The ongoing feud between the founders of Infosys and its incumbent board could not have come at a worse time for one of India’s most respected software companies. Infosys is now sandwiched between publicly expressed critiques of its governance practices by its founders, and its board’s protestations that these issues have already been examined threadbare. This distraction is something the company can do without at a time when it is grappling with serious challenges in its core business.
The criticism levelled by Infosys’ founders, who own 12.7 per cent of its equity, are many. They have questioned if the unusually high severance package to the departing CFO in 2015 was made to cover up wrong-doing and hinted at conflict of interest on an acquisition. They have criticised the high compensation package of the CEO and fault the composition of the board and it’s reducing “engagement” with the founders. All this has been used to bemoan “declining governance standards” at the company. But as Infosys has followed due processes, allegations of mis-governance stand on very thin ground. Infosys made multiple and detailed disclosures on the severance package to the stock exchanges last year. After concerns about impropriety, it got the decision independently audited twice and also put in place new norms to prevent such exceptional payouts. Two, though CEO compensation at Infosys is quite steep relative to peers (the CEO was paid 935 times more than the median employee in FY16), it has a large variable component which has been ratified by shareholders. Three, when it comes to seeking the inputs of external experts or filling independent board seats, a widely-owned company like Infosys is under no obligation to give its founders a special hearing over its own bona fide choices. The entire issue could be quickly resolved if the founders stopped couching their views in generalities and clearly stated the way forward. In fact, the whole episode raises the question of whether the murmurs of discontent from Infosys’ founders are really about the company’s frugality in rewarding shareholders. While Infosys’ performance metrics on revenue growth, attrition and cash flows have staged impressive improvement under its new CEO, it continues to sit on a large cash pile (₹30,480 crore by end-December), as it has done for many years. This dilutes return on equity, and shareholders have valid reason to demand the return of cash through share buybacks or higher dividends.
But the conflict at Infosys is also symptomatic of the new breed of institution-owned, professionally managed firms at India Inc trying to break free of the apron strings of their promoters, even as they try to accommodate the interests of their diverse investor groups. As impartial observers, institutional investors are best placed to take the lead in ensuring accountability from such firms.