Murthy’s shenanigans at Infy show why cos should be shielded from shareholder activism

mployees walk along a corridor in the Infosys campus in Bangalore (Image: Reuters)

Shishir AsthanaMoneycontrol Research

At the fag end of his second term ex-Prime Minister Manmohan Singh hoped, somewhat forlornly, that history would be kinder to him than the media had been. While Singh waits for his wishes to be realised, another veteran, this time from the corporate world, would be harbouring a similar wish.

Narayana Murthy, co-founder of one of the best companies in India, has taken a beating at the hands of the media, analysts and shareholders of the company he co-founded. Now, Nandan Nilekani, a man he likes to consider his protégé, is back in the saddle at Infosys and has taken the same position as the ousted board on the contentious issue of the acquisition of Israeli firm Panaya.

Murthy is increasingly looking like a possessive parent, protecting the company from non-promoter management who took over after he and the founders took turns at being CEOs (itself a questionable practice).

Many decisions, including the CEO salary, acquisition price, and severance packages taken by the management were questioned by Murthy and some of his co-founders. Despite getting some answers, Murthy and his disgruntled team continued their attack publicly. Under the name of shareholder rights, which was nothing short of shareholder (hyper) activism, Murthy and team demanded a level of transparency which could have been detrimental to the functioning of the company.

Unable to take the pressure, CEO Vishal Sikka decided to quit and in his parting note said: “…the constant drumbeat of the same issues over and over again, while ignoring and undermining the good work that has been done…” Sikka was followed by some other members of the board and Chairman R Seshasayee.

When Co-founder Nilekani replaced Sikka and took over the reins of the company Murthy felt vindicated and said he was “..confident Nandan will determine whether the members of the current board who were involved in the events alleged by the whistleblower exercised their proper and expected role in governance; and that he will take appropriate corrective actions. These actions will bring back the rigor of governance standards at Infosys.”

Unfortunately for Murthy his euphoria has been short-lived. Along with the September 2017 quarter results Nilekani and the new board members said there was no merit in the allegations of wrongdoing. Additionally, the board said that publishing additional details would affect Infosys’ ability to conduct future probes, besides confidentiality of whistleblowers in any future investigation.

This was not something that Murthy wanted to hear. He sent a statement saying that he was ‘disappointed’ and that the board did not address his questions.

Unfortunately, Murthy’s activism is causing more harm than good to the company. It has already cost it a team which could have improved its commoditised offerings several notches. Worse, with continuous meddling from Murthy and his ilk, few independent-thinking professionals would like to sign up with the company.

What the entire Murthy–Sikka episode highlights is the downside of shareholder activism. If allowed to grow, such activism can affect operations of companies. Management will be reluctant to take decisions if their freedom is affected.

Activism has had its positive fallouts. It was only when shareholders (institution shareholders) objected to the acquisition of Maytas’ firm by Satyam Computers that the Satyam scam was exposed.

Just like there are committees within market regulator SEBI that work on corporate governance, there is a need to protect companies from unreasonable shareholder activism. The shrillest voice has a tendency of silencing the saner ones. As shareholders have a right to know and protect themselves from wrong corporate governance practices, companies and their management should also be protected from such voices. Murthy’s insistence that the findings of the Panaya probe be made public is clearly out of order; if the board is satisfied after multiple investigations, its word should be taken. Shareholders affected by righteous indignation are free to go to court.

While a shareholder’s choice to exit from a company that he does not like will not affect the operations of the company, a good management quitting because of activism can hamstring a company that is already facing sectoral headwinds.

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