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Startup world is no stranger to boardroom bickerings playing out in Infosys

Startup world is no stranger to boardroom bickerings playing out in Infosys

Monday February 13, 2017 , 5 min Read

The hullabaloo over former Infosys Chief Financial Officer Rajiv Bansal’s severance payout could just be the trigger for a larger war inside the IT bellwether. But the battlelines have yet to be clearly drawn. The question everyone seems to be invested in for now is: When will the warring sides come into the open and will all this destroy the company's brand image?

The issue at hand also begs the larger question: Should the promoters let go of their baby now that it is with the new management? One might feel that too much interference can destroy the company’s brand equity. But the tussle between the board, promoters, and shareholders is all too common today. One just has to look at the startup world to see this kind of tussle play out on a regular basis.

Source: Infosys.com

It all began with the ouster of Rahul Yadav as CEO of Housing.com in 2015. Recently, Flipkart founders have been replaced by the funds. Richa Kar of Zivame had had to step down as CEO and take the role of the COO.

"If you take the case of Infosys, the onus to ensure that the new management stays on target is also on founder-owners and they cannot wait for the former to reach out and seek guidance," says Sanchit Vir Gogia, CEO of Greyhound Research.

"Most corporate governance issues begin with performance and severance. When we were at Infosys, the shareholders came first when questions were raised. Now, how the board takes up issues raised by the Nominations and Recommendations Committee is the question," says K.V. Balakrishnan, Founder of Exfinity Ventures.

Here are the top five global examples from the recent past of CEOs and chairmen being hedged in and threatened with ouster when their boards turned against them.

*Sanofi: In 2014, the €37-billion French drugmaker saw its boss Chris Viebacher being shown the door by the board after he wrote an open letter expressing his distrust in the chairman of the company. At the time, Chris took on the unions and the government single-handedly, and was looking at growth with international expansion and funding R&D. He was ousted by the board within a month of writing the letter. This proved a poor end to the leadership of a knighted man with a Legion of Honour to his credit.

*Stada: The German pharma company last year ousted its chairman, Martin Abend, over concerns that the company was not modernising its business operations. Here, the sleight of hand of a private equity company also resulted in the entire supervisory board being replaced along with the chairman. The €2-billion company now has a new CEO and a completely new direction. The boardroom brawl lasted for more than 12 hours, with each party trying to wrest control of the company.

*Williams Co: This $7.5-billion oil pipeline company saw 13 directors and independent chairman Frank MacInnis trying to oust CEO Alan Armstrong last year. This was a story of a brilliant game of cards among top management. Three board members and the independent chairman wanted the company to be taken over by Energy Transfer Equity, a Fortune 500 company, and went after the deal. To their concern, Armstrong did not budge, and stalled the deal. To move the deal forward, these four attempted a coup. In this case, however, the CEO stood tall, with Armstrong ultimately getting the backing of the company. Meanwhile, the four board members, along with 13 directors, had to resign.

*Viacom: The $13.5-billion media and communications giant witnessed a falling out between two friends last year. Viacom CEO Philippe Dauman and Chairman Emeritus Sumner Redstone were at loggerheads over a change in management. To facilitate the change, the 93-year-old chairman emeritus replaced five board members and Dauman himself. Sumner Redstone's daughter Shari was brought in to manage the future of the company.

Clearly, the fate of Infosys depends on its board meetings.

Infosys and its many questions

Here are some questions that will determine how the struggle at Infosys plays out.

  • Do Vishal Sikka and N.R. Narayana Murthy really get along?
  • Are promoters asking for R. Seshasayee to go?
  • Is there a set of shareholders who are forcing the board to buyback their shares?
  • Are promoters not happy with Sikka's acquisition of Skava and Panaya?

At the time of publishing this story, Infosys CEO Vishal Sikka had landed in Mumbai for a board meeting, where he was expected to answer several questions.

"The corporate governance issue is only related to the Nominations and Recommendations Committee and the shareholders deserve answers from the board if a particular issue is not signed off by the NRC," says Ganesh Prasad, Partner at Khaitan & Co.

Several shareholders are also unhappy that law firm Cyril Amarchand Mangaldas was appointed to address the issues raised by Murthy.

"Murthy would not have gone to the press and it was only because he is hurt by the handling of various issues at Infosys. Even Balakrishnan and I had to talk to some spokesperson, and our requests often went unheard from the board," says Mohandas Pai, MD of Aarin Capital.

However, the Infosys board has put out a press release saying that it stands firmly behind Sikka's decisions and that the board has upheld the highest governance standards.

"The new management has a lot to gain from the experiences of the founders provided the feedback is proactive, constructive, and timely," says Sanchit.

Infosys’ current revenue is $10 billion. Hopefully, the issues will be resolved amicably and the brand soars towards the $20-billion revenue target that Sikka is keen to achieve by 2020.