Infosys Founders Said to Question Payments for CEO, Managers

(Bloomberg) -- The board of Infosys Ltd., India’s second-largest technology services company, is facing questions over executive compensation and corporate governance in a letter sent by at least three of its founders, according to people with knowledge of the matter.

Narayana Murthy, Nandan Nilekani and Kris Gopalakrishnan have signed the document asking why Chief Executive Officer Vishal Sikka’s compensation was increased, said one of the people, who asked not to be identified discussing the contents of a private memo. Sikka was paid 487 million rupees ($7.3 million) in base salary, bonus and benefits last year, compared with a base salary of 45.6 million rupees for a partial period in 2015. The letter also questioned severance packages offered to two top-level executives who departed the company.

Infosys shares listed in New York rose 3.3 percent to close at $14.57, the highest in a month. The stock declined 11 percent in 2016.

Infosys’s revenue is projected to climb 10 percent in the current fiscal year, compared with 17 percent prior, as clients cut back on spending. Cloud-computing and automation of information-technology tasks are disrupting Infosys’s business model of charging man hours for application development, infrastructure maintenance and other work that keeps corporate computer systems and networks up and running.

“Infosys is behaving in a much more non-transparent manner than in the past,” said Shriram Subramanian, managing director of corporate governance researcher InGovern. “At the same time, Infosys’ co-founders seem unable to cut off their umbilical cord with the company.”

Infosys denied that it had any lapses in governance. “The board is fully aligned with the strategic direction of Dr. Vishal Sikka and is very appreciative of the initiatives taken by him in pursuance of this transformation,” R. Seshasayee, chairman of Infosys, said in a statement Friday. “Vishal and the board, while being pleased with the company’s resumption of industry leading performance on many parameters, are keen to further accelerate the progress and achieve even more shareholder value increase, on the foundation of sound governance.”

Kiran Mazumdar-Shaw, an Infosys board member and chairman of biotechnology company Biocon Ltd., said there was no rift within the board. “We are nicely focused on what the company needs to do, we have moved ahead on issues like severance pay and the CEO’s salary after taking them through due process,” she said.

Co-founder Murthy, a previous Infosys chairman, said: “I’m sitting and working quietly in my office.” Nilekani, his successor, said “I have not commented on Infosys for seven years and I am not going to start now.” The two founders had previously voted against Sikka’s salary raises. Sikka was reappointed as CEO in April for a five-year term through 2021.

“Corporate governance is weak and the chairman does not understand the challenges of the business,” said Mohandas Pai, a former chief financial officer and director of Infosys. He said a substantial part of his net worth is in Infosys shares. Another former CFO, Venkatraman Balakrishnan, said the “obscene severance packages” paid to the departing executives reeked of impropriety. “Infosys used to be the gold standard for corporate governance in India, we wrote the rules, and now that legacy is being diluted,” he said.

Balakrishnan and Pai also wrote to Infosys’s board over a year ago, asking the company to return more cash to shareholders via buybacks. “The board brushed off our letter,” Balakrishnan said. “What $32-billion market cap company can afford to have $6 billion of cash sitting on its balance sheet and nearly 30 percent of its income coming from ‘other income’? The time has come for the company to act,” he said.

Infosys’s management may find itself fending off pressure from investors rather than focusing on its business, said InGovern’s Subramanian. Some stakeholders may band together before the annual general meeting, due in the coming months, to remove some directors from the Infosys board, he said.

“It could be a Tata Sons situation,” Subramanian said, referring to the rift within Tata Sons Ltd. that led to the ouster of Chairman Cyrus Mistry.

To contact the reporter on this story: Saritha Rai in Bangalore at srai33@bloomberg.net. To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson, Peter Elstrom