What happened?
Allegations and counter-allegations over the $200 million acquisition of an Israeli firm, Panaya, and the severance package to former chief financial officer Rajiv Bansal culminated in the resignation of Infosys chief executive officer and managing director Vishal Sikka, 50, on August 18. A July 8 letter by co-founder N.R. Narayana Murthy to the board, headed by R. Seshasayee, was leaked to the media on August 17. Mr. Murthy, following complaints, was peeved at salary increases given to Mr. Sikka and Mr. Bansal. He also wanted a report submitted by an independent U.S. agency on allegations of irregularities in the Panaya acquisition to be made public. The board defended the salary increases and refused to make the report public.
Ten days after Mr. Murthy’s letter appeared in the media, the board named former Infosys CEO Nandan Nilekani, 62, as its new chairman. Soon after taking over, Mr. Nilekani asked board members to look into Mr. Murthy’s allegations on severance pay and the acquisition and submit a report by October.
Why did things come to a head?
After the letter was leaked, Mr. Murthy said in a statement that his “problem is with governance at Infosys. I believe that the fault lies with the current board,” the one headed by Mr. Seshasayee. “If the board had not made inaction its strategy since September 2015 and had ensured proper governance, then the board could have created checks and balances required in any well-run company. That, alas, does not exist today,” he said.
He raised questions on why the board had paid a severance pay of ₹23 crore to Mr. Bansal and later refused to divulge details, citing “confidentiality agreement.” Mr. Murthy said he had received more than 1,800 emails from employees and investors highlighting the severance pay and governance issues. “If there is no such special secretive competitive data with Mr. Bansal, then it is clear that the Chair told a blatant lie to the shareholders.” There was also an issue of a $1 million agreement with David Kennedy, general counsel and chief compliance officer, who left the company in January. “Why was a special 12–month severance allowed for Mr. David Kennedy when the norm was just three months in the company,” Mr. Murthy asked.
Following a complaint by a whistleblower, he contended that the Infosys board had spent shareholders’ money on hiring expensive lawyers and “obtained a clean chit for themselves from these lawyers.”
How did the board respond?
The then chairman Mr. Seshasayee and his team laid the blame for Mr. Sikkas’ resignation on Mr. Murthy’s table. They said Mr. Murthy’s continuous assault was the “primary reason” for the CEO’s resignation, “despite strong board support.” In an August 18 statement from Infosys, the board said it took “great umbrage” at Mr. Murthy’s letter that had been leaked.
The board said it was “profoundly distressed by the unfounded personal attacks” on the management team that were made in anonymous letters and had surfaced in recent months. Infosys, it claimed, had maintained the “highest standards” of corporate governance, and “careful investigations found no merit in the unsubstantiated and anonymous allegations.” Any further probe would be a “distraction” for the company, it said.
The management reconstituted the board and made U.B. Pravin Rao interim chief executive officer and managing director reporting to Mr. Sikka, who had been CEO since August 2014.
How did it get sorted out?
The founders of India’s second largest software exporter had the final say. Mr. Nilekani, who spearheaded India’s biometric identity programme Aadhaar, and who was the CEO of Infosys from 2002 to 2007, returned to the helm. During his tenure, Infosys’ revenue rose from $500 million to $2 billion. Mr. Seshasayee, Mr. Sikka, who was serving as executive vice-chairman after he resigned as CEO, and two other directors resigned. Ravi Venkatesan stepped down as co-chairman to continue as an independent director on the board.
Mr. Nilekani said the main task was to resolve differences over corporate governance and “personally ensure Mr. Murthy gets the respect he deserves.”
