Supplier Risk Monitoring

CEO Vishal Sikka’s Resignation Highlights Clash of Cultures at Infosys

Written by Vandana Mohanchandran

It is no secret that over the years, Infosys is regarded as a representation of excellent corporate governance practices, ethics, and values. Infosys has been known for its ethos, deep-rooted values, and unquestionable integrity. In the past, Infosys was looked up to by other companies as a benchmark for having no reports of wrongdoing. The company was held in high regard and received respect and admiration both within and outside the company.

Infosys has seen an unpleasant streak this year with its recent resignation of Chief Executive Officer (CEO) Vishal Sikka and its founders, led by NR Narayana Murthy. Of late, there have been several reports surrounding Murthy scathing his reproach of Sikka, primarily surrounding the handling of the company’s finances, stating that it is against the core values on which the company was built.

Before Sikka’s appointment as CEO in August 2014, the company was known for keeping costs under and in check, and for more than three decades, the founders were recognized for fixing their remuneration below industry standards. It is believed that Sikka initiated infusing talent from other companies and made changes in the compensation practices wherever required. While the founders were skeptical of Sikka’s financial planning, the Infosys Board agreed with the changes brought about by Sikka.

Sikka was the first non-founder to be CEO at Infosys. This led to Sikka taking steps and actions as deemed fit, although certain key stakeholders found them unfavorable. The scuffle between the old and the new has brought about considerable damage to Infosys’ reputation. Some of the clashes were even fought in public where the founders argued that their issues with Sikka and the board are about governance, principle, values, and transparency.

Sikka’s resignation came in the middle of a large global technology transformation upsurge, where many jobs are being automated, along with the external situation worsening due to US President Donald Trump’s protectionist policies, especially with regard to work visas and preference for increased hiring in the US. At this stage, developing rumors of conflict between founders of the company and its executive management could be disrupting and, if left unsettled, harmful to the health of the company.

According to Sikka, “the continuous flow of distractions and disruptions that became increasingly personal and negative”’ forced him to quit and prevented the management’s ability to accelerate the company’s transformation. However, it should be noted that some of Infosys’ founders, including N R Narayana Murthy, have alleged corporate governance lapses at the firm and questioned the high compensation paid to Sikka and severance package extended to certain former executives.

Infosys has seen a steady exit of top level executives over the last one-two years. Business leaders that have strong dependence on the supplier must get into detailed discussions with them regarding management churn, retention of key executives related to on-going projects, upcoming contracts, and other aspects of their business.

The stand-off between the founders and management has been going on for a few quarters now, with both sides making public statements on these issues. Sikka was made Executive Vice Chairman of the board post his resignation. However, with the return of Nandan Nilekani as Non-Executive Chairman in a much anticipated move, Sikka stepped down. U B Pravin Rao, Infosys’ Chief Operating Officer, has been appointed as Interim CEO and MD.

Industry experts stated that they were not shocked by the development but the timing came as a surprise as the Board was to meet to consider the proposed INR 130 B (~US$2.03 B) buyback program. Given that Infosys announced the buyback in a hurry, few analysts believe that the timing of the resignation a day ahead of the buyback was intended to cushion any major negatives that may arise from the development. Business leaders dealing with Infosys must have detailed discussions with their suppliers’ executives to understand if ongoing processes and liaisons would get affected due to sudden high-level exits and unexpected leadership changes.

Such changes to the leadership team may affect Infosys’ sub-par performance in the latest quarter due to slower project ramp-ups in some large deals it had won in the earlier quarters. Focus on the governance of the relationship and establish strong structure and mechanisms for managing service delivery performance and account management.

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