Persistent Systems announced on Monday that Anand Deshpande, founder, chairman and managing director (MD), will transfer his CEO responsibilities to O’Connor over the next three quarters.
His appointment means six of India’s 11 largest IT services firms have hired external candidates as their CEOs in the last three years, underscoring the insider versus outsider debate in an industry that is facing business disruptions from newer technologies.
Until August 2015, five of these six companies, save for Infosys Ltd, had an internal candidate as their CEO.
Last week, New Jersey-based Cognizant, which has most of its employees in India, named Brian Humphries, currently CEO of Vodafone Business, as the successor to founder and CEO Francisco D’Souza.
Larsen & Toubro Infotech Ltd (LTI) first hired former Infosys executive Sanjay Jalona as CEO in August 2015, which was followed by Zensar Technologies Ltd, Wipro Ltd and Infosys all appointing an external candidate to steer their firms.
Incidentally, the decision by Infosys to appoint former Capgemini SE executive Salil Parekh as CEO in January 2018 followed the failure of the company’s earlier decision to entrust former SAP executive board member Vishal Sikka to lead the firm. Sikka left Infosys three years after taking over in August 2014.
At least one expert attributes this trend to most companies not having enough leaders to take on the top job. “If you include the examples of NIIT Technologies, Hexaware and ITC Infotech, then the number of companies total nine," said Navnit Singh, chairman and regional MD, Korn Ferry India, an executive search firm.
Former Infosys executive Sudip Singh took over as CEO at ITC Infotech on 1 February while NIIT appointed former Genpact executive Sudhir Singh to the top post in January last year. Hexaware appointed former HCL Technologies executive R. Srikrishna as its CEO in July 2014.
“Clearly the boards of these companies were looking for a kind of game-changer and did not want an internal candidate, who they believed is too seeped into a company’s working style. So, a company getting an outsider as a CEO is a reflection that they don’t have internal candidates," said Singh. “But you have to give credit to all these leaders as these companies are on a roll, despite the disruptions facing the industry."
Age is another factor— most external hires are young. Cognizant’s new boss Brian Humphries, at 45, is the youngest. Sanjay Jalona was 46 when he was hired by LTI while Abidali Neemuchwala was 48 when he got the top job at Wipro.
“Competing companies with identical business models seek strikingly different attributes in their CEO. CEO selection inevitably carries uncertainty," JPMorgan Chase and Co. analyst Viju George wrote in a note dated 8 February.
George clubbed the hiring of outsiders as CEO under three categories. Companies that have consistently done well prefer to promote internal leaders to take on the top job, and this decision also carries the least uncertainty. TCS elevating chief financial officer Rajesh Gopinathan to CEO in 2017 is one such example.
Others, such as Infosys, Wipro, LTI and Zensar, appointed their new chiefs from within the IT industry, an indicator that they want a departure from current working styles, though they are still wary of bringing in a rank outsider, George said in his note.
Cognizant’s move to appoint Humphries, who is from the telecom sector, comes with an additional risk compared with other IT firms that have hired CEOs from within the industry. George, however, wrote that Humphries, because of having worked across finance, strategy and operations across the US, UK, Europe, and South Africa, is a “good" choice.