For long, Indian investors have believed that widely held institutionally-owned companies are better governed and less vulnerable to pulls and pushes from promoters than family-owned businesses. But this has been conclusively disproved by the unsavoury turn of events at Infosys, once the poster-child for corporate governance. On Friday, Infosys’ CEO Vishal Sikka tendered his resignation, stating that “baseless personal attacks” and a “continuous drumbeat of distractions” had made it difficult for him to focus on his job. In its communiqué to the exchanges, the Infosys board was more direct, attributing the CEO’s resignation to repeated allegations of misgovernance by founder NR Narayana Murthy. This escalation of tensions could not have come at a worse time for Infosys, grappling as it is with multiple headwinds in its core business. The 10 per cent plunge in the stock on Friday should be seen in this light.
Publicly available information suggests that the founders flagged three key issues at Infosys — a high severance package to a former CFO, Sikka’s own remuneration of $11 million, and Infosys’ acquisition of Panaya in 2015 which was alleged to be over-priced and indirectly benefiting the management. The company has countered these allegations and demonstrated that it followed due processes. The CFO severance pact was independently audited. Sikka’s package had the necessary approvals from shareholders and the board. In FY17, owing to a shortfall in the company’s performance against targets, Sikka also took a pay cut to $6.68 million. The company commissioned two independent probes into the Panaya buyout which found no evidence of wrongdoing. Trends in Infosys’ financials and stock price over the last three years suggest that the markets may not have had complaints with Infosys’ management. Under Sikka, Infosys managed a higher revenue run rate than peers, reduced attrition and made inroads into emerging verticals such as digital.
Infosys’ majority shareholders have reason to feel aggrieved at this turn of events as the founders own just a 12.75 per cent stake (Murthy and family hold less than 4 per cent). With this entire episode taking a toll on shareholder wealth, it is surprising that SEBI and marquee institutional investors at Infosys have remained mute spectators. SEBI must realise that new ground rules are needed to protect shareholder democracy. Institutional investors and SEBI must demand investigative reports from Infosys so that they can satisfy themselves on governance issues and settle this unseemly controversy.