An Uneasy Truce
While the public spat at Infosys has abated for now, can the company regain its winning ways?
- Jul 22, 2017,
- Updated Jul 26, 2017 12:45 PM IST
Annual general meetings (AGMs) of most Indian companies are boring affairs. The management reflects on the year gone by and gives its perspective on the future, while minority shareholders get a platform to air their opinions. The 36th AGM of Infosys, India's second-largest IT services exporter, held in Bangalore recently, was no different, except for one thing - the atmosphere was sombre this year. Infosys shareholders have seen the value of their holdings fall about 20 per cent over the past 12 months. The entire Indian IT sector is facing challenges but the fall in the sector index has been just 11 per cent. The Infosys shares have given up almost all the value they had gained after Vishal Sikka took over as CEO and MD in 2014.
The biggest reason for the poor investor interest - apart from the challenges that India's IT sector is facing - is the apparent lack of confidence shown by founder-promoters in the management and the counter-response led by Sikka (see Point Counterpoint). Though the not-so-pretty spat seems to have abated for now, will the company be able to do justice to those showing faith in its ability to reinvent itself?
"The promoters clearly don't seem to be satisfied. However, they have only two choices, either sell and exit or force a vote. It is for them to decide their next course of action. It isn't even clear whether all the promoters are together. Uncertainty is not good for shareholders in general," says Shriram Subramanian, Managing Director of InGovern, a proxy advisory firm. Institutional investors hold 58.6 per cent shares of the company. Subramanian says they will play a decisive role in deciding the future of the company.
"Please speak to Infosys for anything connected with them," Murthy said when Business Today reached out to him. Infosys did not respond to a meeting request.
However, a former senior executive seen as sympathetic to promoters said: "Has there been another example of promoters walking away from a world-class company they created? Why should they sell and exit such a cash-rich company sitting on more than `30,000 crore? Infosys set corporate governance standards in the country and all the promoters are asking is that the company adhere to the highest governance standards. Is that a crime?"
The principal analyst and founder of Constellation Research Inc., a Silicon Valley-based research and forecast firm, R. Ray Wang, says competitors will exploit this kind of internal turbulence to create fear, uncertainty and doubt. "At this point, there are too many resources chasing the same markets. Real innovation is difficult as shareholders are harder on listed Indian IT services firms than they are on publicly traded non-Indian IT firms. Infosys has to find a way to start building software, operate marketplaces and leverage innovation to grow marketshare in big deals," says Wang. "Market conditions have changed and Sikka will need to adopt a more assertive leadership style and appoint lieutenants who can execute his vision. The vision is realistic but he needs a lot more lieutenants to deliver," he says. But it is here that Sikka must be feeling letdown. The company has, under him, seen quite a few high-level exits of late. The latest is Executive Vice President Ritika Suri, who was brought in by Sikka from SAP and led the acquisition of Israeli automation company Panaya.
A veteran senior executive who wanted anonymity as he is not authorised to speak to the media said, "The promoters should know when to go gracefully. External agencies have said that all the allegations are false. The salaries of CEO and COO are not that high compared with global standards. To run a global company of this scale, we need world-class talent. Vishal (Sikka) is doing his best in a challenging market. The promoters should support his moves."
Though for now the board, led by Chairman R. Seshasayee, seems to have thrown its weight behind Sikka, the promoters' unhappiness with Seshasayee seems to have made the company appoint Ravi Venkatesan as co-chairman. Seshasayee said this would be his last AGM and he would demit office on attaining the age of 70 in the next few months. He also made placatory noises and promised he would spend the remainder of his tenure on increasing shareholder value and smooth transition. "We all recognise that we are but trustees of an extraordinary institution that has been the result of the labour, foresight and genius of an extraordinary group of founders," he said. Sikka even quoted Murthy's dictum that they should become proactive problem finders rather than reactive problem solvers.
Whether these statements soothe tensions or the promoter group is just biding time to make its next move will determine the company's future. For now, though, Infosys is clearly at the crossroads.
@venkateshababu
Annual general meetings (AGMs) of most Indian companies are boring affairs. The management reflects on the year gone by and gives its perspective on the future, while minority shareholders get a platform to air their opinions. The 36th AGM of Infosys, India's second-largest IT services exporter, held in Bangalore recently, was no different, except for one thing - the atmosphere was sombre this year. Infosys shareholders have seen the value of their holdings fall about 20 per cent over the past 12 months. The entire Indian IT sector is facing challenges but the fall in the sector index has been just 11 per cent. The Infosys shares have given up almost all the value they had gained after Vishal Sikka took over as CEO and MD in 2014.
The biggest reason for the poor investor interest - apart from the challenges that India's IT sector is facing - is the apparent lack of confidence shown by founder-promoters in the management and the counter-response led by Sikka (see Point Counterpoint). Though the not-so-pretty spat seems to have abated for now, will the company be able to do justice to those showing faith in its ability to reinvent itself?
"The promoters clearly don't seem to be satisfied. However, they have only two choices, either sell and exit or force a vote. It is for them to decide their next course of action. It isn't even clear whether all the promoters are together. Uncertainty is not good for shareholders in general," says Shriram Subramanian, Managing Director of InGovern, a proxy advisory firm. Institutional investors hold 58.6 per cent shares of the company. Subramanian says they will play a decisive role in deciding the future of the company.
"Please speak to Infosys for anything connected with them," Murthy said when Business Today reached out to him. Infosys did not respond to a meeting request.
However, a former senior executive seen as sympathetic to promoters said: "Has there been another example of promoters walking away from a world-class company they created? Why should they sell and exit such a cash-rich company sitting on more than `30,000 crore? Infosys set corporate governance standards in the country and all the promoters are asking is that the company adhere to the highest governance standards. Is that a crime?"
The principal analyst and founder of Constellation Research Inc., a Silicon Valley-based research and forecast firm, R. Ray Wang, says competitors will exploit this kind of internal turbulence to create fear, uncertainty and doubt. "At this point, there are too many resources chasing the same markets. Real innovation is difficult as shareholders are harder on listed Indian IT services firms than they are on publicly traded non-Indian IT firms. Infosys has to find a way to start building software, operate marketplaces and leverage innovation to grow marketshare in big deals," says Wang. "Market conditions have changed and Sikka will need to adopt a more assertive leadership style and appoint lieutenants who can execute his vision. The vision is realistic but he needs a lot more lieutenants to deliver," he says. But it is here that Sikka must be feeling letdown. The company has, under him, seen quite a few high-level exits of late. The latest is Executive Vice President Ritika Suri, who was brought in by Sikka from SAP and led the acquisition of Israeli automation company Panaya.
A veteran senior executive who wanted anonymity as he is not authorised to speak to the media said, "The promoters should know when to go gracefully. External agencies have said that all the allegations are false. The salaries of CEO and COO are not that high compared with global standards. To run a global company of this scale, we need world-class talent. Vishal (Sikka) is doing his best in a challenging market. The promoters should support his moves."
Though for now the board, led by Chairman R. Seshasayee, seems to have thrown its weight behind Sikka, the promoters' unhappiness with Seshasayee seems to have made the company appoint Ravi Venkatesan as co-chairman. Seshasayee said this would be his last AGM and he would demit office on attaining the age of 70 in the next few months. He also made placatory noises and promised he would spend the remainder of his tenure on increasing shareholder value and smooth transition. "We all recognise that we are but trustees of an extraordinary institution that has been the result of the labour, foresight and genius of an extraordinary group of founders," he said. Sikka even quoted Murthy's dictum that they should become proactive problem finders rather than reactive problem solvers.
Whether these statements soothe tensions or the promoter group is just biding time to make its next move will determine the company's future. For now, though, Infosys is clearly at the crossroads.
@venkateshababu