For the first time in its 36 years history, technology giant Infosys has announced a buyback. The IT firm will buyback 11.3 crore shares, which translates to about 5 percent of its equity capital at a price of Rs 1,150 per share. Infosys will spend up to Rs 13,000 crore on this buyback. This announcement, which was long awaited has come at a time when Infosys is going through one of its most turbulent phases of its existent. Despite the announcement of the buyback, the Infosys stock continued to tumble in trade today. This as investors remain jittery about the future of the company.
In an interview to CNBC-TV18, V Balakrishnan, Former CFO, Infosys and Abhishek Manu Singhvi, Senior Advocate shared their views and readings about the same.
Below is the verbatim transcript of the interview.
Q: I understand and I know from past experience that you share the views of NR Narayana Murthy, Founder of Infosys when you believe that corporate governance and board governance specifically at Infosys is plummeted to an all-time low. Now that may be your opinion, but at this point in time, the Infosys board’s claim is that we have had Cyril Amarchand Mangaldas, we have had Latham and Watkins, and we have had the auditors KPMG evaluate and assess these issues. They have given a clean chit and we have no reason to believe otherwise. So if you have specific evidence because even if you look at Murthy’s statement, he says that he has been given to believe why several shareholders who have read the whistleblowers report, so he is also if you go by his statement relying on hearsay. Is it really fair then to seek removal of the board, reconstitution of the board in light of the fact that there has been an investigation, three agencies or two law firms and an auditor have been involved and have come to a conclusion that there was no impropriety or wrong doing?
Balakrishnan: I think first of all the allegations raised by the whistleblower are very serious allegations. It talks about some of the senior management personally getting some benefits because of certain corporate transactions. So, when allegations were made on very senior management in the company, and when it was investigated, it is a good governance practice for the board to put the full report in the public domain. Don’t forget, the company has spent Rs 10 crore of shareholders money in doing this investigation and in all fairness, the shareholders have the right to know how the investigation was conducted, what was the scope of the investigation, what were the recommendations made by the lawyers, and what is the conclusion. Just giving a summarised version of the conclusion is not going to help because allegations are serious.
Q: I am not disputing the fact that the allegations are serious and you do make a valid point there but if I may, when you talk about shareholders have the right to know, why is it that we have not heard from institutional investors, at least no one has come out publically and stated that they have any concerns with respect to some of these issues, why is it that other minority shareholders in the recently concluded AGM did not raise these issues as matters of concern or seek the forensic report being made public, etc. I am just trying to understand that the board believes that it has responded to its fiduciary responsibility and its duty by conducting an investigation, it has conducted an investigation which says that allegations put forward by the whistleblower are untrue, are malicious and false, why cannot we move on from there is the boards point of view?
Balakrishnan: I don’t think it is right to say investors are not worried about this. There are several investors who spoke to me, some of them even spoke to the founders, some of them even spoke to the company and expressed their views and apprehensions. India is not like US, India we do not have active shareholders who will come and publically raise issues. India most of these things happen in private. I believe that lot of investors even met the board and the management and expressed their concern. It is like asking why there is no class action suit in India. US already there are three law firms which are looking at it.
So, India, the shareholders normally express their views to the management in private. However, all I am saying is the allegations are serious, and the company has to put all the things in the public domain and give comfort to the shareholder. Founders are holding 13 percent of the shares and they are also concerned because the value system they think is getting eroded. So, I think they have a right to ask to put the report in the public domain. I don’t know why the board is hesitant in putting the report.
Q: If we can step aside from the allegations and focus purely on the buyback, a) what do you make of the buyback price, b) would you as a shareholder tender in the buyback offer, and c) have you had any conversations with the founders that lead you to believe that they may in fact tender in the buyback offer partially or wholly, can you give us some sense on these three specific issues?
Balakrishnan: I think buyback is a good thing, but the timing is bad because you don’t announce a CEO resignation a day before and then announce a buyback because when too much of uncertainty is there, buyback as a concept loses its importance. I think the timing is very bad, and even the size could have been much larger because you have a situation where the CEO has left, the board is under the cloud and still fighting with the founders in public, I think with all these uncertainties, probably the board should have been much more convincing in looking for a larger buyback and showing confidence in the stock. That has not happened, probably the size should have been much bigger after these events which have happened before that. I think personally I will participate in the buyback; I have no doubt I will participate, but I don’t know whether founders will participate or not. I think you have to ask them. I will participate.
Q: You will participate, partially or wholly?
Balakrishnan: I will participate wholly.
Q: As a former CFO of Infosys, I wanted to get your comments on whether you believe because this has been an apprehension that has been raised in the markets today that could the possibility of class action suits in the US have any kind of an impact as far as the buyback itself is concerned, what would your thoughts be on that?
Balakrishnan: I think it is too early because the law firms are today investigating whether there is a case for filing a class action suit. So they have to first investigate then they should get the enough support for you to classify as a class. I think it is a long drawn process. I don’t think that is going to impact the buyback.
Q: Let me then ask you about what you believe is the way forward now from hereon. There is of course all of this turbulence that continues on account of who is going to be the successor to Vishal Sikka? Do you believe that given the current context and the current situation, it would perhaps be best to have an insider, somebody like the current CFO, Ranganathan or perhaps even Pravin Rao who is currently the interim managing director (MD) and CEO continue, what would your recommendation be here?
Balakrishnan: I think the core issue is governance standards coming down in the Infosys and the blame lies squarely in the lap of the board. So I think some of the board members should step down from the board, the board need to be reconstituted. I think they have to talk to the founders, they are still the largest shareholders, by law they are still classified as promoters, they have responsibility, and they are liable under law. So I think the board should have an effective engagement with the founders, restructure the board and create the checks and balances.
I think the CEO selection comes next. First you have to fix the board and then some good professional CEO will join. I don’t know whether internal CEO is good or external CEO is good. That is for the board to decide but I think unless you make peace with the founders, unless you engage them effectively, unless you restructure the board, unless some of the existing members get out of the board and you get new board members with the impeccable integrity, I don’t think this issue is going to be solved.
Q: Who are you specifically talking about? When you talk about we need more people from the board to go, I would imagine one of course you point towards the chairman of the board which is R Seshasayee, would you also seek the ouster or the exit of the co-chairman Ravi Venkatesan? Who are you targeting or who are you talking about when you say more people need to leave the board in order for the founders to engage positively and constructively?
Balakrishnan: I think if you look at the series of events which happened in the company, the chairman is clearly responsible for letting down the governance standard in the company. Secondly, I think the co-Chairman also is responsible because you don’t discuss the performance of the CEO in public and don’t set the expectations right to the market and I think the audit committee chair and the nomination committee chair had not effectively supervised and given the guidance when the severance payment had happened to the ex-CFO on the general council I think the four of these members should step down and get new board members into the board to create the checks on balance.
Q: You have been dealing directly with the another bitter boardroom battle that corporate India has seen in the recent past and that is the Tata-Mistry battle. As you see what is playing out in Infosys today. The battle between the founders and the current board, your first thoughts and reactions on how this is played out?
Singhvi: I will be brief, but I want to summarise a few points. First of all, let us be clear, I am not speaking in my political capacity at all. It has nothing to do with the political party. Number two, I do think that over-simplistic comparisons may not be haphazard. The dynamics of human relationships, of facts, figures vary and to compare it with the Tata case like that may not be correct because those have a lot of details.
But, third point is, I have said for the Tata case also that there is a point of time when people who are leaving or want to leave, a point of time must come when you have to exercise a certain amount of statesmanship. Now I am not at all concerned with the present case of Infosys. Tomorrow I may be representing some party, but today, I am totally a free man. So let me be very objective and clear, I am not representing any side.
It appears to an outsider like me, albeit a legal outsider, that this is literally a self-inflicted wound and a self-goal or a hit-wicket of gigantic, humongous proportions. I mean already, you see the kind of hit Infosys has taken. Now, the further suggestions I heard two minutes ago will mean virtual suicidal destruction because you can keep on trying and getting your point of view across.
In the process, you will destroy the company because if you start the singing the names I just heard a few minutes ago which is the entire top leadership of the company, you are going to render it into a radar less ship. And irrespective of the personal huge ego hassle, irrespective of anything else, that is the topmost care and caution which must be taken. And that is where everybody has to rise to level of statesmanship.
Now coming to the law, I do believe, and this is my independent view at the moment, without having seen the papers that the corporate law structure is such that they presume that there will be always internal wrangling, everything is not perfect in any company and therefore, a system has to be created that every shareholder grievance of the last mile, a single shareholder or every grievance of any one person or group of persons is not actionable, howsoever important you might be. Either you enter the door through minority actions or you go to a writ court or a high court and get some other grievance noted out.
But a constant bickering saying that okay, I am 'x' percent and although I am not going to file a minority action, I believe my demand, 'ABC' must be met and 'XYZ' must resign. Now the point is in law, it is black or white. It is either you are into a minority action at 10 percent above or you are nobody. You cannot keep on bickering about it like a constantly overflowing boiling pot.
Q: As a legal outsider at this point in time, let me ask you, and I know that you have not had a look at the details, but what seems to concern the markets specifically today is the possibility of legal uncertainty and legal turbulence in light of the fact that we have three US law firms initiating investigation against alleged securities fraud now. Given what the board has put on record to say that look, we have had Cyril Amarchand Mangaldas, we have Latham & Watkins and we have auditors KPMG provide a clean chit, so to speak, on the allegations raised by the whistle blower, the merits of a possible class action law suit?
Singhvi: As they say, in these matters, both God and the devil lie in the details and none of us are competent to comment because we have not seen the minutiae. Certainly, if there is a violation of something as serious as securities law, whether in that country or this country, nobody can support criminal wrong doings. But I would say again that in the process of making allegations, you are using a mild word, you are not creating turbulence, you are creating a hurricane.
Today, if there is an action, so be it. But you are killing before the killing. There is nothing found, there is no finding. Just by rumours, by this constant bickering, somebody may score a point over one's ego, but in the process, the company is going to be killed by default. So there is going to be actually no company left for the securities law action to take place if this goes on longer. That is where the prevention must happen immediately.
According to me, there is no law which says that every report of corporate governance must be released in every comma and full stop. So long as they have adhered to corporate governance norms internally, you can decide and say that this was the conclusion.
Q: Abhishek Manu Singhvi saying that this is a self-inflicted goal of gigantic proportion and if this continues, this is going to lead to suicidal destruction of the company itself. And under law, if you want to take the minority shareholder route with 10 percent plus, then go right ahead and do that, but this constant bickering is of no use and of no purpose, how do you respond to that?
Balakrishnan: I agree. If you have to take a legal view of this, founders have 13 percent, which is much more than the required 10 percent. They can always have the option, but they had been engaging with the board and raising all this concern and expecting the board to address all this concern and put the matter to rest. That has not happened except for some niceties in the public interaction saying we respect the founders and other stuff.
So I think the board should get the hold of this situation, engage with the large shareholder. What happened in Cognizant is the right thing. You are a 4 percent shareholder, writes to the board, gives his views, the board engages with the 4 percent shareholder, makes all the changes, make it public, it is not preferential treatment. I think they listen to the shareholders. That is what we thought the board will do. They have not done it. If they have to take a legal view, the founders will consider because they have the requisite shareholding to do that.
Q: Do you have any reason to believe that the founders at this point in time are seriously considering legal recourse?
Balakrishnan: I do not know. You have to ask them. All I am saying is if that is what it comes to, they have the necessary shareholding to do that.
Q: I will ask you this again. The manner in which things have played out and we have spoken about this in the past as well and when I specifically asked you if you thought it would be in the best interest of the company to see Vishal Sikka go, I think I remember you saying that you did not have an issue or the founders did not have an issue with Vishal Sikka and his performance, the issue really pertained to governance at the board level.
Balakrishnan: Yes. I still maintain that because Murthy never raised any issues on Vishal Sikka's performance or the strategy till today. What he had all along been saying is the governance standards had come down, some of the issues the way the board has dealt with, the disclosures had been made as terribly short, I do not think it meets the governance standards, which Infosys had been practiced all along. So the founders all along had been more worried about the governance issues and never raised any issue on Vishal's performance or strategy.
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