Why Infosys Founders, Board Are At Loggerheads
Has the friction between Infosys’ founders and management hurt governance?
Vishal Sikka “means lots of money”, NR Narayana Murthy had said in jest while introducing Infosys Ltd.’s next managing director and chief executive officer on stage in June 2014.
The joke has come back to haunt some Infosys founders, including Murthy, who are upset at the governance standards of the board and its dismissive attitude towards issues raised by the promoters.
At the heart of it are three issues:
- Severance paid to former Infosys chief financial officer Rajiv Bansal and compliance head David Kennedy.
- Re-appointment and increased remuneration of Vishal Sikka.
- Appointment of Punita Kumar Sinha, wife of Union Minister Jayant Sinha, and re-appointment of Jeffrey Sean Lehman as non-executive directors on the board.
The Infosys board has failed in its responsibilities, V Balakrishnan, former CFO of Infosys, told BloombergQuint over the phone. These are valid questions and when shareholders or co-founders raise concerns, it is the “board’s obligation to give a proper explanation”, the Infosys veteran said.
Infosys director and Biocon Ltd. chief Kiran Mazumdar-Shaw doesn’t agree. She is “unable to understand the genesis of the problem” since Punita Sinha’s appointment, extension to Lehman and Sikka’s salary were put “through shareholder vote”.
Rajiv’s severance was not voted upon since it was not a shareholders’ matter.Kiran Mazumdar-Shaw, Director, Infosys
Some of the founders had abstained from voting on Sikka’s increased pay and Sinha’s appointment, but co-founder Nandan Nilekani voted in favour, Mazumdar-Shaw told BloombergQuint over the phone.
Nilekani did not respond to calls and messages from BloombergQuint.
The Sackings
On October 12, 2015, Infosys had informed stock exchanges about Rajiv Bansal’s resignation as CFO and that his services would come to an end on December 31, 2015.
Sikka, in a statement, said “Rajiv has led our financial strategy and has been instrumental in bringing us to this point in our transformational journey. He’s a brilliant CFO and we will miss him”.
What Sikka or the company didn’t disclose then was that Bansal had been asked to go. Mazumdar-Shaw said Bansal was told to step down by the management and the board ratified the decision.
Over a year after he resigned, an Infosys statement said that as part of the separation agreement, Bansal would receive 24 months of pay amounting to Rs 17.38 crore. The agreement also allowed Bansal to “report to the regulatory authorities in future any matter of impropriety that he became aware of that happened during his tenure”.
The severance terms raised eyebrows, including those of a few founders. But Mazumdar-Shaw saw nothing unusual in it.
There is always an issue... because (when) you are asking them to go, there has to be a severance package. David Kennedy was also (given) a severance package, because again you asked him to leave.Kiran Mazumdar-Shaw, Director, Infosys
Between Bansal’s stepping down and the disclosure on his extended severance, the Infosys board ordered two separate independent investigations into the matter. The first in October 2015 based on “rumours and insinuations”, and the second in August 2016 based on an anonymous letter, which alleged the “severance was paid to silence Bansal”.
Bansal refused to comment on the matter. Infosys said the investigations didn’t find anything amiss.
Cyril Amarchand Mangaldas concluded that the severance payment made to Rajiv was not with the intention of silencing him from disclosing any impropriety.
Infosys Statement On Severance To Rajiv Bansal
To make Bansal’s severance package very transparent, “we did a legal due diligence... shared the findings on the website. What more transparency do you want?” Shaw said.
David Kennedy, executive vice-president-general counsel and chief compliance officer, was also asked to leave. His employment was terminated on December 31, 2016.
Kennedy will receive an aggregate severance payment of $868,250 and reimbursement for insurance coverage over a period of 12 months, said Infosys in a statement to stock exchanges on January 1, 2017.
Sikka’s Remuneration
Sikka had joined Infosys on July 14, 2014 as a whole-time director and CEO-designate. He was appointed the MD & CEO from August 1, 2014 till June 13, 2019.
According to his initial employment agreement, Sikka’s annual compensation, including base pay, variable portion and stock grants, stood at a little over $7 million.
In early 2016, Sikka’s contract was renegotiated to increase his remuneration and extend his tenure by two years. Under the new terms, Sikka is eligible for a compensation of $11 million, including base pay, variable, stock compensation and performance equity.
The agreement caps the maximum compensation at $16 million in case Sikka exceeds his targets, at $11 million if his meets them and sets a floor of $3 million if he fails to meet the targets.
Mazumdar-Shaw said the board did everything by the book while changing the contract. “Sikka is doing a good job of getting Infosys (on track) and battling all the current day challenges, whether it is (Donald) Trump or global economy,” Mazumdar-Shaw said.
Amit Tandon of institutional advisory firm IiAS told BloombergQuint over the phone that when Sikka moved to Infosys, he gave up stock options granted by his previous employer. “You compensate the person for what he is leaving behind through a mix of some real money and some linked to performance,” Tandon said.
Not many are convinced with the argument. The way salary has been hiked for Sikka, “without publicly saying what is the criteria is a genuine question any shareholder will have”, Balakrishnan said.
Board Appointments
Another thorny issue was the appointment of Sinha and reappointment of Lehman. Sinha had joined as additional director on January 24, 2016.
“Infosys does not take anybody who is highly politically connected. She (Punita) is (Union minister) Jayant Sinha’s wife, and Infosys has got a huge India business. There will be conflict of interest; that is what the concern is. The board has given some vague answers on her appointment,” said Balakrishanan.
While Punita could not be reached for a comment, IiAS’s Tandon says she “is sufficiently qualified in her own right”.
Along with Sinha, the company also re-appointed Lehman as an independent director for two years. It was an exception to its current policy, which bars reappointing independent directors beyond two consecutive terms, unless passed by a special resolution.
The events of the last one year have increased the friction between the promoter group, which owns a little over 12 percent in Infosys, and the management.
Infosys said in a statement on Thursday that the board recently “appointed Cyril Amarchand Mangaldas, corporate governance experts, to receive from promoters and other key stakeholders various inputs, evaluate them and make recommendations to the board”, the statement said.
IiAS’ Tandon says Infosys is “not blue-blooded” as its once was. “That’s for two reasons: one, there is all this noise about what is happening in the company. But it’s also because others have kind of improved their standards, disclosures, practices quite significantly and Infosys is kind of stuck in the groove. So while earlier Infosys had stood out, it is now one among the crowd.”