Vishal Sikka quits Infosys: War between CEO and Murthy takes an ugly turn

It is the end of a year-long acrimony that ensued between the management and promoters of India's second largest IT services giant Infosys over allegations of lack of corporate governance. Vishal Sikka, the first non-founder CEO of Infosys holding the reign for the last three years, resigned on Friday, blaming "unrelenting, baseless and increasingly personal attacks on him".

Pravin Rao, currently chief operating officer, has been named as an interim CEO. Sikka will become executive vice-chairman for an annual salary of $1 and help the company find new CEO latest by March 31, 2018.

The news sent Infy shares tumbling down and closed 9.6 per cent down at Rs 923.10 per share on BSE, leading to a loss of Rs 17,252 crore in market capitalisation. At around 1:30 pm, the stocks hit its 52-week low of Rs 884.40 before making a recovery towards close of the session.

The conflict at Infy reaches a flashpoint at a time when India's software services exports are facing a long slump in seven years, leaving a question mark over job creation in IT sector and widening current account deficit (CAD).

In a blogpost on his personal blog, Sikka said, "I cannot carry out my job as CEO and continue to create value, while also constantly defending against unrelenting, baseless/malicious and increasingly personal attacks...after much contemplation, I have decided to leave because the distractions, the very public noise around us, have created an untenable atmosphere. Life is too short to engage in battles of opinions in the public."

Infosys Board came out strongly in favour of Sikka, saying that the founder of Infosys, Narayana Murthy's continuous assault is the primary reason that the CEO has resigned despite strong Board support. "His campaign against the Board and the company has had the unfortunate effect to undermine the company's efforts to transform itself," it said in a statement.

The Board ruled out a formal role for any of co-founders in the company's governance.

Murthy, in a separate statement, expressed anguish over the insinuations, tone and tenor of statements made by the Infosys Board. He said it was below his dignity to respond to baseless insinuations and will reply to the Board's allegations in the right manner and at an appropriate time.

Murthy said, "I voluntarily left the board in 2014 and am not seeking any money, position for children or power. My concern primarily was the deteriorating standard of corporate governance which I have repeatedly brought to the notice of the Infosys board"

The development also came a day ahead of the company's Board meet to consider the buyback proposal, which was announced earlier. "There is no change in buyback plans. We have made a commitment on how much and when to return cash to shareholders," Infosys board chairman R Seshasayee said at a conference.

Under the buyback plan, the company could return as much as Rs 13,000 crore to its shareholders.
The share buyback, the first in the company's 36-year history, has been a long-standing demand by some of the founders and high-profile former executives.

Infosys founders still hold 12.75 per cent stake in the company. The founders and the management are engaged in a bitter battle since February last year after Murthy along with other founders raised questions on poor corporate governance and high severance package being paid to former CFO Rajiv Bansal and an acquisition made by the company.

According to reports, Murthy in a recent email quoted some Infosys independent directors as saying that Sikka was "not a CEO material but CTO material".

The company's Board stood behind Sikka and lashed out at the founder saying Murthy has made repeatedly made inappropriate demands which are inconsistent with his stated desire for stronger governance.

"Murthy has demanded that the Board adopt certain changes in policy, else he will attack board members in the public, which threat was carried out when the Board did not acquiesce, he demanded that the Board appoint specific individuals onto the Board under similar threat, without appropriate disclosure and without regard to basic determinants of appropriateness or fit of the candidate for the role as a Board member," according to the official statement.

"Murthy's continuous assault, including this latest letter, is the primary reason that the CEO, Vishal Sikka, has resigned despite strong Board support. Murthy's letter contains factual inaccuracies, already-disproved rumours, and statements extracted out of context from his conversations with Board members," the statement added.

The Board has been engaged in a dialogue with the founder to resolve his concerns over the course of a year, trying earnestly to find feasible solutions within the boundaries of law and without compromising its independence but these dialogues have unfortunately not been successful. The Board declines to speculate about Murthy's motive for carrying out this campaign, including the latest letter, the statement added.

An anonymous letter was sent to the Securities and Exchange Board of India and the US Securities and Exchange Commission earlier this year, alleging that the Israel-based Panaya acquisition by Infosys was overvalued, and that some Infosys executives may have benefited from the deal. While an independent probe absolved the board of any wrong doing, Murthy kept the pressure on making the full contents of the investigation report public.

During an investor call earlier in the day, Sikka said the continued drumbeat about former CFO Rajiv Bansal's severance package and Panaya deal in the last 4-5 quarters have been 'sickening'.
Infosys co-chairman Ravi Venkatesan also said the management is highly distressed by the continuing allegations against Sikka and Board members. Venkatesan declined that he was among the contenders for the top job.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, "Sikka's resignation triggered by 'the continuous stream of distractions and disruptions over the recent months and quarters' is very unfortunate. The market has signalled its displeasure with the stock tanking. The remark that 'Vishal is more CTO material than CEO material' might have turned out to be the last straw. This unfortunate incident might turn out to be an opportunity if the board quickly finds a new CEO who can lead from the front without disruptions from the promoters."