Why the Infosys press conference was important…

In the light of the perceived differences between the founding members and the Board of Infosys, the company organized a press conference during the week to address the key concerns raised by the press and the social media channels. Prima facie, it does appear that a small issue of cultural differences has been exaggerated by the media out of context. Having said that; it needs to be appreciated that the promoters have done the right thing by raising red flags on key governance issues. For over 2 decades since its listing, Infosys has been known in the market for its high levels of transparency, disclosure and corporate governance. To the credit of the Infosys management, they have gone to great lengths during the press conference to address the key issues raised. Here are some of the important issues addressed in the press conference and also clarified…

Differences between the promoters and the board are largely cultural…

Cultural differences are nothing new and are part and parcel of any corporate management activity. As the Chairman of the Infosys Board, R Seshasayee, confirmed; such cultural challenges are healthy and conducive to the generation of ideas and a distinct thought process within Infosys. Both Seshasayee and Vishal Sikka have confirmed that Mr. Murthy and other founders continue to be their guiding light in running the business and that, probably, sets the matter to rest.

Seshasayee affirms that he is not moving on…

There were fervent calls for the resignation of Seshasayee from the position of Board Chairman; principally from some ex-employees of Infosys. However, Seshasayee has clarified that he will continue to be guided only by the decision of the Board of Infosys, which had elected him as Chairman and not by demands coming from certain specifics sections through the media. Seshasayee is right because the institutional shareholders, who actually own the bulk of Infosys shares, have thrown their weight behind the current Board of Infosys.

Board confirms that Sikka’s compensation was anything, but excessive…

There were allegations in sections of the media on the excessively generous pay package for Vishal Sikka. As Seshasayee rightly put it, businesses need to change along with changing times and compensation should not become a barrier to procuring and retaining the best of talent. Seshasayee also confirmed that a large component of Sikka’s compensation was variable in nature and was payable over a deferred period subject to achievement of stiff targets. In fact, the compensation of Sikka had been arrived at by the board after due deliberation and benchmarking with peer groups in other countries. While Sikka’s compensation may be higher than Infosys’ historical standards, it needs to be remembered that the challenges of the IT industry are much steeper today. His compensation still compares very favourably with what many Indian promoter CEOs earn or what his global peers like Satya Nadella and Sundar Pichai take home.

No hush pay for Bansal; but perhaps the process was wrong…

The Infosys Board has confirmed that the payment of 24 month salary to Rajiv Bansal, former CFO of Infosys, had nothing to do with Bansal having any access to sensitive information. According to Seshasayee and Sikka, paying severance package is normal practice in most countries, especially when the person is at a senior level and has access to privileged information. To the credit of the Chairman and the CEO, they have also admitted that the process of deciding the severance package could have been less arbitrary and more transparent. They have also confirmed that only part of the severance package has been paid and the rest has been withheld pending queries from the founding promoters.

Acquisition of Panaya and induction of Punita Sinha…

There had been a lot of bad press in the media about the acquisition of Panaya of Israel. It was alleged that Bansal had been asked to resign after he had raised red flags over the valuation of Panaya. The media had also alleged that Infosys had deliberately overpaid for Panaya, since its financials were already under tremendous stress. Sikka, who was closely involved with the acquisition, confirmed that the valuation was arrived after due diligence and vetting by a reputed name like Deutsche Bank. Additionally, as the CFO of Infosys, Bansal had signed off on the financials of Panaya.

The controversy over the induction of Punita Sinha was, perhaps, something the press could have avoided. To allege that Punita was inducted for her political affiliations (Punita is married to Jayant Sinha) is to do a great disservice to the lady who has had an outstanding 30-year career in global investment banking and finance. That is something both Seshasayee and Sikka have also emphasized.

How about rewarding shareholders of Infosys with the cash pile…

Like the demands for the resignation of the Board Chairman, this demand has also been coming from ex-employees of Infosys. As the board rightly put it, the company was in the midst of a major transformation exercise and hence the Board and the CEO will be best positioned to decide on the logic and timing of such a move. Currently, Infosys sits on a cash pile of $4.5 billion, but that has always been the case with Infosys. Sikka has confirmed that their priority will be to use the cash for expansion and acquisitions first and then look at buybacks or dividends. Such payouts are normally not perceived very positively by institutional shareholders. That decision is best left to the wisdom and discretion of the board.

The hue and cry in the press over corporate governance issues have largely died down post the press conference. Infosys has done the right thing by taking these allegations head-on and clarifying specific matters with key board members in attendance. The founding members must certainly be glad that the legacy of transparency and disclosure continues!

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