A house divided against itself cannot stand" was Abraham Lincoln’s famous line in his inaugural address. Later in the address he said, “I do not expect the house to fall—but I do expect it will cease to be divided." Well, that about sums up my fervent hopes regarding what is going on at Infosys Ltd and the toppling of its head honcho, Vishal Sikka. Sikka, who claims he was sick and tired, has promised he will stay on long enough to ensure a smooth transition. He is to continue as executive vice-chairman until the time the transition is over, after which he “wants to go surfing".
Despite Lincoln’s erudition and eloquence, he was wrong, and saw his country plunged into civil war. If the board of Infosys, which has put out a press release explicitly stating that Mr Narayana Murthy’s “continuous assault" was the primary reason behind Sikka’s departure, and Murthy himself continue to be at loggerheads, then the shenanigans at the company will not die down after Sikka’s departure.
This is clearly what Lincoln dreaded when he made that address. An all-out war. This cannot bode well for Infosys as its competitors are bound to try to wrest away accounts where it is vulnerable. This is especially true since most contracts that are coming to market today are re-competes or renegotiations of client relationships that already exist. There is very little “new scope" activity in the marketplace. I have witnessed this sort of poaching first-hand during my career, when firms like CSC and HP were going through turmoil. At that time, the industry itself was not in flux, and yet the competition was full-on. This time around, with all industry actors under pressure, the competitive onslaught will be savage. All one has to do is plant the seed of doubt regarding a competitor’s stability to potentially reap a rich harvest.
The board went on record on Friday to place the blame for Sikka’s exit squarely on Murthy. One of its members also clearly stated that “it had reached an untenable situation" and that “at this point the board has no intention of inviting Narayana Murthy to be a part of the formal governance of the company".
The board went further to highlight the company’s performance over the last three years, which cover Sikka’s tenure. Here’s some of the actual text: “The company grew its $100M+ clients from 12 in Q1FY15, to 18 this past Q1, and increased its large deal wins from ~$1.9B in FY15 to ~$3.5B this past year. This has all been done while improving overall utilization (excluding trainees), to a 15-year high this past quarter, and an all-time high including trainees, while improving our cash reserves, rewarding Infoscions with a new equity plan, and returning Rs19,000 crores as dividend (including dividend distribution tax) over the last three years. This has all been done while improving standing with clients to the highest ever in the 12 years with a jump of 22 points in CXO satisfaction."
Murthy has countered the board’s allegations and here is the gist of his response: “I am extremely anguished by the allegations, tone and tenor of the statements…it is below my dignity to respond to such baseless insinuations…I will reply to these allegations in the right manner and in the right forum and at the appropriate time."
I shall not dwell on the merits or demerits of either camp, but will certainly say that in my opinion, the two camps had better rapidly come to a rapprochement.
The Indian information technology (IT) services industry is under tremendous pressure as its fundamental business model, which Infosys and other firms are very heavily invested in, begins to fray under the twin onslaught of increased nationalistic protectionism and the automation of many IT services functions. A sudden change at the top of one of India’s premier IT services companies is no doubt going to cause turmoil, at least in the short term, and even the incoming interim CEO, U.B. Pravin Rao, has acknowledged as much.
The significant drop in Infosys’s share value on Friday—it has declined by close to 10% as I write this—confirms that investors agree with this view. The board is meeting on Saturday to consider a share buy-back proposal, which many observers expect will still go through, despite the massive erosion in shareholder value on Friday.
There is no doubt that Sikka’s departure comes at an unfortunate time. It’s also time the Infosys board and Murthy camps patched up. In life, as in comedy, timing is everything.
Siddharth Pai is a world-renowned technology consultant who has personally led over $20 billion in complex, first-of-a-kind outsourcing transactions.