Concerns grow about investor perceptions after Vishal Sikka quits
Infosys chief's resignation may harm India Inc's reputation
The resignation of Vishal Sikka as the chief executive of the Indian IT multinational Infosys is raising concerns about the risk of more such battles taking place as the country moves from traditional family and founder run businesses to professional structures, according to analysts.
Consequently, there are some expectations that the saga could impact investors' perception of India more broadly.
Mr Sikka, who joined Bangalore-headquartered Infosys just over three years ago, stepped down from his position on August 18, citing “personal attacks”. There has been a public row, with the board blaming the co-founder Narayana Murthy for Mr Sikka's decision. Significantly, Mr Sikka was the first non-founder chief executive of the company.
“The open allegations and the sudden nature of the resignation leaves the perception that every professional CEO will be vulnerable in organisations where founders have a strong public image and influence,” says N Chandramouli, the chief executive of TRA Research, a brand insights company. “It is definitely a cause of concern.”
India's business world is steeped in family and founder-run businesses and, as the country increasingly makes a transition to entities governed by boards and managed by outsiders, such clashes are a major risk and a concern, business strategists say.
“This is going to affect corporate India,” says Anupam Kulkarni, an entrepreneur and the co-founder of the technology company iauro Systems, based in Pune in western India. “The entire reason to hire Mr Sikka was to bring in a fresh perspective and fast pace of delivering business solutions with new-age technologies and processes.”
It is critical for Indian businesses to be able to adapt and evolve, he says.
“We are traditionally not tuned to accept an outsider into our organisations, especially if you are the founders of the company. However, looking at the market evolution and transition, we have to quickly adopt this method to bring in right skilled person for business growth whenever necessary. It is hard for India to do so, but we must change or we might see some good companies perish in this competition.”
The move visibly rattled investor confidence is in Infosys, with billions of dollars wiped off the firm's market value as the rift between the company's founders, board and chief executive has come into the spotlight.
“Especially in India, most companies and established corporate groups started as family-owned businesses, with the members inhabiting powerful positions and managing important business decisions,” says Nivedita Mohanan, the vice president of corporate communications at Applop, a technology company based in Gurgaon in north India. “This led to mis-governance practices especially where these businesses got themselves listed on the exchanges.”
She says the Infosys case could have a ripple affect on all other industries, impacting investor sentiment towards India and ultimately the economy.
“There is certainly a negative trend that persists in the business sentiments, due to the resignation of Mr Vishal Sikka,” says Ms Mohanan.
It is not the first event of its kind in recent times in India's business world. When news of Mr Sikka's resignation broke, everyone was reminded of a tussle that took place towards the end of last year. In October, Tata unexpectedly ousted Cyrus Mistry - the first person outside of the founding family to take the the helm - from his position as chairman, replacing him with Ratan Tata, leading to a feud.
“Any business, especially one that has been built from ground up, is likely to have strong founder sentiments,” says Mr Chandramouli.
“The attachment is as much as one would have for their children. It is deep-rooted considering that the business has been born and raised, in a sense, from the minds of the founders. You have seen it in the recent few months in Tata also, where an ‘outsider’ CEO did not find it easy to fit in.”
Similarly, tensions had been brewing for some time at Infosys, with it being publicly known that Mr Sikka was at loggerheads with the founders, Mr Murthy questioning decisions made by the chief executive, and governance issues, flagging concerns about the size of a severance package paid to the company's former chief financial officer.
“In the case of Infosys, earlier it was run with Narayana Murthy’s personal philosophy, which was one of ‘less is more’ which got reflected even in his personal life,” says Mr Chandramouli. “However, a new generation has been given the reins and that ‘Sikka’ generation comes with new values, a new way to look at the world.”
But a fundamental difference between the two sagas is the fact that while Tata Trusts, of which Ratan Tata is a chairman, holds a controlling stake in Tata, the founders of Infosys collectively hold less than 13 per cent of the company.
Human resources experts say there are valuable lessons to be learnt from the Infosys scenario.
“Any business that is passed on from a founding partner to an appointed CEO should try to operate in an environment wherein issues stay within the board and they are not declared in public,” says Anshul Lodha, the director of the recruitment firm Michael Page India.
Basanth Govindapillai, the vice president and general manager of India operations at SumTotal Systems, a human resources solutions company, says that the Infosys case has highlighted a lack of planning for such scenarios on the part of Indian companies.
“One of the major challenges faced by Infosys is that there is no internal leadership that has been built to address such an exigency,” he says. “Succession planning is a crucial part of corporate strategy. However, in India most companies lack a formal process to ensure a smooth transition.”
Despite the widespread concerns, there are those who believe the issue will blow over and have limited impact on the company and beyond.
“The Infosys brand is very robust and sturdy,” says Sanjay Padode, the secretary at the Centre for Developmental Education, IFIM Institutions, in Bangalore. “The impact of this exit event will be minimal if the board and the founders come to an understanding quickly.”
He describes Mr Sikka as “a cultural misfit” for the company.
“Infosys was built diligently by the promoter’s conviction in good governance, frugal innovation and quality delivery. Vishal’s experience was largely in the area of technological innovation and driving business through strategic interventions.”
And there are already indications that Infosys might return to its roots to solve its problems. As the company looks for someone to replace the departed chief executive, there is much talk that Nandan Nilekani, one of the co-founders, might return to the board of Infosys to search for a new head, with some rumours surfacing that he could even become the firm's next chief executive.