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Infosys turmoil: Key issues behind the rift between founders and management

What are the issues that have led to the friction between a section of Infosys founders and its management?

Infosys Technologies CEO Vishal Sikka in Bengaluru. PTI Photo Infosys Technologies CEO Vishal Sikka in Bengaluru. PTI Photo

Infosys Ltd, India’s second-biggest software services exporter, was on Wednesday forced to clarify, saying it has addressed concerns about payments to its executive after news reports surfaced that its founders had expressed their displeasure, in a letter, about decisions including a pay hike for Chief Executive officer Vishal Sikka.

Infosys founders NR Narayana Murthy, Kris Gopalakrishnan and Nandan Nilekani wrote to the board last month expressing their concerns about the pay rise and severance packages given to two former senior officials, CNBC TV18 reported on Tuesday.

Asked for comment on the report, Infosys said “all decisions have been made bona fide in the overall interest of the company” and that full disclosures had already been made. Infosys founders along with their family members owned 12.75 per cent of the company as of end-December, according to stock exchange data. Murthy declined to comment when contacted by Reuters on Tuesday, while Nilekani and Gopalakrishnan were not immediately reachable, Reuters reported.

What are the issues that have led to the friction between a section of Infosys founders and its management?

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* While reports indicate that the on-going tussle is one that has been brewing for a while, the first sign appeared about a year ago when the management appointed Punita Sinha, the wife of Union Minister Jayant Sinha, as an independent director. Infosys founder N Murthy abstained from voting on her appointment. While the management argued that she was appointed purely on her merits, Murthy had reportedly said that the company, in its history, had never invited the spouse of an active politician to join its board.

* CEO Vishal Sikka’s compensation saw a sharp increase to $11 million in 2017 from $7.08 million in 2016. According to a report in The Economic Times, Sikka’s salary includes a base of $1 million, $3 million in variable pay, $2 million in restricted stock units (RSUs) and another $5 million in stock options, which would be awarded to him based on Infosys’s performance. However, ET reports that Murthy has a “longstated philosophy on ‘compassionate capitalism’ wherein the ratio between the highest compensation in the firm and the median salary should ideally be 50 to 60”.

* What also made a section of Infosys founders upset was the severance package announced for former chief financial officer Rajiv Bansal’s which amounted to an unprecedented Rs 173.8 million ($2.58 million), or 24 month’s pay. In a January filing with the US market regulator, Infosys, which is also listed on Nasdaq, said its former general counsel David Kennedy would receive severance payments of $868,250 and other reimbursements over 12 months. Again, something a section of the founders believed went against its philosophy of ‘compassionate capitalism’.


* Another key issue is the company’s move towards large acquisitions, something the founders have been wary of. Infosys, under Sikka, is aiming to be a $20-bn company with a 30 per cent operating margin by 2020 and acquistions will have to be a major part of this growth phase. The company’s revenue currently stands at half of that. ET reports that Infosys’ acquisition of Lodestone, hasn’t panned out well. The company was acquired in 2012 before Sikka joined for $350 million. Lodestone has been posting weak results.

First published on: 09-02-2017 at 04:15:18 pm
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