Is NRN protesting too much?

It is not clear what significant change can emerge in the way Infosys is run as a result of the public spat between its founders, led by NR Narayana Murthy, and the board and management. If all that emerges as new is a little more rigour in the way compensation is fixed and greater transparency (read communication with founders) in the way the board handles such matters, then the question that is bound to be asked is: Was it much ado about very little?

The chairman, R Seshasayee, has clearly stated that he is there as long as the shareholders want him and there is little doubt that a major section of shareholders have no problem with the way Infosys is being shepherded. Even proxy advisory firms, usually the first to raise the red flag on issues of corporate governance, don’t see this as an issue. In what looks like an attempt to assuage the bruised ego of an elderly person, the honorary paterfamilias if you like of the firm, Seshasayee has spoken to Murthy and presumably made the right kind of noises. In particular, neither the major shareholders nor the board is heeding Murthy’s idea that a nominee of his be made the co-chair.

But an issue was made of falling standards of corporate governance and it is important to take a look at the specifics. First is the issue of CEO Vishal Sikka’s compensation. But this is linked to performance, payable only if certain benchmarks are met. So in a way Sikka will have to earn his keep. It is just as well that Murthy has been careful not to say anything against Sikka because he was Murthy’s choice.

The second issue is severance pay, on which the board has admitted a degree of error. To put such controversies behind the company, its board has mandated the law firm Cyril Amarchand Mangaldas to formulate a revamped corporate governance code. But what is unfortunate is that Murthy has been quoted in an interview pointing to the feeling that huge severance pay could have been used as hush money to cover up something. Now it seems that Murthy did not quite express those words as his personal opinion. Since such an allegation or averment reflects on Sikka, it would have been well had it not been made in the first place.

Over the weekend Seshasayee announced after an interaction with Murthy that they had decided not to communicate with each other through the media but bilaterally. But indicating that all was not over and the chapter could not be closed as yet, Murthy thereafter said that he had not withdrawn his concerns. Thus the issue may continue to fester before it simmers down. Right now the final score seems to be: better and more transparent governance yes, board changes no.

What is unlikely to go away is the cultural gap between Murthy and the current leadership of Infosys. Murthy clearly belongs to the old school which feels there should not be too much of a difference between compensation at the top and at the bottom. Also, huge compensations are anathema to him. Sikka and others are driven by linking compensation to performance without looking askance at it being too high occasionally.

Critically, major shareholders as also proxy advisory firms are comfortable with the current mindset. What they are most interested in is Infosys running well and giving superior returns and there is no doubt that they think Sikka can deliver this. He has been very much the new generation leader who is seeking to take the company down the innovation and technology path.

The founders can and do command a certain amount of moral authority. Their thought process can influence the company through moral suasion and no more. A fracas like the present one can happen once in a while. So it is a weapon the founders need to use with great circumspection. It is not as if they can come back, and even if they did with the consent of all concerned they would not be able to deliver under today’s conditions. They did a good job relying largely on cost arbitrage when that scope for that has today been severely diminished with the imperative use of automation.

It is quite possible that global attitudes to capitalism and the risk-reward balance can change. Both the Washington consensus and globalisation are now in the doghouse. Similarly, as the developed economies come to grips with the frustration among blue collar workers, leading them to elect to power far right political leaders, Murthy’s views on wage differentials may gain in relevance. But we are not there yet and large shareholders (they call the shots and not the founders) are solidly for high returns incentivised by high rewards.

To understand the full ramifications of the company’s history and current reality it is important to recall the point made by Mohandas Pai, former CFO, (he was not a founder) that Murthy persisted with the founders for too long. It will be unfortunate if Sikka, who is widely seen as delivering, is seriously destabilised. Murthy and the board should now get along in the interest of all stakeholders.

The writer is a senior journalist and the author of ‘Made in India: A Study of Emerging Competitiveness’

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