Can Rishad Premji rejuvenate Wipro?

Rishad Premji (Mint)
Rishad Premji (Mint)

Summary

  • With the company underperforming, the going hasn’t been smooth for its CEO Thierry Delaporte.
  • Wipro’s sequential revenue growth has lagged behind its larger peers, including TCS, Infosys and HCL Tech in three of the last five quarters. A bigger headache is profitability.

Bengaluru: In the last week of April, Wipro Ltd, India’s fourth largest IT services company, convened a board meeting to discuss its fourth-quarter results. For Thierry Delaporte, this meet was unlike anything he had participated in since taking over as the chief executive officer (CEO) in July 2020.

The eight-member board was concerned, to put it mildly, at Wipro’s waning growth and profitability—the boss was questioned on the underperformance.

Delaporte’s response, according to two executives privy to the discussions, was far from assuring. Before he took over in 2020, Wipro struggled to grow, Delaporte reasoned. Under his watch, Wipro added about $2.9 billion in incremental revenue.

Graphic: Mint
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Graphic: Mint

Delaporte did make a valid argument: Wipro expanded its revenue by only about $3 billion between April 2011 and mid-2020. Many would have dubbed this underperformance as the ‘lost decade’ for the company.

But about $850 million of the $2.9 billion incremental revenue that Wipro added under Delaporte came from four acquisitions; the firm spent $1.9 billion on these purchases.

Wipro’s sequential revenue growth has lagged behind its larger peers, including Tata Consultancy Services Ltd (TCS), Infosys Ltd and HCL Technologies Ltd in three of the last five quarters. Worse, the company expects revenue to contract in the April-June quarter, making executives and analysts wonder how much worse it could get for the company.

Delaporte’s initial bravado has fizzled out. Soon after he took over, he had outlined that Wipro will catch up with HCL Tech in revenue. In analyst calls over the last three quarters, Delaporte has underlined macroeconomic challenges as a worry even as both TCS and Infosys have posted better numbers. This has made some analysts question if the global uncertainty is being used as a kitchen sink by Wipro to hide the company’s internal problems.

A bigger headache is profitability. At 15.7%, Wipro’s operating margin is just 40 basis points better than Cognizant Technology Solutions Corp., which has the lowest profitability among the big five IT services firms. Cognizant expects its cost-cutting measures to shore up profitability.

Wipro has not outlined any measures related to profitability. Over the last three years, the earnings before interest and tax, or Ebit, margins, have shrunk 350 basis points, the highest among all large IT services firms.

Wipro has always enjoyed higher profitability than Cognizant and the firm’s profitability falling below the New Jersey-headquartered company will be a seminal moment. And it could further impact the share price. At 395.70 a share at the end of Monday, 12 June, Wipro’s share prices have fallen off the cliff after it touched a high of 715.35 in December 2021.

Mint could not ascertain if beyond the financials, the other more challenging issue was discussed by the board: many senior and mid-level executives are questioning the company’s new culture. Nonetheless, an immediate change of the guard looks remote as of now.

Wipro did not respond to a detailed questionnaire. The company only said it “does not comment on speculation or rumours".

Mint spoke with 14 current and former executives over the last month-and-a-half to piece together this account, one that shows how the three years of Delaporte’s reign has pushed Wipro to a position from where Rishad Premji, the company’s chairman, will find it a herculean task to revive the company his grandfather founded in 1945.

So, how did Wipro reach this low point, after it reported a 27%-dollar revenue growth in the year ended March 2021, the fastest among all its peers?

Before we answer that, we need to step back into the circumstances that brought Delaporte to the helm.

Second choice CEO

On 31 January 2020, Wipro announced that Abidali Neemuchwala, its CEO at that time, had decided to step down due to “family commitments".

In reality, he was asked by Rishad Premji to step down. Rishad, who had taken over as the executive chairman from his father, Azim Premji, in July 2019, was worried about the deteriorating performance of the company and wanted a new leader to steer the ship. Neemuchwala agreed to stay on until a successor could be found, according to two executives privy to the discussions. The executives did not want to be identified on account of the private nature of the discussions.

Egon Zehnder, the famed Swiss executive search firm, was entrusted with the job of helping Wipro find its next boss. After eight weeks of deliberations and interviews, Wipro zeroed in on a candidate by the first week of April. Omar Abbosh, who had bid adieu to Accenture Plc. after a three-decade stint, was the chosen one. An employment contract was drafted and the offer letter was mailed to Abbosh. But an unexpected twist awaited.

Wipro was not the only company wooing Abbosh; software giant Microsoft Corp., too, was interested. At the last hour, Abbosh declined to take up the Wipro assignment. Instead, he agreed to join the Seattle- headquartered company.

This was a jolt for Wipro. The covid-19 pandemic had resulted in country-wide lockdowns, which only allowed for virtual discussions. The company’s board went into a huddle again, evaluating other candidates shortlisted for the post.

Finally, the second-best candidate was entrusted to lead the company—Thierry Delaporte, the former chief operating officer of French IT giant Capgemini SE.

On 29 May, Wipro announced that Delaporte will be the CEO effective 6 July.

An email sent to Egon Zehnder and Abbosh seeking comment went unanswered.

New vs Old

Delaporte hardly spoke at length during the first three months of his stint. Almost all his replies to approvals and updates on emails had a one-word reply: “Perfect". Many of the executives who reported to the CEO joked if this was the only English word the Frenchman knew.

“The CEO was doing what an external leader does. That is listening and getting to know the organization," said a former senior executive. He left Wipro within a year of Delaporte taking over.

Things started to change in October 2020. Discussions over a new organizational structure had begun and murmurs grew—hundreds of senior leaders could be terminated. Starting December and over the next 18 months, at least a third of the 750 executives, ranked general manager and above, were let go by the company, according to three executives.

The underlying philosophy of this restructuring exercise? Old troops cannot be relied upon to execute and make the firm future-ready.

“Everybody who had been with the company for a few years came across as pariahs. Something like…if you have been with the company for some time…you are at fault," said another executive who left the company in the second half of 2021.

“Many of the replacements drew salaries that were two or three times the renumeration paid to the earlier executives," said a third executive, who quit earlier this year.

“Salary expenses to these lateral hires are one big reason behind the fall in profitability," said an executive at the company’s human resources (HR) department.

But remember, these were the pandemic months. Enterprises, globally, pivoted to the digital, leading to a fight for talent. This was also the time of ‘The Great Resignation’. When there is more demand than supply, it is natural for salaries to shoot up.

Even so, there was a related cause of heartburn in some departments. The lateral hires were rewarded with promotions while those in the finance and HR teams were overlooked. Non-billable people could not be accommodated, the company reasoned.

“The finance team is one that has seen a high churn. Many client partners, including those at the (company’s) largest clients like Citibank and Lloyds Bank, have all moved out," said an executive.

Culture clashes

Yet another reason behind this exodus is Delaporte’s style of working—clearly, the company is taking time to adjust to the new reality.

At least a dozen senior executives pointed to checks from the CEO’s office they thought were unnecessary.

“If a function head submits a presentation along with the growth projections and the budgets, the CEO’s office in Paris starts checking on the presentation. They speak about these numbers with other team members of the leader (the function head)," said an executive cited above.

A current executive Mint spoke to said that Anand Padmanabhan, a former president at Wipro, wasn’t treated well.

Popularly known as AP, Padmanabhan was instrumental in Wipro winning its only mega deal—an outsourcing deal worth more than $1 billion in total contract value—in the last three years. In December 2020, the company won a multi-year contract from German retailer Metro AG. According to two executives, Padmanabhan led a team that worked on the contract even before Delaporte had joined the company. He quit the company in April 2021 after differences with the CEO became irreconcilable.

Padmanabhan declined to talk about his stint at Wipro.

Meanwhile, even after three years since his appointment, Delaporte continues to be stationed out of Paris and has not relocated to the US—the largest market for Wipro. “Remember, the company had mentioned that within a year of the CEO’s appointment, he would move to the US. But he is still operating out of his hometown. No one appears to be asking this question," another executive said.

At least half a dozen people executives rue the fact that a new culture of fear and distrust now prevails across every rank and file.

“The five values which Wipro prides itself upon include being respectful, being responsive, always communicating transparently, demonstrating stewardship and building trust," said an executive quoted above. “Look, how executives get promoted. Selected people can travel business class even when they are not entitled to. People are scared to raise or ask tough questions in town halls," he said.

Delaporte, meanwhile, has been selling Wipro shares. He has sold almost four times the shares in three years that Salil Parekh, his former colleague at Capgemini and the current boss of Infosys, sold in six years, according to an analysis by Mint(see graphic).

“The current boss has sold more shares than any other CEO in the past. If the CEO himself is selling shares, then what is the message to investors?" asked an executive quoted earlier.

Rishad’s silence

So, what explains the chairman’s silence?

For now, Rishad Premji has given complete autonomy to the CEO. “He does not want to come across as his dad, who, out of curiosity, used to get himself involved in business affairs, something the media saw as interfering," said an executive.

But Wipro runs a bigger risk if the chairman continues to be silent, according to two other executives—the Premji family owns nearly 73% shares in the company and the Azim Premji Foundation, the philanthropic arm, gets the dividend income from 67% of shares.

One of the executives quoted earlier said it won’t be easy for Wipro to bounce back considering that the company doesn’t have a strong bench strength of senior leaders who know the business well enough. Seven of Wipro’s 11-member executive committee board members are new faces who joined in the last three years. Two of the high-profile exits in the last six months include Angan Guha, who oversaw a third of the total business and Rajan Kohli, who steered about 60% of the revenue.

Delaporte is the seventh CEO at Wipro since the turn of the century. Infosys, too, has had the same number of bosses in the last 23 years. While Infosys did have its share of problems with CEO transitions, Wipro, clearly, has had more trouble.

“One wonders why Wipro is jinxed and cannot get the right leader," said a Mumbai-based analyst at a foreign brokerage. “They have tried everything in the last two decades, from getting an American Indian (Vivek Paul) to the promoter (Azim Premji) to a co-CEO model (Suresh Vaswani and Girish Paranjpe) to getting a loyalist (T.K. Kurien) to even someone from TCS (Abidali Neemuchwala)," he added.

Only Vivek Paul and T.K. Kurien managed to complete their full five-year terms. Will Delaporte manage to complete his (July 2025)?

All eyes will be on Rishad Premji.

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