to go public."
Seshasayee is backed by most members of the board, although he does not have unanimous support from all the eight independent directors as a few directors see merit in the suggestions made by Murthy, according to the two executives cited above. Infosys has eight independent directors. Sikka and chief operating officer U.B. Pravin Rao are the two executive members of the board.
The developments at Infosys will decide the future of India’s second largest software company, which employs close to 200,000 employees, and the company’s shareholders.
Only five of the seven original founders —Murthy, Nandan Nilekani, S.D. Shibulal, Kris Gopalakrishnan and K. Dinesh—are categorized as promoters of the company, who together hold 12.75% stake in the company. As on 31 December 2016, foreign institutional investors held 39.02% stake, insurance companies had 11.26% and mutual funds held 7.42% equity. Foreign non-institutions held another 16.78% stake, others had 2.87% and retail investors or public had 9.9% interest.
“We are an independent board. So how can we agree to these demands of removal of chairman and someone else from the board because all these are collective decisions," said an Infosys board member, on the condition of anonymity.
For this reason, the founders need to seek majority support on the board or get approval from shareholders in an annual general meeting or extraordinary general meeting if they want their demands accepted.
“It is a hypothetical question for now," said the head of a large domestic institutional investor in Infosys, on the condition of anonymity, when asked if investors will side with the founders or the management team, if a resolution is sought before shareholders. “We still believe that this situation won’t arise and a solution will be found. We are still reading the developments, and will hear out all sides before deciding what to do next."
There are three big challenges ahead of Sikka and Seshasayee for now. Firstly, to make sure the issue raised by Murthy does not flare-up and an amicable resolution can be reached. In this regard, a few existing board members, including Kiran Mazumdar-Shaw, are trying to extend an olive branch to Murthy.
Secondly, Sikka and Seshsayee need to muster enough support from large institutional investors—for they will need the backing of these large shareholders, in case some of the founders or a large shareholder decides to bring in a resolution demanding the removal of Seshasayee at an annual general meeting or extraordinary general meeting.
Finally, Sikka will have his task cut out in managing his employees and clients, some of whom may fret over the ensuing drama.
The divisions between the two sides first surfaced last April and was first reported by Mint, when only 23.57% of promoter votes were cast in favour of a resolution reappointing Sikka as the managing director and CEO. The founders were reportedly not happy with the board’s decision to reward Sikka with a 55% increase in compensation to $11 million. The next sign of trouble came in May, and was again first reported by Mint, when Infosys revealed that it paid Rs23.02 crore severance pay, salary and other benefits to former chief financial officer Rajiv Bansal, drawing criticism from proxy advisory firms and analysts for awarding unusually high compensation to an outgoing executive. The founders didn’t take this decision well, and their unease was soon reflected in the company’s decision to stop the payment, again reported first by this paper on 27 September.
Still, differences over how Sikka will be paid the $8 million variable component of $11 million salary further widened the trust deficit between founders and the board, and this possibly explains why Murthy, in an interview to The Economic Times published on 10 February, expressed his displeasure. Murthy was scathing in his remarks on two of the seniormost board members of Infosys, nominations and remuneration panel head Jeffrey Lehman and non-executive chairman Seshasayee.
In the interview, Murthy questioned the rationale behind Infosys agreeing to pay a generous severance to its former chief financial officer, and said that “they (Lehman and Seshasayee) must accept responsibility and atone for it".
Murthy questioned rationale behind Infosys agreeing to pay a generous severance of Rs17.38 crore to its former chief financial officer, Rajiv Bansal, and said that “they (Lehman and Seshasayee) must accept responsibility and atone for it".
On another question on how Infosys’s board could redeem its credibility, Murthy said “first is for the chair of the nomination and remuneration committee (Lehman) and the chair of the board (Seshasayee) to accept their mistakes and show contrition".
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