A Look Inside The Corporate Governance of Infosys

- Michael Soreng
Infosys Technologies: The Best among Indian Corporates as per the Credit Lyonnais Securities
Analysis (CLSA), the corporate governance ratings of the software firms are higher than those of
other Indian firms. It is a fascinating success story good entrepreneurship. It was started with local
resources and rose to be a world leader in the IT segment with in span of 2 decades. It was started as
a small and humble unit in 1981 by Mr. Narayana Murthy with his six colleagues in Bombay in a
single room with a very small amount of investment of Rs.10,000 (US $250) as capital.

The vision of Infosys is “to be a globally respected corporation that provides best-of-breed business
solutions, leveraging technology, delivered by best- in-class people”. Its mission is “to achieve our
objectives in an environment of fairness, honesty and courtesy towards our clients, employee’s
vendors and society at large”.

"Good corporate governance is about maximizing shareholder value on a sustainable basis while
ensuring fairness to all stakeholders: customers, vendor partners, investors, employees, government
and society."
-N. R. Narayana Murthy
So, what went WRONG at INFOSYS?
Feb 2016: Board decides to extend Vishal Sikka’s tenure by two years to 2021.
Aug 2017: Vishal Sikka resigns.
Vishal Sikka, the Chief Executive Officer (CEO) brought in to turn around Infosys three years ago,
resigned suddenly on Friday, blaming a “continuous drumbeat of distractions” and a long-running
row with founders over the tech giant’s strategy. The departure of Sikka, spooked Infosys’ investors.
Shares fell more than 13 percent to a three-year low of Rs.884.20, wiping about $4.85 billion off the
No.2 IT services firm’s market value.
The company’s board came out in support of Sikka and said in a statement that founder and former
chairman Narayana Murthy’s continuous assault was the main reason for the CEO’s resignation.
Soon after, Murthy said he was “extremely anguished by the allegations, tone and tenor of the
statements” and that his main concern was the deteriorating standard of corporate governance.
The issues at Infosys
 The severance package of former CFO Rajiv Bansal (Rs.17.38 crore), and no adequate
explanation on the package offered.
 The untimely exit of David Kennedy and his compensation package ($868,250 million).
 Vishal Sikka's annual compensation (Rs.49 crore)
 Vishal Sikka's shift in culture towards a less-people more-software-driven business approach
 Shareholders raising concern on buyback options.
 Infosys losing its image of the transparent organisation.
 Company's decision to hire Punita Sinha, wife of Union Minister Jayant Sinha, as the
independent director.
Effective corporate governance ensures the optimal use of resources both intra-firm and inter-firm
and also helps to lower the cost of capital by improving the confidence of both foreign and domestic
investors that their assets will be used for the purposes agreed.
A survey of institutional investors found that they would willingly pay on average well over ten
percentage points more for a ‘well-governed’ company, all other things being equal.
Effective corporate governance should make it more likely that managers focus on improving firm
performance and are replaced when they fail to do so.

In view of these observations, the Board of Directors at Infosys needs to take into account
stakeholder concerns in order to ensure effective corporate governance.
The former founders may have relinquished control but are still entitled to comment when they are
legitimately concerned about the well-being of the company’s shareholders. The Board of Directors
must keep in mind that their duty lies, first and foremost, to the shareholders of the company. If
questions are being raised about the governance standards they must be addressed in an open and
transparent manner.

That is the only way to bolster investor confidence in the well-being of the company.