Investors in Infosys, once an industry bellwether, are a worried lot. With the company looking set to miss its stated targets on revenue ($20 bn by 2020), margin expansion and transformation of the legacy business, some shareholders seem to be losing confidence in CEO Vishal Sikka and the board. Anil Singhvi, chairman of ICAN Investment Advisors and founder of Institutional Advisory Services, an activist proxy advisory firm, told Moneycontrol in an interview that it was time to judge Sikka on a quarterly basis as the experiment to bring in an outsider to run the company had failed. Singhvi, who was among those who led a successful defence of minority shareholders’ rights in Maruti in 2014, believes investors would be far more comfortable with old-timer Nandan Nilekani, who has the stature and capability to take Infosys to the next level.
Edited excerpts:
Are shareholders of Infosys frustrated because the stock has underperformed both the sector as well as the benchmarks, despite a promising start under CEO Vishal Sikka?
The shares have not performed in absolute terms, against the benchmarks and compared to other IT stocks. On all three parameters, Infosys failed to create any value for the investors. This is the concern in the minds of Infosys shareholders. The second issue is: Infosys has been trying to move away from what it was doing earlier — labour arbitrage — to a become a product platform company. That journey too has not materialized. No large marquee shareholder owns Infosys today. It is among the most liquid stocks, yet it is not finding favour with marquee investors.
So when did this disenchantment begin?
Let’s go right back to the time Mr Narayana Murthy came back to the company when he felt that things were not going in the right direction at Infosys. But I think he also got disillusioned with the company and that is when Vishal Sikka came on board. At that time all the promoters/founders took a step back and gave the new CEO a free hand to see if he could transform the company. There was a fundamental challenge on whether it could continue with the same or they needed to rejig the whole business model. He came from SAP, which is a product company. He set the expectations high, raised the bar for himself and the team. After three years, whether he has delivered to what was expected of him, the answer is ‘No’.
Do you think governance standards have fallen at Infosys?
Definitely, the corporate governance standards have fallen at Infosys to one of the pedestrian companies’ level. So a company that was iconic and pride of India is perhaps now a “me too”. The amount of bickering with the founders is a result of that. But founders cannot be blamed for it as they own 13% in the company and have skin in the game. Perhaps they have more skin in the game than the entire Board. Also for the first time you have a CEO who has no skin in the game. And it is wrong to take the input of the founders in a negative way.
Coming back to the governance standards, I think it is clear we are not seeing a cohesive board. The board is finding it hard to communicate to the investors which way the company is going. Today a situation has come where Vishal Sikka is the last word in Infosys, which may not be the right thing for such a large and iconic company. Does the board have the bandwidth to measure the performance of the company and the CEO? Corporate governance has reached a stage where the board is not cohesive and the board doesn’t have the wherewithal to measure the performance of Vishal Sikka.
Can you give instances of where the company was found lacking as far as disclosures and governance standards are concerned?
Yes, look at the case of Rajiv Bansal and his severance package which came from nowhere. They wanted to give the package and then backtracked on it. Now Rajiv Bansal has taken them to court. He was a key management personnel. The second is Vishal Sikka’s severance package, which was disclosed to SEC in the US but not in India. Investors are very uncomfortable with disclosure standards. Mr Murthy always disclosed when in doubt. Today they are not disclosing what needed to be disclosed. Investors are not used to this. This company looks very different from what it was and has completely collapsed on every parameter of corporate governance. If you look at Infosys from shareholder wealth creation point of view or fundamentally or corporate governance parameters and on all three counts company has failed. Where was the need for not disclosing the severance package to investors in India?
To me Infosys looks like a stranger. We all grew up looking at Infosys as a role model. Infy’s multiples have dropped largely on account of slippage at its governance standards than on earnings. Price-to-earnings multiple is also about what a company stands for. Infosys does not stand for a best-governed company. You’ve got to fix this first, before you fix the earnings and growth piece.
Do you think that Infosys has got the strategy right? Some believe that Vishal Sikka took his eyes off the ball because of the dispute with founders. Is that correct?
I think it would be foolhardy to say that company failed in execution because of the dispute with founders. The issue is that Sikka came to fix Infosys’ journey for the future. At the end of three years, has he delivered on that? If he had delivered, the founders would not have asked these questions. Vishal comes from a background where you need to deliver on a quarterly basis or you are shown the door. After 12 quarters, where are they going? I think shareholders are very nervous.
What is going wrong you think?
So many top-level exits is unheard of in any corporate. People who came with him from SAP are quitting. Infosys has always looked after people well. Either Vishal has not been able to bring that kind of a culture back into Infosys or he has not become an Infoscian. Vishal to remain a rank outsider is a big concern for investors. He is not respectful of the fact that he has joined a company which is an iconic company of India. Today, it has slipped from that pole position. Band-Aid is not going to work. Growing concern about Vishal Sikka not having delivered what he promised will only grow over time.
What do investors want at this point of time? Are investors likely to give any more time to the company?
Had Infosys been an automobile or cement company, Investors would have said may be yes give them more time. Unfortunately, Infosys is not into an industry which has luxury of time. We need a yardstick to measure whether Vishal and his strategy and ideas have worked for Infosys. The next 2 or 3 quarters will be crucial for Vishal to either shape up or ship out. Investors who are left invested in Infosys are looking at this. Investors have a choice to dump the stock and go, but do founders have that choice? This is what's making them nervous & hence the engagement with the company.
Will the board act on this chant of investors?
To some extent the board has failed in connecting with the investors. The board is quite away from the situation. It is dependent on Vishal Sikka’s narrative. The worst is that the board appointed a law firm to look into the issues and fix it. The board is trying to absolve its responsibility. You don’t call neighbours to fix your family problems. The board should have been more agile. Vishal’s performance now has to be measured up on a quarterly basis and if it doesn’t improve the board must act. Board announced a buyback /dividend in January, in April investor approved buyback. We are in August no action till date, making investors wonder what's going on here.
What do investors want at this point and do they have a prescription for the board?
Vishal comes from western culture of governance. Investors want him to be measured by the same standard. He has been given the luxury of patience which is Indian way but by western standards by now, some action would have already been taken. The board did not set the target for him, it was Vishal’s own narrative. Now the fourth year will see patience running out. Even the market does not expect any transformation this year.
Given the current state, what are investors saying?
The question being asked is this: Is Vishal the right person? And if he is not then does it make sense to experiment again with an outsider? Should the board look at another CEO or Infosys should look inward among founders? The person should be a true Infoscian and have compassion. Investors are fast realizing that experimentation is not a solution and having a chairman who is not from the sector has surely not helped the course. It is important to get a chairman who can measure the performance of the CEO and who has skin in the game. Investors desire that Infosys cannot afford an experiment again, should the board decide to replace Vishal.
All investors agree with the fact that Mr Murthy has done what he had to do. Investors may not be pointing at any particular founder but they surely want some one with skin in the game to take charge & deliver. Perhaps a person like Nandan Nilekani. He has demonstrated to be a true leader both within and outside Infosys. Someone like Nandan Nilekani should come back because he has phenomenal leadership qualities and has skin in the game. Nobody can match his competencies. When Infosys is going through such a turbulent time, the board should bring someone like Mr Nilekani back.
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