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Home / Opinion / Views /  Infosys has done well to reappoint Salil Parekh, the status quoist who has delivered

Infosys has done well to reappoint Salil Parekh, the status quoist who has delivered

Parekh is only the second CEO in Infosys’s 41-year journey to get a second term. (Photo: Bloomberg)Premium
Parekh is only the second CEO in Infosys’s 41-year journey to get a second term. (Photo: Bloomberg)

  • On Parekh’s watch, Infosys has managed to clock a compounded quarterly growth of 2.63%, the highest among the big boys in the sector. But Parekh’s most significant contribution is that he has improved the company’s ability to get more business from its current set of Fortune 500 clients

Infosys Ltd. announced on Sunday that it was giving a second, five-year term to incumbent chief executive officer Salil Parekh, effective 1 July.

This is well deserved and on expected lines.

Agreed, Parekh, who turns 58 next month, implies that Infosys would need to seek shareholder nod on the continuation of the CEO well over the retirement age of 60 set by the company. That should not be an issue. Infosys’s market cap has more than doubled from $35 billion on 2 January 2018, when Parekh took over, to $78.5 billion as of 20 May.

Parekh is only the second CEO in Infosys’s 41-year journey to get a second term. This is because the Bengaluru-based IT services firm had its own system of musical chairs where four of the company's seven co-founders served as the chief executive officer. Infosys’s co-founder N.R. Narayana Murthy was the chief executive for the first 21 years before current chairman Nandan Nilekani took over in 2002. The mantle passed to Kris Gopalakrishnan in June 2007 and finally to S.D. Shibulal in August 2011.

But it was not long after when this unique succession planning started showing strains on the performance as Infosys started trailing its peers. Both Gopalakrishnan and Shibulal did not get to complete their terms. Infosys, which was increasingly becoming insular, finally entrusted an external candidate, a former SAP executive Vishal Sikka as the CEO in 2014.

That succession planning exercise went horribly wrong as differences with Murthy forced Sikka to abruptly resign in August 2017.

Infosys was thrown into chaos.

Nilekani returned, reluctantly. The appointment of former Capgemini SE executive Parekh was the first step that eventually helped Infosys stage one of the most impressive turnarounds India Inc. has witnessed in recent years.

On Parekh’s watch, Infosys has managed to clock a compounded quarterly growth of 2.63%, the highest among the big boys in the sector (Tata Consultancy Services Ltd has reported a compounded growth of 2.03% under CEO Rajesh Gopinathan in the last five years). But even more impressively, Parekh’s most significant contribution is that he has improved the company’s client mining or ability to get more business from its current set of Fortune 500 clients: The number of customers, each of which brings more than $100 million every year, has almost doubled from 20 at the end of December 2017 to 38 now.

Infosys has done this by maintaining stability among its senior leadership ranks and focusing on basics. Parekh has not demonstrated any chutzpah (unlike Sikka). At a time when Fortune 500 companies are looking at technology services providers to help them run their business better, Infosys has also managed to sell services that have a decent mix of artificial intelligence platforms and data analytics tools. Consequently, selling more of these high-margin businesses aids the revenue per employee: Infosys’s revenue per employee has increased 7.45%, from $53,700 to $57,700.

Bottom-line: Parekh has been the status quoist that Infosys needed.

Still, Infosys’s profitability under Parekh has tumbled 280 basis points and it remains to be seen if the company can arrest its falling profitability.

Finally, there are two big takeaways from Sunday’s announcement.

First Infosys is signaling continuity. Infosys approving of a second term, at least six months before the first term would have come for renewal, is a good governance practice, as it quells any unnecessary speculation on the continuation of Parekh. It also follows what other IT firms have done: TCS gave a second five-year term to Gopinathan in October last year, four months before his tenure would have ended while Tech Mahindra Ltd gave a third term, albeit a shorter fourteen-month, to C.P. Gurnani earlier this month.

However, it also leaves a question unanswered. Is Parekh the best leader at Infosys over the last two decades?

This can be answered by the continuation of chairman Nilekani.

Nilekani is probably the only director of a company, globally, who does not have a defined tenure.

“I plan to be here as long as necessary and I will not be here as soon as I am not necessary," he told analysts in his first interaction on 25 August 2017.

Considering Nilekani will be completing five years in August, this implies that until now Infosys does not believe Parekh by himself can lead India’s second-largest IT services company.

Put simply, Parekh continues to need a helping hand from Nilekani.

It is only logical that Parekh’s early reappointment will only give rise to speculation on if Nilekani intends to now move out of the company in the coming months.

For now, Parekh’s continuation will cheer Infosys’s stake owners – employees, customers and shareholders.

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