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Infosys spat is toned down with conciliatory remarks but end not in sight

MUMBAI (NewsRise) -- Both the board and the founders of Infosys attempted to play down a tussle over corporate governance practices at the company that has hogged media headlines in recent days, threatening the reputation of one of India's most valuable brands.

While founder N.R. Narayana Murthy, who has led complaints about a pay hike and severance packages, made it a point to say that he didn't want the issue to snowball, Chairman R. Seshasayee admitted there was a process gap at Infosys and said the company now has a new severance policy in place.

The spat, which follows close on the heels of a tussle over governance standards at the mammoth Tata Group, has drawn many observers and executives into the fray. It also comes at a critical time for the Mumbai- and Nasdaq-listed Infosys, which pioneered the Indian outsourcing revolution.

The $108-billion Indian software industry is on the cusp of a transformation as new technologies such as cloud computing and artificial intelligence gain ground. Macroeconomic volatilities in key western markets, including the U.S. and the U.K., are further pressuring the business model and margins.

Infosys' performance in the last few quarters has been overshadowed by these challenges.

"Additional internal issues are the last thing a company needs," brokerage Motilal Oswal wrote in a note Monday.

On the same day, Chief Executive Vishal Sikka told investors at a conference organized by Kotak Institutional Equities that he has a "heartfelt warm relationship" with Murthy and that the "drama" in the media is "very distracting."

Sikka, the first from outside the founders' ranks to lead the Bengaluru-based company, has been instrumental in reinvigorating Infosys' financial performance, which has flagged since 2011.

Last year, the board approved a whopping 55% jump in Sikka's compensation to $11 million that will take effect in April.

The board also decided to pay David Kennedy, the former general counsel and compliance chief, a severance package worth about $868,250, along with some perks. The package offered to former chief financial officer Rajiv Bansal totaled 173.8 million rupees ($2.6 million), or 24 months' pay.

Murthy questioned the rationale for the payouts, saying it raised doubts whether "the company is using such payments as hush money to hide something."

Whether Murthy and the other founders have any power over Infosys' board is questionable. The founders, along with their families, own a combined 12.75% stake in the company. They relinquished executive control to a professional management team led by Sikka in 2014.

"In principle, Infosys should not have to worry about any intervention by non-executive founders," Motilal said in its note, adding that the risk was that the fracas would cause the company to lose focus.

Last week, Infosys denied any instance of governance lapses at the company and downplayed the issue, calling it "purported rifts among the founders, the board and the management," as portrayed by sections of media.

The company also said it has appointed law firms and corporate governance experts to receive inputs from the founders and other key stakeholders, evaluate them and make recommendations to the board.

In an interview with Bloomberg on Monday, Murthy sounded a conciliatory note, describing board chairman Seshasayee as a man of the "highest integrity."

"Let me stop. I have made a point, paying such large sums of money is confusing. Now they have to sort it out," Murthy told Bloomberg. "I felt that I don't want it to snowball. I don't have the time. Neither should the board and the management be spending time on it," he said.

Still, the tussle may be far from over.

In an interview with a local newspaper later, Murthy dug in his heels.

"I have not withdrawn my concerns. They have to be addressed properly by the board and full transparency should be given and people responsible for it should become accountable," Murthy told the Business Standard.

Meanwhile, in a news conference Monday, Seshasayee defended the company's corporate governance practices and said the pay rise was linked to Sikka's performance during his tenure.

The fixed component of the compensation has come down to $4 million from $5.08 million previously, while the variable component increased. The variable component was linked to the longevity of his tenure as well as performance, he added.

Admitting that the concerns raised by the founders about the severance paid to the former CFO were valid, Seshasayee said the actual payout was a little over 50 million rupees. "There was a process gap. We had subjectivity in determining the severance pay."

The company has now drawn up a new severance policy that is benchmarked against the position and location of an executive, Seshasayee said.

--Dhanya Ann Thoppil

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