The sudden exit of Infosys Chief Executive Officer Mr. Vishal Sikka came as a bolt from the blue and took the market, analysts, media and everyone else by surprise. Trouble has been brewing for the Board of Directors at Infosys and Mr. Vishal Sikka since the abrupt exit of Chief Financial Officer Mr. Rajiv Bansal and General Counsel Mr. David Kennedy. The severance payments made to them raised a number of questions and despite several investigations, controversies surrounding Panaya acquisition refused to go away. Once it caught the eyes and ears of Founder and Chairman Emeritus Mr. Narayana Murthy, actions of Board came under close scrutiny that led to several questions being raised and murmurs of hush up became shrill.
…the Board also lost much credibility in refusing to release any of investigation reports.
Infosys has always been measured by its gold standard on Corporate Governance ever since it went public in 1993 and made history by becoming the first Indian company to list its American Depository Receipt (ADR) on NASDAQ in 1999. Reciting the mantra of “When in doubt, Disclose”, many a time it went beyond legal and statutory requirements to provide much-needed information to shareholders and analysts. And when the current Board failed to follow the much-venerated policy of “When in doubt, Disclose”, Mr. Narayana Murthy went ballistic. The current Board claimed that it had done at least three investigations by firms of international repute on whistle blower allegations on Panaya deal and severance payments for two top executives. And the report presented to the Board found no wrong doing. But when asked to make the report public, in other words, follow gold standard of Infosys Corporate Governance, many Board Members gave flimsy excuses and refused to do so.
At the heart of Sikka’s resignation was the USD 200 million acquisition of Panaya, an Israeli company. Mr. Vishal Sikka in his quest to transform Infosys from a dormant software maintenance company to a modern-day digitization goliath decided to acquire Panaya, a company with expertise in cutting-edge SAP technology. At the time of the deal in 2015, many analysts questioned the price paid but in due deference and giving the benefit of doubt to Mr. Sikka chose to remain silent.
But the sudden resignations of Chief Financial Officer Mr. Rajiv Bansal and General Counsel Mr. David Kennedy along with the unusual king-size severance packages brought back the focus on the deal. The needle of suspicion pointed to hush money being paid to silence two individuals who knew inside out of the deal but reportedly had refused to sign off on it and hence were relieved of their responsibilities. Also, if rumors are to be believed, Mr. Vishal Sikka and relatives of Ms. Ritika Suri who was heading the Infosys deals department were huge beneficiaries of the deal. Also there are allegations that Infosys made a loan to Panaya to make its financial condition look better for a deal to go through the required approval process. For the record, Ms. Ritika Suri resigned from her position on completion of investigation done by the company.
A whistle blower complaint followed the exits of two executives, which according to a recent letter released by Mr. Narayana Murthy, accused the Chairman of Board and Chairpersons of Compensation and Audit Committees along with some Independent Directors of impropriety and abdicating fiduciary responsibility. Prominent shareholders thus raised several questions on investigations ordered and completed by the company. They indeed claimed that the Board was too compromised to order an investigation into their own conduct during the acquisition.
Moreover, the Board also lost much credibility in refusing to release any of investigation reports. Painting a picture of hunky-dory when more and more shareholders started to question their actions, Board Members brought upon themselves accusations of brushing important governance issues under the carpet.
The exit of Mr. Vishal Sikka is the beginning of the end of the six month battle between the Board and marquee shareholders of the company.
Coming close on the heels of Ratan Tata Cyrus Mistry boardroom battle, the Infosys saga can be precedence for a future battle between shareholders and company management and Board of Directors. It is also a lesson for Independent Directors most of whom rubber stamp Management decisions without deliberations. Regulators, especially Securities and Exchange Board (SEBI), mostly referred to as a toothless tiger by many, must act swiftly on whistle blower complaints rather asking management for response and information. Moreover, it provides an opportunity for the regulator to improve disclosure norms on deals, pay packages and independence of Independent Directors.
The exit of Mr. Vishal Sikka is the beginning of the end of the six month battle between the Board and marquee shareholders of the company. But the fight by no means has reached the conclusion stage and it will be interesting to see events unfolding in near future. A compromised Board cannot make a choice on an incoming Chief Executive Officer. If resignations of Board Members follow along with the release of investigation reports as demanded by shareholders, it will bode well for the future of Corporate Governance in India.
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