August 31, 2017 10:00 am JST

Infosys set for major cleanup as Nikelani steps in

Software major's management faces revamp following exit of CEO Sikka

GANGADHAR S. PATIL, Contributing writer

New Chairman Nandan Nilekani arrives for a news conference at Infosys headquarters on Aug. 25. © AP

BANGALORE Following the departure of Infosys' managing director and chief executive Vishal Sikka Aug. 18, the reconstituted board of the Indian software major has set up a committee to identify his successor and revamp its governance structure.

After a board meeting on Aug. 24, newly elected Chairman Nandan Nilekani said the company had also set up a committee of directors to work with the CEO and management to review and refresh the company's strategy.

The board's nomination and remuneration committee will also look into the governance structure of the board and a long-term strategy for the company will be in place by October, he said.

Nilekani said the next CEO would be selected from internal and external candidates, including Infosys alumni. The board has appointed recruitment company Egon Zehnder to work with the nomination and remuneration committee.

Nilekani said the board-level transition process was complete after two meetings. He said he had personally spoken to top executives as well as investors to ensure opinion was aligned. Nilekani, one of Infosys' founders and CEO from 2002 to 2007, said he would stay on for as long as necessary.

Nilekani's appointment comes after a prolonged tussle between board and founders.

CRITICISM Sikka, who was appointed in August 2014, resigned saying he was tired of "constantly defending against unrelenting, baseless, malicious and increasingly personal attacks" and cited a "continuous stream of distractions and disruptions" over recent months as the reason for his departure.

Over the past six months, founder and former chairman N.R. Narayana Murthy has publicly criticized the Infosys board for falling corporate governance standards. He denounced the board's generous severance package to former chief financial officer Rajiv Bansal and questioned whether Infosys had overpaid when it bought Israeli software company Panaya in 2015 for $200 million.

The friction surfaced in February last year, when the board approved a 55% pay hike to Sikka, taking his annual remuneration to $11 million. The company defended the move, saying that the package had been overwhelmingly approved by shareholders.

Attempts to resolve the feud have "unfortunately not been successful," said the board on Aug. 18. In an email sent early in August which was reported in the media, Murthy said that some members of the board felt that Sikka was "not CEO material but [chief technology officer] material."

During Sikka's tenure, Infosys' revenue rose to 684.84 billion rupees ($10.6 billion) for the fiscal year ended March 2017, from 624.41 billion rupees in the previous financial year. In the same period, net profit rose to 143.53 billion rupees from 134.91 billion rupees.

INDUSTRY CHANGE According to a June 2017 forecast by the National Association of Software and Services Companies, growth in the Indian software services industry is expected to slow down due to technological change and political uncertainties, including tightening immigration rules in the U.S. and Britain's vote to leave the European Union.

Nilekani said his top priority would be to stabilize the company by talking to all stakeholders. Addressing the recent problems, he said the company would not be run "based on comments on Twitter and television." Nilekani reiterated that he joined Infosys to represent "100%" of the stakeholders and the board did not wish to cause Murthy any anguish or distress.

Despite the company stating on Aug. 18 that it had "thoroughly investigated all anonymous allegations and concluded that no wrongdoing occurred," Nilekani vowed to personally look into the allegations to decide on an appropriate course of action.

Nilekani said the board would meanwhile engage in broad-based shareholder consultation to determine what can be done to ensure continued adherence to high governance standards.

Infosys' share price fell sharply following Sikka's resignation, wiping nearly $3.5 billion off the company's market capitalization, but has bounced back following the news of Nilekani taking charge.

Nilekani, a successful entrepreneur and investor, led the implementation of India's ambitious national biometric-based identification program, known as Aadhaar, which has already seen more than 1 billion Indians enroll.

Asia300

Infosys Ltd.

India

Market(Ticker): BOM(500209)
Sector:
Industry:
Technology Services
Information Technology Services
Market cap(USD): 32,591.75M
Shares: 2,296.96M
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