Nilekani’s comeback may allay investor fears, but all eyes on next Infosys CEO

Nandan Nilekani (Image: PTI)

On the day that Infosys co-founder Nandan Nilekani was brought in as the Board Chairman, analysts said that the move may allay investors' fears in the short term, but over the long term, all eyes are on who the next chief executive will be.

“Nilekani('s) return to Infosys signals a commitment from the board to try and heal the divided between board members, board and founders and internally within the ranks of Infosys employees. Clearly Infosys needs to bring these stakeholders together and present a united front to the Industry, shareholders, and clients,” Peter Bendor-Samuel, CEO of research firm Everest Group told Moneycontrol.

He added that it was only a matter of time before the people appointed by ex-CEO Vishal Sikka to the board stepped down, and should not come as a surprise, and as long as he can ease tensions between the Board and the co-founders, things should be fine.

Sikka, the first non-co-founder CEO of Infosys, stepped down on August 18 citing continuous distractions and increasingly personal attacks on him. On Thursday, he resigned as the executive vice chairman, a role in which he was to help the company transition to a new CEO.

Along with him, two Board members- Jeffrey Lehman, John Etchemendy also put in their papers.

Since February, Infosys, India’s second largest IT services company, has been embroiled in a bitter battle of allegations and counter-allegations between its co-founders, mostly Murthy, questioning corporate governance practices at the company.

In a strongly worded email to the stock exchanges, the Infosys Board blamed founder NR Narayana Murthy’s “continuous assault” as the primary reason for him putting down his papers.

“Investors' confidence in the board has sunk to new depths and they want to see immediate changes.  I expect them to install a new CEO and move aggressively to kickstart a fresh start for the firm.  The damage is now done and the only way forward is positive, decisive change,” said Phil Fersht, CEO at research firm HfS.

Bendor-Samuel said he doesn’t see Nilekani being a long term answer for Infosys, and that the company should look at pivoting its business model in a changing technology landscape.

“However, it may delay Infosys coming to grips with the very hard strategic choices it faces, and if this is case then it will hurt Infosys in the medium to long run,” he said. “Vishal had stood for a strong rotation into a digital business model and this may be seen as a step back from this vision. However, Vishal’s strong stance around technology based business models was causing some concern around the positioning of Infosys as the right ongoing arbitrage player.”

It is imperative that the CEO search doesn’t stretch over a long period of time because it could hurt the business in more ways than one. “Wipro and TCS, in particular, are lurking to target Infosys clients, creating a real panic to get their ship in order as quickly as possible.  The speed of these changes this week indicates a fresh urgency to get their act together and come back fighting,” said HfS’s Fersht.

The other thing to consider is how the return of a founder has played out at the company. When Murthy came back in 2013 as chairman of the Board, things did not go as smoothly as expected, and a bunch of senior level executives quit followed. He began cutting costs and tried to focus on bread-and-butter IT outsourcing deals to boost falling margins, which eventually led to a drop in employee morale.

“Infosys faces some hard choices and the longer it takes to come to grips with them the worse it will be for them. Hopefully Nandan can play a constructive role in this, but as well look to history, Murthy was unable to resolve these issues when he was brought back, and his subsequent removal and the back lash of his removal has caused Infosys substantial damage. Hopefully this will not be the case this time,” signed off Bendor-Samuel.