Infosys crisis: Has ‘Kshatriya warrior’ in Vishal Sikka conceded defeat?

In June 2014, when Vishal Sikka was appointed as CEO and MD in Infosys, the tech company was going through a tough time.

The Infosys Board of Directors picked Sikka, a  former member of executive board at German software company SAP AG, as he had technical background to bring a strategy overhaul at the company. Besides, the company was also seeking to boost sales of high-margin services like cloud computing and stem a staff exodus.

During the announcement of appointment, he was hailed as a ‘thought leader’. The then-Executive Chairman N. R. Narayana Murthy praised Sikka as a ‘technology visionary’ and said, “he brings valuable experience as a leader of a large, global corporation. His illustrious track record and value system make him an ideal choice to lead Infosys.”

Fast forward three months of his appointment, Infosys -- which was grappling with growth figure -- witnessed a revenue of $2.2 billion (3.1% higher Q-o-Q) and profit of $511 million (6% higher Q-o-Q) in July-September 2014. In a year’s time, between July 2014 and June 2015, the company clocked a revenue of $8.24 billion.

Moving on...https://t.co/U3CJrtdz5c

— Vishal Sikka (@vsikka) August 18, 2017

A year later, in fiscal 2015-2016, Infosys showed a revenue growth of 14.1 per cent and net profit increase by 8.5 per cent.

Sikka’s focus on innovation, use of design thinking to create proposals for clients plus the re-skilling of manpower and leveraging of automation tools helped the company improve its and competitiveness.

The company was performing well under Sikka when suddenly, he was caught in a controversy over his salary and payment withdrawal issues.

Growth came at a cost

In the annual report for 2015-16, Infosys reported that Sikka took home a fat payment cheque of ₹34.3 crore (excluding the variable pay of ₹14 crore for 2014-15 that was paid in 2015-16). This was higher than the previous year’s ₹18.56 crore in 2014-2015. Sikka’s salary hike was a good 85 per cent while the increase in the median employee remuneration (MRE) was a mere 6.4 per cent.

Besides, former CFO Rajiv Bansal who quit in 2015 and legal counsel David Kennedy when he relinquished office in December 2016, were offered over-generous severance packages. Bansal was offered a 24-month severance package worth over Rs 20 crore while Kennedy was offered a 12-month severance when he relinquished office on December 31, 2016.

Founders raised concerns

company’s founders were troubled by these developments.

The board’s decision regarding hefty executive pay was strongly criticised by the company’s co-founders, including Narayan Murthy.

Besides, appointment of Punita Sinha, wife of Jayant Sinha who is Minister of State for Finance, as an independent director in January 2015 also became the bone of contention between founders and Board of Directors as the former raised concern over the appointment.

The founders expressed unhappiness with non-executive chairman R. Seshasayee over some decisions taken by the company’s board in the past two years, and asked him to consider stepping down.

During early this year, Sikka and the company's board sought to play down concerns about the company's governance structure, defending the board's decisions regarding hefty executive pay.

In an interview with CNBC, Sikka said he was wasn't bogged down by the controversy and the vast majority of concerns raised by its investors had been around the company's performance. "I am a kshatriya warrior. I am here to stay and fight," he told the channel, reiterating his mission to transform the company.

Round one to Narayan

Amidst the standoff between Sikka and Murthy, the latter’s concern over payment cheque was taken into account.

In April this year, according to media reports, Sikka’s variable was cut by 54 percent and he took home only $3.68 million of his target variable compensation of $8 million for 2016-17.

In addition, Sikka was entitled to fixed compensation of $3 million. So his total take home for the year is $6.68 million against the total $11 million, which was much lower than the $7.45 million that Sikka drew in 2015-16.

Early this month, Murthy’s concerns over governance lapses at the company resurfaced as he asked the company to make the recent Gibson, Dunn & Crutcher report public.

Sikka resigns

Last week, Murthy sent an email to some of his advisers in which he wrote that he had been told by at least three independent directors of the company that Vishal Sikka was more chief technology officer (CTO) material than chief executive officer (CEO) material.

“All that I hear from at least three independent directors, including Mr Ravi Venkatesan (co-chairman), are complaints about Dr Sikka. They have told me umpteen times that Dr Sikka is not a CEO material but CTO material. This is the view of at least three members of the board, and not my view since I have not seen him operate from the vantage point of an Infosys board member,” Murthy said in the email.

This further escalated the standoff between the founder and the CEO and showed that the differences between the two are still brewing.

Amidst this, Vishal Sikka today announced his resignation as managing director and chief executive of Infosys, blaming “a continuous stream of distractions and disruptions” for his decision.