After working out my biceps, as I grabbed my whey, the news flashed “Vishal Sikka reigns as the MD and CEO of Infosys”. This came as a shock not only for me but for Indian Inc. on a whole. The worst effect was the loss of massive market capitalization of the company (the share saw a fall of massive 10% in a day). The effect was so brutal that in a day Infosys got out of the list of top 10 companies in Indian market in terms of market cap, a huge blow to the company and stakeholders.
Infosys- which is the India’s second largest software exporter, started in 1981 by 7 engineers, is a $2 billion company today, with as many as 2 lakh professionals working for it. With a slowdown in growth in IT, Mr.Sikka wanted to revive company through job cuts and investment in data analysis field, the thing the founders didn’t like enough.
Sikka was the first non founder CEO of the company with a great technical background, who took some rigorous steps to transform the company totally. He shifted his office from Bangalore to Palo Alto USA, to establish the company prominently there too.
After Mr. Sikka assumed the office from August 2014, the company saw
• Increase in profit margins.
• Market expansions.
• Greater clientele.
• Rigorous acquisitions.
• Revenue growth of 14.1 per cent and net profit increased by 8.5 per cent in 2015-16. The company’s stock price went up 9.8 per cent.
• Lower attrition rates and so on.
The tussle inside Infosys is the issue of corporate governance. There were many who alleged that the Infosys board is no longer is playing the role that it should have been. There were two camps. The one led by Sikka that claimed that everything is hunky dory. But the other camp, and Murthy who along with other founders who held 12.75 per cent stake in Infosys, alleged that in the last few years the board practices and ethics have slipped. The major issue is related to high salaries of senior Infosys executives including that of Sikka. At the same time, there are questions on the appointment of several others and the severance packages that have been offered to a few others.
NRN, in an interview to economic times said “We strove hard right from the day Infosys was founded till the day we left the company voluntarily on October 14, 2014, to make Infosys the best-governed company in India and on Nasdaq. However, since June 1, 2015, we have seen a concerning drop in governance standards at Infosys. Let me illustrate this with just one example. Providing huge severance pay (with 100 per cent variable) to some departing employees while giving only 80 per cent variable for employees in the company is one such example. Such payments raise doubts whether the company is using such payments as hush money to hide something”.
Whereas Sikka in a letter to the employees sighted that all such news were false and they must focus only on good work. Here in is important to note that in the annual report for 2015-16 that released, Infosys reported that Sikka took home a fat pay of Rs.34.3 crore in 2015-16 (excluding the variable pay of Rs.14 crore for 2014-15 that was paid in 2015-16). This was higher than the previous year’s Rs. 18.56 crore. The hike is a good 85 per cent while the increase in the median employee remuneration (MRE) was a mere 6.4 per cent.
Nonetheless, in the whole battle between Sikka and the founders, the biggest loser is the company and its stakeholders. Also this raises the question on autonomy of Board of directors of company and sites a query if promoters or founders must interfere that much or not.
As for shareholders, the pain is real and will take an year or so to bounce back, also if old CEOs are taken back to the position the share price will see an up move, but as for now the question in front of everyone is “whose next?”.