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The unexpected exit

Infosys is again in the limelight with Vishal Sikka opting to quit his position as CEO and MD.

The unexpected exit

The announcement sent ripples across the stock exchange and the stock registered an over 5 per cent drop in the value of its shares on 21 August. The company has lost nearly Rs 34,000 crore in market capitalisation (around Rs 2 lakh crore on 21 August). Infosys’ shares closed down 5.37 per cent at Rs 873.50 on the BSE that day, the lowest in three years. Meanwhile, Infosys approved a USD 2 billion share repurchase, to improve the returns of shareholders. However, the company’s buyback offer at Rs 1150 per share failed to impress investors.

Sikka gave several reasons in his resignation letter for his exit. He said that several distractions and disruptions over recent months are taking away the momentum and passion from achieving the desired transformation of the company. In his letter, he wrote that there was an increasing amount of false, baseless, malicious and personal attacks of late from people whom he expected to support which further hit breaks on the transformation goal.

 

Founders vs. Board

The growing gap in policy issues and administration between the founder-members and the non-founder board members was a major factor in Sikka’s exit. Sikka was apparently unhappy with Ravi Venkatesan’s appointment as co-chairman. There were rumours of the increasing gap between the founders and Sikka since then. Further, after the Panama report was out,  founder Narayana Murthy requested the board to give the full report to the shareholders. He also raised a query if the board could categorically say that no Infosys employee benefitted from the transaction, which Sikka apparently felt was a personal attack. 

On the other side of the story, Murthy was apparently unhappy with the salary hike given to the top management. The board granted Sikka 55 per cent pay hikes increasing the base compensation to USD 1 million and overall compensation of USD 11 million. Further, Murthy, Nandan Nilekani and Kris Gopalakrishnan were apparently not too comfortable about the issues concerning corporate governance, Sikka’s pay hike, severance packages to employees and induction of Punit Sinha, wife of Union Minister Jayant Sinha. 

Murthy, unlike founders of another corporate in the west, has been watching the happenings at Infosys after his exit. In the West, most founders moved on and let the successors take over with full steam, without commenting on any of their decisions. Another opinion is that if the successors are unable to provide transparency to the shareholders, any founder should have the right to question them. He, however, called the allegations baseless and said that as a shareholder; he has every right to ask the board on the deteriorating standard of corporate governance.

 

Sikka’s contribution

Sikka took over in a challenging environment in 2014, with high attrition rates and low growth. His leadership focused on innovation, entrepreneurship and delivering value turned things around over the last three years. Revenue and margins grew over new services, AI platform (Nia) and software business. His breakthrough products included ‘Zero Distance,’ ‘Design Thinking training,’ and ‘Zero Bench.’  

Zero Distance intended to drive grassroots innovation at a massive scale, through every employee; ‘Design Thinking training,’ was meant to drive creative confidence and problem finding in every Infosys employee. In Zero Bench, the bench is leveraged to drive additional value for clients.

Infosys’ quarterly revenue increased from USD 2.1 billion to USD 2.65 billion since he took over in August 2014. Under his tenure, the company’s utilisation rate rose to 85 per cent in 1Q18, the highest in 15 years. Attrition rates dropped.

 

Support from staff

Despite being on the board only for three years, there is a sense of uncertainty among young employees who looked up to him for values, new ideas and making them a valuable part of the transformative journey. His expertise in AI, passion for robots, machines and innovative thought leadership acted as a magnet to the younger generation. Further, the employees welcomed the Silicon Valley culture and appreciated his casual attitude, whether be his natural dressing sense or taking selfies with them! 

Ultimately, the road will not be smooth for the new CEO to take over, despite the sound basis of change laid by Sikka. He can only build upon these and take the company to new heights. 

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