BackOpinion | Infosys needs to manage the contradictions within
The company appears to be troubled by a culture clash, with an old order pushing back the new
PremiumIt is eminently possible that the unfortunate affair at Infosys may end up being no more than a ghost in the night that melts away in the morning. Its clarificatory note to stock exchanges stating that “there is no prima facie evidence that the company has received until date to corroborate any of the allegations made", though not completely reassuring, indicates that 45 days after the allegations were made, they have yet to be supported by solid proof.
Unfortunately, even if the charges are eventually found to be unfounded, Infosys still has a lot to worry about. For one, the very thought of senior people walking around the company’s corridors recording sensitive conversations between its leaders is so alarming an occurrence that it should be the first issue to be investigated, not with reprisal in mind, but with the objective of uncovering what could have created such a climate of mistrust within its ranks. This must be particularly galling for a leader such as Nandan Nilekani, who is known for accessibility, and under whom the company created a culture of openness that ought to have allowed an aggrieved or concerned employee to walk into his room and ask for an explanation. Internal redressal might also have helped place issues in perspective, as at present there is little clarity on the exact nature of wrongdoing that has so incensed the company’s whistleblowers.
Companies pay their leaders precisely to take key business decisions. Mostly, a good leader will get many of those right and a few wrong as well. Usually, such decisions will be based on reams of background data, supported by the views of several others.
In the case of Infosys, the major charges relate to decisions on the pricing of its services and a method of accounting for some costs that may or may not be typical but does not appear to be in the realm of the illegal. In the IT services business, most multi-year contracts typically follow a pattern wherein profit margins grow with time as the client relationship deepens and initial investments get amortized.
On the surface, then, there’s nothing unusual about how the offending contracts were priced. The problem seems to be some arguments made leading up to these decisions, or, more precisely, the water cooler talk that may have preceded these. Some of it may have also been politically incorrect. That is assuming that voice recordings, if they exist, stand up to scrutiny. What if they do? Would it justify the erosion of more than ₹50,000 crore in investor wealth, as measured by a drop in the value of its shares, in response?
If that is so, where does it leave room for the normal chatter that is so much a part of office discourse? Even as the world discusses l’affaire Infosys, trust levels within the company’s management team must have taken a hit. In a business as intensely competitive as IT services, where the top teams at companies need to work in perfect harmony, any instability on that count can lead to costly slippages in performance. As it is, a Securities and Exchange Commission investigation can be hugely distracting and time-consuming. On average, an investigation by the US markets watchdog can take up to two years for any kind of resolution. The impact on such companies, regardless of the outcome, is severe.
The charges against Infosys’s current chief executive officer (CEO) Salil Parekh, seen in conjunction with the earlier exit of Vishal Sikka two years ago following a similar whistleblower episode, may also point to a pushback by the old order within the company against an “outsider". Bear in mind that Sikka and his successor Parekh represent the company’s first attempt in the 38 years since its inception to bring in outsiders as CEOs.
Twice now, two of the company’s founders have had to return some years after retiring from their executive positions in pursuance of the rotational policy that they themselves put in place. First in June 2013, N.R. Narayana Murthy, who had retired two years before that when he turned 65, came back as executive chairman to help its under-fire CEO and co-founder S.D. Shibulal run the then underperforming company. Then again in 2018, after the upheaval of the parting with Sikka, Nilekani, who too had done his stint as CEO between 2002 and 2007, had to come back as non-executive chairman to support Parekh as he took charge of the company.
The diffraction patterns that arise from the collision of the old and the new lie at the heart of Infosys’s current troubles. However, the way forward cannot be to keep going back to its past. At one level, the solution to the simmering discontent within the company may well be for the Murthy-Nilekani duo to take charge of the company they founded, restore the confidence of employees and shareholders, and draw a proper succession plan for its future. Ideal as that sounds, it is also unlikely to happen and would also set an unhealthy precedent.
Whether under Parekh or any other future leader, the 228,000-strong company has to learn to accept newcomers and work to the new rhythms they seek to establish. The business landscape around Infosys is changing much too rapidly for it to insulate itself. In a quest to adapt to newer technologies and customer requirements, newer leaders bring with them practices and processes that seem unfamiliar. Rejecting them without a fair trial would impact the company’s reputation and performance. It isn’t a fate anyone would wish upon India’s original corporate standard bearer.
Sundeep Khanna is a former executive editor of Mint The company appears to be troubled by a culture clash, with an old order pushing back the new
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
