Cognizant Technology Solutions saw shareholder activism at its peak sometime ago and navigated through the rough phase without any collateral damage. In an interview with BusinessLine , CEO Francisco D’Souza shares his learnings from the issue. Excerpts:

How did you deal with hedge fund and activist investor Elliott Management Corp when it asked you to change the direction of the company and return $3.4 billion to shareholders?

The company has this practice of developing five-year strategic plans. The last one of those was the 2015 plan. During 2015 itself, we began work on Cognizant 2020 by taking inputs from clients, shareholders and the board. We launched that work in 2016. At the same time, the industry and the technology world was going through this big digital transformation. Towards the summer of 2016, we started to realise that we needed to accelerate certain parts of the 2020 plan. In late 2016, Elliott published that letter calling for many things that we were already considering as part of our 2020 plan. So we read the letter; significant portions of it were those we were working on in any case. We engaged with them like any other shareholder. From the end of 2016 to February 2017, we worked on that plan. We announced that we were accelerating our shift to digital. We took into account what they had mentioned in the letter and also inputs from others.

At that point of time, were there any issues with Elliott that were difficult to deal with?

Many of the topics that were being considered in the letter — such as the return of capital to the shareholders — were something that we were already considering. The board drafted an approach saying that we have to run the company for all of our shareholders, and Elliott as a shareholder has a voice. It had about 4 per cent of shareholding at the time of writing that letter.

So we listened to them and took their inputs very seriously. We did a deep analysis of each of the proposals they had made. In some cases, we saw that what they said made sense. In other cases, they were not entirely aligned because of the fact that, as a public shareholder, they did not have access to all the details that we had.

They published their letter in late November 2016; by mid-February 2017, we started accelerating the shift to digital. We took some outside help and consulted with a broad range of shareholders because we knew that as board members, our obligation is to the entire shareholder community. We do things we believe are in the best interests of our shareholders and long-term interest of the company. At the same time, we reached an agreement with Elliott and we’re satisfied with that.

Has it really helped that there are no founders, and hence it has been that much easier?

We aren’t a founder-led start-up. So I don’t think I have a point of comparison to tell you. We were a Dun & Bradstreet company, and we have always stood for entrepreneurship and empowerment of our executives. When we took the company public in 1998, our revenues were $58 million; in today’s scenario, you can’t go public with such kind of revenues. Our commitment was if you buy our shares, quid pro quo we will drive higher growth — not by margin expansion, but by faster top-line growth. In fact, we have delivered that over a period of time. The faster growth came from a couple of bases. It came from financial flexibility because of lower operating margin; but in a services business, it is the people that have to take the baton and run with it. It has to be pervasive throughout the organisation. This empowerment and entrepreneurship are core and central to Cognizant. You can’t have them without transparency. I have to give information that will help executives run their part of their business. Else, they run in the dark. They need to know what is happening and what is ahead.

If you look at some of the IT companies here, whenever there have been changes, they follow the Bollywood script: lots of noise and drama...

The situation that we saw with Elliott is just a demonstration that all shareholders are important. That doesn’t mean you have to do what all the shareholders want you to do. — as demonstrated by the Elliot situation. I think our shareholders can be like Elliott — be vocal. We talked to our big shareholders, and we do that every quarter. Our board and all the shareholders that I talk to recognise and understand that we are going through a period of disruption — that it is not a straight line from the past to the future. I think we have a great management team which has navigated through several disruptions along the way. We have not been afraid to say that we made a plan, like the 2020 plan where we shifted a little bit. We take this approach of telling as it is.

How have you managed the transition?

There isn’t much of a secret sauce here. If you look at the board transition here, we have thought it through in a way. We wanted to avoid sudden changes to the board. Every couple of years, we have inducted a couple of new board members. There has been a steady sort of induction of senior executives. We planned it and thought about it. Similarly, with the leadership team, you may know that we offered some of the senior leaders voluntary separation. It was truly voluntary. It was open and transparent and nobody was forced to take it. About 400 people put up their hands.

Is it becoming difficult to do business out of the US?

I think it is not any more difficult than it has been in the past. Not just in the US, but in all parts of the world, we have to work with governments to find a balance between two things: we have to ensure what we are doing and how we are operating is good for the local workers, like the American and European workers, and we have to balance it with what is good for American businesses. We have hired 4,000 American citizens and we will continue to hire more there. We have committed to train 600 people in the New York area and we will hire some of them. At the same time, with all of this, American business needs access to technology and we can’t tie their hands and, say, limit their access to technology.

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