BackCan Narayana Murthy change Infosys?
In all these years, after intense focus on corporate governance, how could Infosys fail to develop a succession plan?
Premium(Hemant Mishra/Mint)
Much has been written about the venerable N.R. Narayana Murthy returning to take charge as executive chairman of Infosys Ltd. I need not go over what everyone knows already: that Infosys has not been doing so well in the last couple of years, so in what could be seen as a somewhat desperate move, it has brought back its founder-CEO at the helm. The return of Murthy, the company hopes, will enthuse customers once more, improve company morale, allay shareholder doubts, and ultimately set Infosys back on the blazing growth path it had been on for one and a half decades.
Bringing back retired CEOs to head their companies once more is unusual but hardly new, and they often succeed, because they know the company better than anyone else, and they come with the hint of a halo. The most inspiring example of this is what happened to Hewlett-Packard Co. (H-P) in the early 1990s. The founders Bill Hewlett and David Packard had retired in the late 1970s and left the management of the company in the hands of professional executives. Then, in 1990, a low-level secretary, who had been working for decades in the company, (her name has never been revealed) wrote a note to Hewlett, saying that things were very bad inside the company. It was a cry for help from the bottom of the pyramid, but Hewlett and Packard acted immediately. They started meeting H-P executives at all levels, trying to figure out what had gone wrong, and planning how they could turn the company around. Within four months, they asked the two top executives to resign, and rolled up their sleeves and hunkered down.
Hewlett and Packard, both then in their 80s, stayed on only for a few months more, but those few months were enough. As the San Jose Mercury News reported (quoted in Michael S. Malone’s biography Bill and Dave): “Before they were done, Hewlett-Packard had been all but turned upside-down. Decision making had been streamlined, recalcitrant managers retired, customer services improved, relationships with suppliers revitalized…and the company had been turned again into an aggressive force." By the mid-1990s, H-P was the fastest growing large corporation in the US, and had the highest profit margins in American industry. By then of course, Bill and Dave were back home, leading private lives again.
Whether Murthy can do a Hewlett and Packard act on Infosys remains to be seen; he has given himself five years as executive chairman. But I don’t want to talk about that either.
When Infosys first captured the public imagination in the late 1990s, it was for several reasons that made it seem different from all other Indian companies. It constantly spoke about honesty and business ethics, about sharing wealth with its employees, about meritocracies and giving everyone a fair chance. And it put its money where its mouth was. Its annual reports were much more transparent than required by the law of the time, it appointed credible independent directors, it gave stock options to its staff (including the company’s chauffeurs), and kept passing the CEO mantle from one founding member to another. In 2011, when Murthy stepped down as non-executive chairman at the age of 65, following the rules he had himself set for the company, Infosys became one of the very few Indian companies to have an independent director—K.V. Kamath—as chairman. In every way, Infosys exemplified the best in corporate governance practices.
This, as opposed to the traditional Indian firm which, however much it pretended to be a joint stock company and a “professionally managed" one, essentially remained a family business, with sons (or in rare cases, daughters) inducted into the firm when they had earned their American MBAs, to be groomed to take over as CEO one day. You could be a Jack Welch plus Eric Schmidt, but you would never make CEO in an Indian firm if you weren’t the promoter’s progeny. Even in the so-called New Age companies with global visions, the situation was the same, whether it was Ranbaxy Laboratories Ltd or Wipro Ltd or HCL Technologies Ltd. In Indian businesses, genes have always mattered more than ability. And here was a company whose CEO, Narayana Murthy, made a public statement that when the founders retired, they would not hand over Infosys to their family members.
But as Murthy returns to Infosys, he brings with him his son Rohan Murty as executive assistant; in fact, if media reports are to be believed, he made this a pre-condition to taking up his old job.
This raises two important questions. One, what happened to the solemn avowals of keeping company and family separate? In fact, when Infosys was set up, it was on this principle that Narayana Murthy’s wife Sudha, an accomplished engineer herself, stayed out of the running of the firm (she is a shareholder). Is it that when it comes to the crunch, even the most progressive Indian businessmen fall back on family? Murthy has announced that this does not mean Rohan is going to be the next CEO of Infosys. But then, Murthy has already broken his own rule mandating that non-executive directors have to retire at 65. As executive assistant to the chairman, Rohan will be the face of the chairman inside the company; he would be the chief coordinator and the principal watchdog on execution, targets, new growth strategies. More importantly, this being India, whatever Murthy’s intentions may be, Rohan will be seen as the proxy-chairman and heir apparent by most executives, which could make them less bold and free with their opinions. And, this again being India, in one stroke, Murthy has inserted a new level of corporate politicking in Infosys.
Rohan has a stellar academic record—Cornell, MIT, Harvard—and has been overseeing the Murthy family’s venture capital fund, Catamaran. One is not questioning his intellect or ability in any way. (In fact, no one is in a position to comment on his managerial acumen, since it has not been tested yet at all.) But this brings us to our second question. In all these years, for all its intense and much-publicized focus on corporate governance, how could Infosys fail to develop a succession plan? Its running back to Murthy in times of trouble seems to indicate that it has not been able a strong second tier of managers, or at least a second tier that the founders have enough faith in. This is a signal failure. As any Infosys insider will tell you, in the five years he spent as non-executive chairman (between the ages of 60 and 65), Murthy was hardly non-executive. He remained as hands-on and top gun as ever, even while Kris Gopalakrishnan was CEO. So are we to believe that without Murthy, and with Nandan Nilekani gone, Infosys can’t be the great company that it once was?
These questions should worry us. Because they lead to the final and vital question for all Infosys stakeholders: In the end, is Infosys just another Indian company?
Hewlett and Packard had not one, but two chances to leave the corporation they had built to their children. But it is unlikely that the thought ever crossed their minds.
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