Infosys and the NRN sinkhole

NR Narayana Murthy’s inability to let go is proving costly. Not just for him and his reputation but also for the company he founded and holds dear, its 2,00,000 employees and over 7 lakh shareholders. His repeated allegations of corporate governance failure at Infosys despite all that the company has done to address his grievance gives the impression that he has an agenda and the alleged governance failure is only a stick to beat the company with.

Indeed, the company’s statement of August 18 doesn’t mince words: “Mr Murthy has made repeatedly inappropriate demands which are inconsistent with his stated desire for stronger governance.” It is damning when it says that “Mr. Murthy has demanded that the Board adopt certain changes in policy, else he will attack board members in public… He has demanded that the Board appoint specific individuals onto the Board under similar threat… He has demanded operational and management changes under the threat of media attacks.”

And Murthy’s response was weak: “It is below my dignity to respond to such baseless insinuations… I will reply to these allegations in the right manner and in the right forum at the appropriate time.”

Can there be a more appropriate time to defend himself than now when the company is all but accusing him of blackmail? It is difficult to believe that the board, made up of people of eminence, integrity and rich experience, would have hurled such a big charge against the iconic promoter without substantive proof. Murthy often says that his favourite rule is: “When in doubt, disclose”. It is now time for him to disclose if what the board says is true.

The corporate governance stick is a bit worn now. Three independent investigations, one of which even interviewed Murthy, have thrown up nothing to prove the allegations of governance failure. If Murthy has reason to believe otherwise he needs to go public now. He should reveal whatever information he has of wrongdoing in the Panaya deal and demand an explanation from the company. That will nail the board if indeed it is holding back the probe reports to hide unfavourable findings, if any.

Infosys is a widely-held company with the promoters holding just 12.75 per cent; Murthy himself holds 3.44 per cent along with his family. FIIs hold a whopping 37.47 per cent led by the likes of Oppenheimer, Vanguard, Abu Dhabi Investment Authority and Government of Singapore.

These institutions are known to vote with their feet by selling the stock if they sense a governance failure. Yet, nothing of that kind has happened with their Infosys holdings since the Panaya deal was sealed. Their holdings have only reduced marginally which is par for the course.

Murthy should understand that he’s fully used up his currency as founder-shareholder in the last several months that this battle has raged. It is doubtful if any common shareholder with a minority stake could have got Infosys to do the things that Murthy has managed to make it do. If, for instance, I, as a minority shareholder, had waved a whistle-blower email at the company’s face and demanded not one but three probes, I would have probably been laughed at and my demand would have been consigned to the dust-bin. Murthy had his way till now thanks to his status as a founder but he may have completely expended his goodwill this time.

At one level, it is funny indeed to hear Murthy, and others such as Mohandas Pai and V Balakrishnan, sing the corporate governance tune repeatedly. Wasn’t it Murthy who returned from retirement to the helm at Infosys in 2013 with his son in tow? What kind of a corporate governance practice is it to bring your son, qualified academically but inexperienced in running a business, as your executive assistant when Infosys boasts of some of the finest professionals in the software industry?

That’s not all. The genesis of Infosys’s present problems probably lie in another poor corporate governance practice dating back to Murthy’s original term. That is the understanding between the four founders — Murthy, Nandan Nilekani, K Gopalakrishnan and SD Shibulal — that each of them would get to run the company in turn. That resulted in the exit of Nilekani — arguably the best of all those who’ve helmed Infosys from the time it was founded, including Murthy himself — from the company at the end of his term. What would Nilekani do in Infosys after stepping down as CEO?

Such an understanding also probably shut out professional talent, which was in abundance within the company at one time, from the top slot. Indeed, some of them such as Mohandas Pai, now a vociferous supporter of Murthy, left the company as they ran into the glass ceiling. God knows that Infosys will probably not be in the plight that it is in now but for this understanding between the promoters. So, was that good corporate governance practice? Sadly, the media and the markets failed to take the promoters to task then, overtaken as they were by the aura of Murthy.

The board, with its tell-all statement on Friday, has finally emerged from the influence of Murthy’s aura. The iconic founder now finds himself painted into a corner and has to respond with hard evidence of wrongdoing in order to bounce back.

As for the company, to say that it is headed for more tumult is stating the obvious. Institutional investors in the US have already taken note of the happenings over the weekend and are threatening class-action suits. The domestic regulator, SEBI, has stayed out of the issue till now but expect it to act if things worsen.

In an interview to a TV channel on Friday, Murthy expounded on job creation and how that alone can eradicate poverty. The statement came the very day he probably imperilled the jobs of over 2 lakh employees in the company he built. Talk of irony!