BANGALORE (BLOOMBERG) - The founders of Infosys staged a dramatic coup to take back control of the iconic Indian outsourcing company and install one of their own as chairman.
The effort was led by N R Narayana Murthy, who had clashed with the board in recent months over the company's performance, corporate governance and the compensation of former chief executive officer Vishal Sikka. After a board meeting on Thursday (Aug 24), Infosys announced the departure of four directors and named co-founder Nandan Nilekani chairman.
"At this juncture, Infosys needed a credible name like Nandan Nilekani who's popular among employees and enjoys the confidence of investors and customers," said Thomas George, the head of researcher CMR India. "Most importantly, Nilekani is an insider who can stem the fall of the share price as well as the company's image."
Infosys ADRs rose 1.2 per cent in US trading after the announcement. Its shares have dropped 10 per cent this year in India.
Earlier this year, the founders wrote to the board asking why Sikka's compensation had been increased and also questioned severance packages offered to two high-level executives who had left the company. While the billionaire founders and their cohort hold only about 13 per cent of the shares in Infosys, they have disproportionate influence because of their high-profile status. In February, Murthy called off his fight with the board, saying he was confident the company could deal with concerns about corporate government. But the feud worsened in the intervening months.
With pressure mounting, Sikka quit last week as CEO, saying that the attacks were taking "a personal toll on me and the company." Despite presiding over 25 per cent sales growth since joining Infosys from SAP in 2014, he failed to manage the expectations of the Indian company's founders. On Thursday, Sikka resigned his board seat, along with Jeffrey Lehman, John Etchemendy and R Seshasayee, who had been chairman.
The appointment of Nilekani, 62, has been unanimously approved and is effective immediately, the company said. It now falls upon him to steer Infosys through choppy waters ahead.
The company confronts seismic changes in the industry it helped pioneer. Growth in the technology services business has slowed amid rising competition and automation. Infosys and its peers also get most of their revenue from the US, where the Trump administration is changing policies they have used to service clients.
"Investors will view Mr Nilekani's return with some relief. That said, we believe it will be short lived as there are too many structural headwinds facing the company," said Anil Doradla, an analyst with William Blair & Co.
Nilekani ran the company as chief executive for five years until 2007 before becoming co-chairman. He left Infosys in 2009 to join the government to lead the rollout of India's biometric identity program, Aadhaar.
"The big problem is the bulk of what Infosys does is commoditized work," said Anurag Rana, an analyst at Bloomberg Intelligence. "How well it works will depend on how aggressive the new leadership becomes in adopting emerging technologies. All the other problems - the spending, the jets, is just noise."
Before the board meeting, representatives of Infosys investors including Franklin Templeton and HDFC Asset Management had called for Nilekani's return.
"The recent developments are very concerning to each of us," the group wrote. They said Nilekani's return would restore the confidence of stakeholders including customers, investors and employees and also "facilitate the resolution of contentious issues."
