When In Trouble, Dial Promoter – Can Infosys Change That?

Each time India’s marquee information technology services company Infosys Ltd runs into bad weather, it yells...“PROMOTER”.

In its 18 years as a public, listed company, Infy, as the once-darling-of-the-stock-market is referred to, has had a non-promoter chairman for only two periods, one for two years and two over three years, and a non-promoter managing director and chief executive officer for just one term of three.

There’s nothing wrong in being a promoter-led company. They are, after all, the first risk-takers. Putting their money and careers at stake to build something new.

The reason why “promoter-run” is often used pejoratively in India is because typically, such companies, run by moneyed-promoter families...

-give lineage more importance than merit.

-use their shareholding to push through anti-minority corporate actions.

-prefer weak boards... so as to allow the above two.

1. “Founder-ship” Syndrome

Infosys has already been accused of the first, when after Nilekani stepped down as managing director and chief executive officer in 2007, co-founder Kris Gopalakrishnan stepped into his shoes, and after Kris, it was the turn of co-founder SD Shibulal to take over in 2011. In all, four of the seven founders have had a shot at running the company.

Neither of them were bad, but they couldn’t quite fill Nilekani’s shoes, prompting the return of Murthy as executive chairman in 2013 – curiously accompanied by his son Rohan Murty. That didn’t go down well nor long. Within a year, Murthy and Murty were ready to leave, marking Infosys’ first effort to appoint an external leader – Vishal Sikka – in 2014.

But that didn’t last too long either. The hunt is on again, and this time, the odds are low the next suitable boy, or girl, will be from within the company or its alumni. Hopefully, the days of giving founder-ship an edge over merit have passed.

2. Majority Muscle

As for problem number two, the promoters cumulatively own just under 13 percent of Infosys’ equity. That’s not enough to push through any anti-minority actions even if they want to. It’s highly doubtful they do, having prided themselves on being governance pioneers.

3. Weak Board

And now for the third...the clear and present danger facing Infosys.

A weak board. Or maybe a board that never got the chance to find its strength.

KV Kamath was the first non-promoter chairman of Infosys, and he capitulated at the first sign of trouble by bringing Murthy back in 2013.

The board has taken this step keeping in mind the challenges that the technology industry and the company faces and in the interest of all stakeholders, particularly shareholders large and small, who have asked for strengthening of the executive leadership during this challenging time.

KV Kamath Announcing Murthy’s Return In 2013 

Kamath returned to chairmanship in 2015, but left the next year to head the New Development Bank of BRICS.

R Seshasayee, an independent director on the Infosys board since 2011, took over, but held on to the post for barely two years. Much of that time was spent managing Murthy, whose several corporate governance allegations may have served to enfeeble the board further.

It is curious that Murthy blamed the board for alleged governance lapses in the acquisition of Panaya, while repeatedly saying he had no problem with Sikka, when in fact it was Sikka who led the acquisition.

It was after Murthy’s complaints that Ravi Venkatesan was appointed co-chairman of the Infosys board. His chairmanship lasted but five months. When the water started rising, the board turned to Nilekani. Seshasayee exited. Venkatesan returned to being an independent director. The rest of the board tendered an apology of sorts to Murthy for blaming him for Sikka’s exit. Now the board is once again back where it’s been most comfortable – playing second fiddle to a co-founder.

This will be Nilekani’s biggest test. To build a board that doesn’t cry promoter every time the ride gets rough. A board that has the courage to treat all shareholders equally.

Or else Infosys risks becoming the most unpleasant kind of promoter-run company...in which the promoters don’t have enough ownership to call the shots, and yet play the emotional-legacy card to run interference.

(This article originally appeared in BloombergQuint, and has been republished here with permission.)

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