BENGALURU: Nandan Nilekani, the celebrated technocrat who seeded the idea of a unique identification number for every Indian, has returned to Infosys to restore the lustre of the country’s second-largest software services firm, replacing R Seshasayee, who resigned as chairman of the board on Thursday.
Nilekani’s return, one of the most dramatic comebacks in recent corporate history, marks the second instance of a retired cofounder being handed the reins to steer the marquee corporation out of trouble. In 2013, iconic founder NR Narayana Murthy had returned to stem the tide of faltering growth at the company.
On Thursday — the embattled board of Infosys, which has been the target of extreme ire from Murthy for what he termed as grievous lapses in corporate governance — gathered for a three-hour-long huddle via videoconference before announcing the appointment of Nilekani and the exit of two more board members — Professor Jeffrey Lehman and Professor John Echtemendy with immediate effect.
Co-chairman Ravi Venkatesan will return to his role as independent director. Former CEO Vishal Sikka, who was to have stayed on as executive vicechairman until March 2018, will resign with immediate effect, according to the company statement. Sikka had resigned as CEO just last Friday.
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His return to Infosys, say people in the know, was led in a large part due to the vociferous demand from investors, employees, cofounders and top advisors after Sikka’s shock exit led to a precipitous drop in Infosys stock and a loss in market capitalisation by nearly Rs 20,000 crore, dragging down indices on two consecutive trading days. The possibility of Nilekani’s return had worked to stem the rot.
“What the Infosys board needs is a face that will provide comfort to all stakeholders,” said V Balakrishnan, former chief financial officer at Infosys. “The earlier board had let down stakeholders by blaming Murthy for all its failings. They had lost trust. Nandan is a respected leader globally, he is well-networked and well-regarded.”
Nilekani’s first challenge will be to manage the transition as the company rebuilds its top management team. UB Pravin Rao continues as interim CEO and MD. The company said the board will continue with its earlier stated plan to identify a permanent CEO and MD. Lehman said he was stepping down from his board post as the changes would put additional time demands on independent directors and Echtemendy said he was quitting to allow new independent directors to help the company on the new path it will undertake.
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Resignation Formalities
As former CEO Sikka’s new contract as executive vice-chairman had not yet been executed, the company said the board had decided to complete all resignation formalities in line with his earlier employment contract as MD and CEO. Sikka will receive 90 days’ base pay in lieu of notice of $246,575, a variable pay of $205,572 and company-paid employee health insurance benefits for 90 days. All equity awards outstanding as on separation date to the extent such awards are unvested will terminate on the date of separation.
“A separation agreement reflecting this and other terms such as a mutual release and non-disparagement obligation has been approved by the board,” the statement said.
Responding to the deafening clamour for Nilekani’s return from investors, founders and employees, the company’s board had offered him the choice to retain or seek the exit of directors as he deems fit, said sources aware of the bruising battle.
“The board has offered Nilekani the choice of which directors he wishes to retain,” a source with direct knowledge of the board deliberations said. Company executives who spoke to ET on the condition of anonymity said not all directors were giving in so easily.
Among those unwilling to resign their board seats are Punita Kumar Sinha and Roopa Kudva, according to two executives. Sinha, wife of minister of state for civil aviation Jayant Sinha, has been under fire from Murthy, as has Kudva, who has been charged with failure in her role as head of the audit committee.
Nilekani faces a tough road ahead. He will have to calm clients who were already spooked by the prospect of Sikka’s departure in March. Their concerns will likely be exacerbated by his immediate exit. He also has to smooth the feathers of Infosys’ foreign institutional investors, who were vocally displeased by the preferential treatment being offered to the company’s founders — who own just under 13% of the company. Nilekani and family together own 2.2% of Infosys shares, while Murthy and his family own about 3.44 %.
Engaging with all stakeholders
“The board will actively consider a broadbased shareholder consultation process as a critical part of its overall engagement initiatives with all the stakeholders of the company that are being taken up on a priority basis,” the company said.
Corporate governance experts have said this is key in retaining the company’s cache with investors.
“Going forward, the role of the promoters and the manner of their engagement with the board should be clearly defined and made available to all shareholders,” Shriram Subramanian, MD of corporate governance advisory firm InGovern Research Services, told ET.
Nilekani’s return brings to fruition months of effort by Murthy to change the board. Murthy, 71, has been demanding clarity on a series of issues including severance pay to former CFO Rajiv Bansal and the terms of the acquisition of Israeli software company Panaya.
Following complaints by whistleblowers in February, Infosys tasked law firm Gibson, Dunn and Crutcher with investigating the charges and was exonerated of any wrongdoing, Murthy has since been demanding that the findings of the investigation be made public.
On Thursday, over 80 ex-Infosys executives also sent a letter to the board asking it to withdraw the letter it sent to the stock exchange attacking Murthy.
“For the Board to accuse Mr Murthy as the primary or even the only reason for the distraction and noise is highly unfair and unacceptable. The board needs to explain in depth, backed by facts and data, the issues raised by Mr Murthy, and come clean to all stakeholders,” the letter said.
“In summary we, ex-Infoscions, who still take lot of pride in Infosys and its values, would like the board to address the issues raised by Mr Murthy with facts and immediately withdraw the statement released to the stock exchanges which unfairly and unjustifiably blames Mr Murthy for the current crisis.”