Companies & Sectors
Infosys Spat: Need To Rethink Directors’ Role Afresh
When two of corporate India’s best known names—Tatas and Infosys—are rocked by allegations of dubious governance practices, it is time to rethink our absurd expectations from the board of directors. While regulations have saddled ‘independent directors’ with more onerous burdens at every revision, they are forever in conflict with their own self-interest, which may be a fat remuneration from elite companies or manifold benefits that accrue from being networked into the elite and powerful business community.
 
Moneylife has written extensively on governance issues thrown up in the Tata imbroglio, where SEBI (Securities & Exchange Board of India) chose to remain a mute spectator to the issue of independent directors being sacked for being independent and failing to side with the ‘promoters’. This has provoked industrialist Nusli Wadia to file a suit in the Bombay High Court, raising some very pertinent governance issues. In the Infosys case, SEBI has announced that it will look into allegations made by an anonymous whistleblower about acquisition of an Israeli company, Panaya, and the high exit packages to chief financial officer (CFO) Rajiv Bansal and compliance officer David Kennedy. 
 
Vishal Sikka, CEO of Infosys, has reached out to employees on 20th February, telling them that there were “no wrongdoings” and that he was being targeted to the “point of harassment”.  But that does not answer any of the issues raised. 
 
NR Narayana Murthy, the highly regarded chief founder of Infosys, who headed SEBI’s second corporate governance committee, has publicly criticised the hefty severance pay package, comparing it to ‘hush money’. More importantly, despite a media conference and interviews by R Seshasayee, non-executive chairman of Infosys, as well as independent directors Rupa Kudva (former head of rating agency CRISIL) and Kiran Mazumdar Shaw (founder and chairman of Biocon India), we are none the wiser about the core issues. In fact, Mr Murthy himself has called a truce, but is unequivocal about the fact that his concerns remain on the table and have not been addressed. Let me list them, for easy recall.
 
1. Why did CFO Rajiv Bansal leave abruptly in October 2015 and why did the board throw past practices to the wind and commit to pay him a stupendous Rs17.38 crore as severance pay, as against his annual remuneration of under Rs5 crore? Did the human resources department (HRD) at Infosys raise concerns about the implications of such a high exit package across the group? Who proposed the precise sum of Rs17.38 crore? On what basis was it justified? Were any concerns voiced internally and, if so, were they addressed? Here we are in February 2017 with no answers as yet, except that there have been “lessons learnt”-this from a company which has 200,000 employees. 
 
2. Then, in December 2016, Infosys handed out another fat severance package to David Kennedy, its compliance officer, who was with the company for just over two years and had, apparently, quit voluntarily. Mr Kennedy was paid $868,250 (a hefty Rs6 crore), plus reimbursements for continuation coverage over a period of 12 months; and, yet, he was not asked to serve any notice period. Proxy advisory firms have flagged this issue and it is clear that there is more to these generous exit packages than meets the eye.
 
3. Even more surprising is the information that Mr Bansal was eventually paid Rs5.2 crore out of the committed Rs17.38 crore. Has he accepted less than one-third the severance package that was committed to him? People have sued for breach of contract for much lower sums. So far, Mr Bansal hasn’t spoken a word in public; but does that mean the matter is closed and he has given up the money? Or is the Infosys board being economical with details? Since SEBI says it is looking into the whistleblower’s allegations, can it officially ask Mr Bansal for information? 
 
4. The acquisition of an Israeli software firm, called Panaya, is at the centre of the controversy leading to Mr Bansal’s exit. The Infosys board has not denied allegations that Mr Bansal refused to sign-off on the deal and had walked out of a board meeting in October 2015. The explanation that Infosys paid $200 million for a controlling stake in Panaya, as opposed to a $162 million valuation just a month earlier, also does not hold water, if it is indeed true, as alleged, that Panaya was on the verge of shutting down. While Infosys and SEBI are both reportedly looking into the whistleblower’s allegations, a serious internal investigation must have a plausible outcome and not an endorsement of the management viewpoint through consultants or law firms commissioned by the board.
 
5. Infosys has appointed Cyril Amarchand Mangaldas to revamp its corporate governance framework with reference to board members, nominee directors and independent directors. Does this mean that the governance structure that existed during Mr Murthy’s tenure has been disbanded under Mr Sikka and needs to be reworked? This is hard to believe, especially since Mr Murthy and other founders continue to be classified as promoters. 
 
6. Interestingly, while the Infosys whistleblower appears to be targeting Vishal Sikka in his email, shareholders and founders assert that they have no problem with him. Mr Sikka has been good for the company and its shareholders. Mr Murthy is quoted by moneycontrol.com as saying, “We’re quite happy with CEO Vishal Sikka. He is doing a good job.” This is rather curious. Mr Murthy and some large shareholders have asked for a change in the board’s composition, especially the non-executive chairman and the head of the remuneration committee. Companies are led by CEOs or managing directors. It is hard to believe that the board, or Mr Seshasayee, the chairman, had done anything worse than rubber-stamp the CEO/management’s decisions. They could not have decided Mr Bansal’s severance pay or the acquisition price of Panaya on their own. It is rather disingenuous to claim that the board is responsible for poor governance standards but the CEO is not. 
 
7. Then there is Oppenheimer Developing Market Funds, one of the largest shareholders of Infosys, which came out strongly in support of Mr Sikka. While it is nice of Oppenheimer to express support for the CEO’s stabilising role, the intemperate choice of words makes one wonder about its motivation. Here is what The Economic Times attributes to its portfolio manager Justin Leverenz. He says, “There have been loud, cancerous rumours of intervention by non-executive founders in the management team.” He goes on to say, “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…” and further that “the Board needs to clarify the appropriate role of non-executive founders of the Company.” Clearly, 
 
Mr Leverenz thinks he is talking down to the natives. Here are some facts. The non-executive founders did not leave behind a private firm that Mr Sikka took public. It is they who created an IT giant with 200,000 employees, with a market-capitalisation of Rs2,00,000 crore and revenue of $8.7 billion, with globally recognised and admired standards of good governance. As for a clarification of their role, surely Oppenheimer as a large investor would know that the non-executive founders continue to be classified as promoters. This means that, unlike Oppenheimer, which is only a large institutional shareholder, they continue to carry some responsibilities for actions of the company, without any say in decision-making. While support for a CEO delivering a good performance is fine, surely Oppenheimer should want answers to concerns raised by Mr Murthy which are not yet resolved. 
 
Retail shareholders, corporates and institutional investors would be watching how SEBI handles this serious issue of governance, especially since the regulator will get a new chairman on 1st March and there is an opportunity for a new direction.

User

COMMENTS

Suketu Shah

3 weeks ago

Its been a hugh fall in the thinking of NM last 4-5 yrs or so which is unfortunate and sad.Majority of the people esp stock holders held him in the past in such high esteem.Time to get out of Infosys stock(although inspite of everything its the most promising by far among all IT stocks) once you get a good price next few months.Also best to stay out of all IT stocks.

Kumar Swamy

3 weeks ago

Please don't compare Tatas with Infosys founders. You know better. We subscribe for a reason - unbiased coverage - unlike "presstitutes". Enlighten us, not irritate us.

REPLY

Sucheta Dalal

In Reply to Kumar Swamy 3 weeks ago

Mr Swamy, you are free to agree or disagree with my opinion, but you cannot demand that my thoughts and views should match yours. If you find it irritating, do move on. Your repeated and virulent comments makes me wonder . You may have a personal grouse or strong opinion about Infosys, but you are now beginning to heckle me personally. I wonder why.

Kumar Swamy

In Reply to Sucheta Dalal 3 weeks ago

I have nothing to do with Infosys, IT industry in general. Your hyper-sensitivity and ranting is very disturbing. Shame.

Chandragupta Acharya

4 weeks ago

The Infosys Founders remain large stakeholders in Infosys and by virtue of that expect the Board to protect shareholder interests. This is a legitimate expectation. The Board members however appear to be basking in their sinecures, content at rubber stamping CEO decisions. This is typical of most Indian Boards, but not enough to satisfy the high standards that Mr. Murthy & the Founders expect. Though numbers suggest Mr. Sikka has done well, every decision of his need not pass muster without appropriate scrutiny, and large shareholders such as Mr. Murthy have a right to demand appropriate disclosures. The board seems to be failing at this.

Chandragupta Acharya

4 weeks ago

The Infosys Founders remain large stakeholders in Infosys and by virtue of that expect the Board to protect shareholder interests. This is a legitimate expectation. The Board members however appear to be basking in their sinecures, content at rubber stamping CEO decisions. This is typical of most Indian Boards, but not enough to satisfy the high standards that Mr. Murthy & the Founders expect. Though numbers suggest Mr. Sikka has done well, every decision of his need not pass muster without appropriate scrutiny, and large shareholders such as Mr. Murthy have a right to demand appropriate disclosures. The board seems to be failing at this.

REPLY

Kumar Swamy

In Reply to Chandragupta Acharya 4 weeks ago

Infosys' decline started when NRN asked Nilekani to step down in favor of other founders taking turns as CEOs. His hubris, "Infosys us so Good, anybody can run it..." He is interested in his own PR, to be in the media limelight all the time. Now the"professional" management's inattention (rather ignoring) has bugged him, hence the tantrums using the media. Just ignore him!

Veeresh Malik

4 weeks ago

Sounds more like the churn in a real-estate company coming home to roost.

Kumar Swamy

4 weeks ago

Infosys Founders and Sucheta Dalal have to come to terms with the FACT..."non-executive founders need to come to grips with the reality that this is a public company.... It is no longer their firm…”

REPLY

Gurudutt Mundkur

In Reply to Kumar Swamy 4 weeks ago

You are right Mr Kumar Swamy... people do not know when to retire and when they do, even at the right time, they do not know what is retirement. Every country gets the government it deserves.... so also every company gets the Directors it deserves.

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Nifty, Sensex weakens – Monday closing report
We had mentioned in Friday’s closing report that Nifty, Sensex were trending higher. The major indices of the Indian stock markets were range-bound on Monday and closed with small losses over Friday’s close. The trends of the major indices in the course of Monday’s trading are given in the table below:
 
India Vix closed at 13.68, up 2.05%. NSE turnover was at 118.20 crore.
 
Indian equities markets traded on a flat note during the mid-afternoon trade session on Monday as negative global cues and selling pressure was witnessed in banking, automobile and capital goods stocks amidst subdued investors' sentiments. The BSE market breadth was tilted in favour of the bears -- with 1,326 declines and 1,008 advances. Banking, pharma, auto, oil-gas, textile, media-entertainment and FMCG stocks traded with sideways sentiments due to profit booking. Cement, power and telecom sector stocks traded with bearish sentiments due to selling pressure at higher levels. On the NSE, there were 707 advances, 949 declines and 268 unchanged.
 
Upcoming macro-economic data points, along with global trends, are expected to determine the trajectory of the Indian equities markets. The first half of the upcoming week will be heavily influenced by domestic macro-economic data points. The important quarterly GDP (Gross Domestic Product), monthly auto sales and ECI (eight core industries) figures will be released early next week, pointed out market analysts. India's Central Statistics Office (CSO) will release the macro-economic data points of the second advance estimates of national income, 2016-17, along with the quarterly estimates of GDP for the third quarter of 2016-17 on Tuesday. The Ministry of Commerce and Industry will release the Index of ECI figures for January, 2017 on February 28, which will be followed by the release of monthly automobile sales figures, petrol price revision and the PMI (Purchasing Managers' Index) data. In the latter part of the week, investors will look forward to the US non-farm payroll data and a couple of US Fed speeches to gauge the possibility of an upcoming US rate hike. The US Bureau of Labour Statistics will report the latest US macro-statistic on non-farm payrolls which are key data to gauge the likelihood of next US rate hike. A hike in the US interest rates can potentially drive away Foreign Portfolio Investors (FPIs) from emerging markets such as India.
 
Despite the government’s efforts to attract investment under its Make in India campaign, sales of manufactured goods fell 3.7% during 2015-16 -- the first decline in seven years -- sparking fears of layoffs and debt default in the months to come. Spurred by a global slowdown and lack of demand, sales of manufactured goods were falling even before demonetisation, affecting sectors ranging from textiles to leather to steel. As a result, in the six months to September 2016, engineering major Larsen & Toubro laid off some 14,000 employees. Companies such as Microsoft, IBM and Nokia were also reported to have cut back on their workforce in 2016-albeit on a smaller scale-blaming sluggish demand for downsizing. In November 2014, just weeks after Prime Minister Narendra Modi launched his Make-in-India campaign, Nokia shut its factory in Chennai, rendering 6,600 full-time workers jobless. Economists say the government must step in to support the manufacturing sector, which constitutes 15%-16% of the gross domestic product (GDP) and supports 12% of the workforce. Sales are down as investment falls, costs and import duties rise and demand contracts. A range of factors including falling investment, increased input costs and higher import duties have caused demand for manufactured goods to fall, a trend that was visible before demonetisation and has strengthened since. These factors are likely to make the stock markets more bearish in India.
 
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 

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COMMENTS

Babruwan Gomsale

4 weeks ago

Good info

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