Corporate governance issue in Indian companies came to fore yet again when simmering differences between Infosys founders and the current management surfaced recently.
Corporate governance issue in Indian companies came to fore yet again when simmering differences between Infosys founders and the current management surfaced recently. The bone of contention was the increase in the remuneration of the software major's Chief Executive Officer Vishal Sikka and high severance packages to two senior executives, including former Chief Financial Offer (CFO) Rajiv Bansal. The appointment of Punita Kumar Sinha, the wife of Union Minister Jayant Sinha, as an independent director on Infosys board is the other contentious issue.
Sikka received a 55 per cent pay hike to $11 million annually for the current fiscal year – the highest salary package among his Indian peers. In comparison, he took home S7.08 million in FY16. Meanwhile, ex-CFO Bansal walked away with Rs 17.38 crore (which equals to his 24-month salary) in severance pay when he quit Infosys in October 2015 and joined taxi-hailing operator Ola.
The pay hike and high severance pay did not seem to have gone down well with the founders, including the high-profile N R Narayana Murthy who openly criticised about falling corporate governance norms at the IT major that he founded along with six other engineers nearly 25 years ago. He went on to claim that such payments would raise doubts whether the company was using such severance pays as ‘hush money to hide something’. Obviously, that’s a serious allegation.
However, Infosys management defended all of its decisions initially and claimed that there was no breakdown of corporate governance norms in the company. However, Infosys Board of Directors subsequently admitted that it might have erred in awarding such high severance package to Bansal. It also went on to say that a large part of the severance package was not paid to Bansal, pending certain clarifications. This looks like an attempt to bring down curtains on the raging controversy, albeit for the time being.
Infosys fracas has parallels with the acrimonious tussle between Tata Group patriarch Ratan Tata and Cyrus Mistry, which started in October 2016. The corporate feud led to Mistry losing his Tata Group crown despite his family being the largest individual shareholder in the diversified conglomerate.
But Infosys episode may not lead to the exit of Sikka or non-executive chairman R Seshasayee. However, it had a damaging impact on the software bellwether. It also dented the stature of Murthy as OppenheimerFunds, a large institutional investor that owns 2.4 per cent stake in Infy, extended its support to Sikka team even after the company's key founder openly voiced his concerns against the management. Incidentally, Infosys founders own just 12.75 per cent stake now.
Clashes between the old guard and new generation are not new to the country's corporate world. But the recent controversies at Tatas and Infosys took boardroom battles to a new level. Besides, there is an underlining message from them for all the successful founders, entrepreneurs and corporate leaders. They should know when to exit from the active scene and start enjoying the fruits of retirement. Moreover, they should also know that it would better for them if they stop meddling in the affairs of the companies after passing on the baton to others.