Sikka Vs Infy Founders: Will Investors Ignore Murthy's 'Hush Money' Claim?

Investors have backed Sikka but continued sniping by Infy founders is likely to distract management attention at a time when the company needs focus

Vishal Sikka, CEO, Infosys

It was not very long back Infosys CEO Vishal Sikka raised eyebrows when he touched the company’s founder Narayana Murthy’s feet at his first AGM in Bangalore. The mutual respect was visible as both hugged each other warmly with investors and analysts commending the legendary Murthy for handing over the reins of the company to a professional CEO hired from outside the company, for the first time in its history. It was also a move unprecedented in Indian corporate history.

But that was June 2015. Much has changed since then. Murthy in an explosive interview to Economic Times has raised several questions about corporate governance in the company post their exit in mid October, 2014. Citing the many awards won by the company during the term of the founders, Murthy said that since June 1, 2015, there has been a concerning drop in governance standards at Infosys.

Murthy then went on to make a sensational claim, which many would consider alarming and calling for a regulatory probe. Referring to severance packages given to exiting employees like former CFO Rajiv Bansal (Rs 17 cr), Murthy wondered if these payments are “hush money to hide something.”

Yes, you heard it right. Narayana Murthy, the founder CEO of India’s most respected IT firm wants to know if the present Infosys board had something to hide when they gave hefty severance packages to former employees like Bansal.

Murthy also singled out Infy chairman R Sheshasayee for not reining in the hefty compensation paid to the former employees and for also defending the severance pay at the company AGM. “ The primary responsibility for this lack of fiduciary responsibility lies only with the chair of the nomination and remuneration committee and the chair of the board. They must accept responsibility and atone for it.” said Murthy.

Also Read: Narayana Murthy Vs Infosys: 5 Things You Need To Know

Rajiv Bansal who exited the company on December 31, 2015 came under focus after it was revealed that he was given a severance pay of Rs 17.38 crore which was equivalent to his 24 months’ pay. The founder group led by Murthy are upset with this payout as they argue that severance pay at Infosys has never exceeded 3 months pay during their time.

Meanwhile investors seem to have ignored the cry by founders despite strong words like ‘hush money’ and corporate governance failures being used by no less than Narayana Murthy. The stock has been flat in trade on Friday, thus suggesting that they would need more than mere statements by the founders which look like a collective rant for them, to dump the stock. Any other company stock would have seen a crash today if such serious allegations would have been made against it by its founder.

Sikka’s own performance since he took over in August 1, 2014 has given investors enough to hope for. The stock has delivered a return of 14 % till Thursday’s closing price even as Sensex gave a return of 11% during the same period. If not for Donald Trump’s elevation to the US Presidency in November and the hit IT stocks have taken in January, the stock has given a return of 21% till December 2016.

It’s only in January 2017 that the stock has underperformed the Sensex, with a fall of 6% even as the index showed a similar rise during the first month of the year. This explains the confidence shown by investors as they feel that Sikka is needed at the top for Infosys to weather one of the most challenging times for global IT companies with business models undergoing a change after visa restrictions in the US.

Meanwhile, Infosys has shown no signs of stress despite the collective might of founders who constitute 13% of the total shareholding of the company up in arms against the board. Responding to the complaints, the board appointed law firm Cyril Amarchand Mangaldas to engage with the company’s founders and report back to them on the steps that can be taken to address, if necessary.

Sikka also wrote a mail to the employees where he asked them to ignore rumors and keep their sharp focus on the execution of the strategy as planned.

Sikka has also got the backing of global investors. Writing to the board, Justin Leverenz, Portfolio Manager of Oppenheimer Developing Markets Fund has said that they back Vishal Sikka and his strategy to turnaround the company. They have insisted that the board should back their CEO and not pay undue attention to the loud and cancerous intervention by the non-executive founders.

“With all deference to their enormous contributions, we also believe that non-executive founders need to come to grips with the reality that this is a public company. It is no longer their firm,” the letter noted as reported by The Economic Times.

The last has not been heard on this fight as the founder group led by Murthy are unlikely to give up raising questions about steps taken by the company in recent times. But at a time when IT companies are battling a downturn and uncertain business conditions, any escalation by the founders to the regulators are expected to impact the company in the short term and distract management attention - a luxury Infosys can ill afford to.

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