System Failure At Infosys
India Today|September 04, 2017

The inside account of a corporate battle that is tearing apart india’s storied company and why it matters to the it sector at large.

Venkatesha Babu

 On  Sunday, August 20, Nagavara Ramrao Narayana Murthy turned 71. It should have been a joyous occasion, but the mood at the small informal gathering of friends and ex-colleagues who had come to wish him at his Bengaluru home was sombre.

Just two days earlier, Vishal Sikka, CEO and MD at Infosys Ltd hand picked by Murthy in 2014, had resigned, sending shockwaves through Infosys and the entire IT industry. The company’s shares plunged nearly 10 per cent on the bourses on Friday, August 18, wiping out over Rs 22,000 crore of shareholder wealth, while the Sensex fell over 400 points. Sikka had complained of “distractions” from his work at the company, and the “false, baseless, malicious and increasingly personal attacks” against him. But while he did not name Murthy, the Infosys board attacked the company’s cofounder, publicly upbraiding Murthy, accusing him of being a bully and forcing Sikka’s resignation, and in the process damaging the company and misrepresenting its commitment to corporate governance.

So, on his birthday, instead of reflecting on a lifetime of achievement, Murthy grew misty-eyed and bemoaned “being misunderstood, back-stabbed and betrayed, for standing up for principles”, according to a former colleague who did not want to be identified.

Even the following Monday, despite Infosys announcing a share buyback proposal on Saturday, investors continued to punish the stock, sending it plunging over 5 per cent on the bourses. Shareholder proxy firms, which normally red-flag errant decisions in listed firms, were equally quick to blame Murthy for the crisis at Infosys, even as some former independent Infosys directors joined the chorus for him to keep away from the company he was CEO of for 21 long years. “Learn to walk away, as you had promised when handing the reins to Vishal,” wrote Omkar Goswami, an independent director with Infosys for 15 years from 2000, in an open letter to Murthy on August 22. “Let Infosys get on with its business, heal itself from the injuries that you have inflicted, and again grow shareholder value.”

Brokerages warned of clients falling off and the company missing its growth target of 6.5-8.5 per cent for FY 2017-18. Many fear the company will lose the momentum Sikka built in the past three years, ceding ground to rivals. Some analysts even wondered if Infosys could ever return to its glory days, and what the fate of its 200,000 employees would be. The concerns are not surprising. Infosys is not just another company, but an icon in the business, which, along with firms such as Tata Consultancy Services, Wipro and HCL Technologies, has made Indian IT a globally respected phenomenon. Even as the embers from another big corporate battle —bet ween former Tata Group chairmen Ratan Tata and Cyrus Mistry—are yet to die down, the acrimonious battle at Infosys threatens to dent its image as a globally trusted and credible brand.

Just how did things come to such a pass for Murthy, within the three short years Sikka has been at the helm? From being feted as the poster child of middle-class success, creating thousands of high-paying white-collar jobs, billions in shareholder wealth and setting standards in transparency and corporate governance, Murthy today is being accused of trying to destroy his own creation. Is he a petulant ‘old man’ refusing to cede control? Is Sikka the upright technocrat who tried to bring change and in the process rubbed too many in the ‘old guard’ the wrong way? Has the Infosys board failed to fulfil its fiduciary duties? Is there truth in the allegations an anonymous whistleblower and the promoters have made of financial malfeasance and corporate governance failures in Infosys?

INDIA today went behind the scenes to talk to a number of people involved in the controversy. Most of them chose to remain anonymous as some of them are either part of the unfolding drama but are not authorised to speak to the media or are former senior executives of the company, who identify with one or the other camp—Murthy or Sikka. While Murthy did not respond to mails, Infosys declined to make its executives available for meetings.

Here then is the real story of what went wrong at Infosys, why it matters and what is likely to unfold over the next few weeks and months. But first a little history:

A BOND IN THE MAKING

On Thursday, June 12, 2014, Infosys hurriedly called a news conference at the company’s sprawling, verdant campus in Bengaluru. A beaming Narayana Murthy, who had returned to Infy just a year ago for a second stint (having retired earlier in 2011) to ‘rescue’ it from its deteriorating performance) announced Vishal Sikka as the new CEO and MD.

“Sikka means a lot of money to Infosys,” he chortled, playing on the surname, which in Hindi translates to ‘coin’. The bonhomie was evident as the then chairman of India’s second-largest IT services exporter and the new hire exchanged praise. Sikka, who had spent most of his career in the US—first as an entrepreneur, building and selling two companies, and later as a successful senior executive at business software major SAP—seemed to share a great rapport with Murthy, despite the two-decade age gap.

While Murthy said how he enjoyed “talking to Vishal on mathematical and computer science-related abstract minutiae”, Sikka, who has a Ph.D in computer science from Stanford, played deferential protégé to an elder statesman, who had helped build one of India Inc.’s most respected and successful companies. No one then could have anticipated that the bonhomie would evaporate in less than 40 months. What went wrong?

THE FRUGAL GIANT

After nearly a decade-and-a-half of rip-roaring growth, when Indian IT services exports grew from $5 billion in 2000 to $108 billion in 2014, things were beginning to stall. Till then, Infosys had not merely mirrored but led this growth with revenue growing from $512 million in 2000 to more than $10 billion at the end of the last quarter.

While it was never the largest company by revenue (TCS was), Infosys remained the icon and bellwether for the sector. Unlike the Tatas, who had a long business legacy, or Wipro, which grew under the guidance of a rich merchant’s son, the Infosys story was about seven middle class men making good globally while playing by the rules. (That Murthy floated the firm on a Rs 10,000 loan from wife Sudha is part of corporate folklore.)

In post-1991 liberalised India, that story of growth, on the basis of merit, not ‘sifarish’ (recommendation or connections), had a powerful appeal. It was also a carefully nurtured narrative, from the frugality of its successful founders who still held on to middle-class values to their willingness to share wealth in an egalitarian manner.

By setting standards in financial disclosure, transparency and pioneering industry standards such as the generally accepted accounting principles (GAAP), global delivery model (GDM) or sharing wealth through ESOPs (employee stock option plans), it didn’t take long for Infosys to become a national institution.

However, with promoters deciding to take turns at the top job in the company, a changing industry landscape which had moved beyond ‘lift and shift’ as well as ‘labour arbitrage’ meant that Infosys, like others in the Indian IT sector, began to feel the effects of a slowdown.

To his credit, Murthy, who had come back to lead Infosys through this sluggish phase, realised the industry had changed and required a fresh pair of young, energetic hands to steer the company into the next phase of growth. Thus the Sikka hire (though it came after intense pressure from shareholders, as Murthy’s second stint was marked by a spate of high-level executive exits).

A few analysts had, at that time, questioned Sikka’s suitability, given that he had no knowledge of the IT services industry and was more of a software product guy, a different beast altogether.

THE SIKKA WAY

Despite its pretensions of being a global company, 90 per cent of Infosys employees were based in India. Sikka, while born in India, had spent much of his adult and professional life in the US and was removed from the strong culture, systems and processes Infosys had carefully built over the years. Also, by deciding to locate himself in the US rather than in India, he shifted the company’s centre of gravity, creating unease within.

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