In my article last week, I had relied on the Mahabharata to explain "corporate dharma" in the context of the rather sudden – and coordinated – media campaign on the Infosys rift.
I now have the benefit of time, and insights from the press meet by the board, and will again defer to the lessons in our epic to make some sense of the promoters ire (read: Narayana Murthy’s and his protégés’, as other promoters have wisely kept their counsel), in what is a truly bizarre happening unfolding before us.
But first, the facts. In my view, Infosys Chairman R Seshashayee conducted the board response admirably well, taking great pains to clarify all the sundry insinuations floating around to the extent of even referring to minor details on Vishal Sikka’s business trips.
He clarified the fine balance between processes, business judgements, and data, in arriving at certain decisions, which was reassuring.
His reiteration of deep respect for the promoters, despite the ill-advised decision to use their media clout to vent frivolous concerns, was statesmanlike. One could potentially question his over-dependence on consultants on many issues, but that is a prerogative which must remain with decision makers.
Don’t Confuse Management Style & Governance
Immediately after the presser, an ex-CFO of the Murthy camp continued the tirade against the board on various counts of governance: He raised issues of profligacy by Sikka (including petty issues like costs of security at his home); travel by corporate jets vis a vis the earlier culture of staying in "crappy hotels"; low productivity at Infosys; the demand for a public release of the investigation report on the severance pay paid to ex-CFO Rajiv Bansal; high levels of cash in the company; and the call to replace the board as “trust was broken”.
I think he has erred in his opinion or got carried away in his need to defend the defenceless argument of dwindling governance in all this. As I have maintained over the past week, the Murthy camp is conflating (perhaps deliberately, as it cannot be due to ignorance) the typical issues of culture, management style, and governance. All the above points raised are to do with a changing culture and management style, but not governance.
Besides, Infosys had clarified that the personal use of corporate jets was reimbursed by Sikka and I do not remember the issue of low productivity ever attracting the active attention of this group during the steady decline of Infosys for many years post Nandan Nilekani’s tenure as the CEO.
It should not be forgotten that the IT industry was then not facing the fundamental challenges threatening the very existence of its business model the way it does today.
High levels of cash have been the established policy advocated by the promoters themselves who have consistently withstood requests to review their capital allocation norms and they have cited the theory that “cash is king” in overcoming the challenges and uncertainties in the operating environment, even though at relatively much lower levels than today.
What About Earlier Controversies?
The demand for changing the board due to “trust being broken” is an extreme case of arrogance. In whose eyes has this trust been broken? On which issue? Has wrongdoing been proven beyond reasonable doubt? Has the board violated its fiduciary responsibilities to all classes of shareholders? I am not sure if even the other promoters will back this argument within the broad catchment of the term “promoter grouping”.
Borderline decisions should not attract such extreme criticism even if considered ambiguous to some.
Some of us who have an inconveniently long memory recollect the early to late nineties when Infosys was embroiled in various controversies. This ranged from the media expose that their statutory auditors, Bhaktal and Co, were the largest non-promoter, retail shareholders pre-IPO, to the DRI notice sent by an upright IRS officer, Ashish Abrol, on the Yantra divestiture and who was hounded out soon thereafter.
Claire Barnes indicated in her 1995 book on Asian equity markets that a pattern of spikes in Infosys stock pre-results indicated a high probability of insider trading or leaks.
In fact, in one case, Murthy's defence in the local media was that his driver was responsible for the ostensible leaks picked up while he was waiting in the reception area and overheard some conversation!
In the context of a struggling Finacle post the loss of the Canara bank order, its deal with ICICI for the core banking platform was a classic case of a quid pro quo, given ICICI's need for large low-cost deposits at that stage.
All this must have been done on an arm's length basis. But the point is that the report establishing this was not placed in the public domain as is being demanded now in what was purely a case of a borderline business decision.
Infosys’ Early Accounting Practices
It would surprise many in the current generation that, in the initial years, Infosys did not account for ‘contracts WIP’ in its books, thereby implying that all contracts were fully completed each year on 31 March!
The implications this had on declared profits and taxation is obvious. Though many were surprised, no one questioned the intention or impropriety behind the CFO being awarded the highest stock options in the year Infosys suffered huge treasury losses. The discretion of the CEO and the board in such matters was respected by all.
As far as the "crappy hotels" comment is concerned, in any promoter-driven company, cost consciousness is a mandated policy. That’s because savings directly translate to higher multiples in the markets, thereby creating much higher proportionate value for those with large holdings of stock in comparison to the relative discomfort of a night's stay! I need not delve into more examples to illustrate the similarities with the current discourse.
The ‘Dharma’ Dilemma
My purpose of stating these facts from the public domain is to enlighten the audience to the current media onslaught of forgotten aspects of history of this great company during its evolution.
The promoters and their protégés would do well to remember their moral dilemmas when they were creating destiny and allow the same leeway to the current board when loosely using the term ‘governance’.
The Mahabharata is an epic whose relevance is not lost with time. It reminds us that we live in an imperfect world in which imperfect people struggle to act according to their perceptions and judgements relevant to a particular time, place and context. The war of Mahabharata is the result of each individual having erred on judgement when faced with conflicting choices but harbouring the illusion that their actions were right in their specific situations and according to their understanding of dharma.
The universal truth taught by the Mahabharata though is that dharma cannot merely be studied but lived through by testing on one’s own self when confronted with making choices between conflicting dharmas.
And since dharma itself is relative to the individual motivation and circumstances of time and place, there is the inbuilt scope for opportunism in the name of ethical conduct.
The learned and the wise do not fall prey to this temptation. One yardstick in the Shanti Parva of the epic (the basis of Upanishadic wisdom imparted by Bhishma to Arjuna from his death-bed of arrows) to avoid such dilemmas is to adhere to the test that an individual’s proposed course of action must first be acceptable to him before applying it to others.
And that is what must be applied in this situation.
The Founders Must Accept Their Minority Shareholder Status
The founders must also reconcile to their minority shareholder status. They need to accept that though their views as eminent promoters are valuable, the board is bound by its fiduciary duties to decide what is best for all classes of shareholders. Thus, it cannot be bound only by the suggestions of the promoters.
They must also realise that the entire Indian IT industry was built on the model devised by FC Kohli of TCS. And the Infosys founders did an outstanding job in marketing it, along with clinical execution and simply brilliant media-cum-financial markets management. It was a rising tide which lifted all boats.
Sikka, on the other hand, has the fundamental challenge of redesigning the business model of a giant corporation without the luxury of getting off the treadmill – a transformation with few parallels in the services sector. Distractions are, therefore, wholly undesirable.
How will this end? Firstly, in my view the wisdom of other promoter-icons like Nandan Nilekani, who have maintained a dignified silence thus far, and other well-wishers will help underscore the futility of the present course of action.
Of course, if concrete evidence of any wrong-doing by the board/CEO is available, it must be publicly disclosed. Mere insinuations to drag the august company and its acclaimed board into this quagmire will only adversely affect the carefully crafted aura around those who choose to take this route.
Bring Tech Leaders into the Board
Secondly, as I have argued over the last few months, though it has a distinguished board, Infosys needs more representation from technology leaders to reduce their complete reliance on Sikka. And their focus needs to expand from the usual financial metrics and incentivising type of interventions to guiding the management make the strategic shift in a company of its size and complexity.
Induction of technology leaders is thus a given. As will be a communication format to engage with the promoters on a defined basis keeping in mind the current stringent laws of insider trading which make this difficult. The appointment of Amarchand Mangaldas for this purpose is thus very apt.
Thirdly, since money has persuasive abilities in settling most disputes, some changes in the capital allocation norms may be announced and cash will almost certainly be returned to the shareholders in some form soon.
(Prabal Basu Roy is a Sloan Fellow from the London Business School and a Chartered Accountant. The writer at present manages a PE fund and has formerly been a Director and Group CFO in various companies. This article was originally published on LinkedIn.com. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)