Infosys boardroom war: Founders concerned over governance issue, will it head the Tata way?

The clash between Infosys founders and its Board members seems to be headed the Ratan Tata-Cyrus Mistry way. Having “failed” in handling some of the issues relating to governance and disclosure, the Board is now facing removal or change, a highly-placed company source, who spoke on condition of anonymity, told DNA Money.

Apparently, Infosys founders have questioned the “governance and disclosure” norms of the Board and not so much the company’s “performance or growth strategy”.

“I think the Board has failed over the last one or two years. Infosys is always known for golden standards in terms of governance and disclosure and the way they (Board) handled some of the issues is wanting. So, I think founders, who are still the largest shareholders, can ask for a change of Board. It is in the interest of the Board to engage with them (founders) and give satisfactory information and make sure the legacy of Infosys is not destroyed,” said the source.

Another source, who also did not want to disclose his name, confirmed that the founders were concerned about governance at the Bangalore-based second largest IT services company.

Infosys boardroom war: Founders concerned over governance issue, will it head the Tata way?
According to the source mentioned earlier, the Infosys founders – N R Narayana Murthy, Kris Gopalakrishnan and others – can, just like Tata Sons, call an extraordinary general meeting (EGM) and ask for removal of the Board members.

The $10-billion information technology (IT) bellwether has a 10-member Board – eight external members and two internal members. Headed by R Seshasayee, other outside directors of the Board include Prof John W Etchemendy, Roopa Kudva, managing director of Omidyar Network India Advisors, Punita Kumar-Sinha, Prof Jeffrey Sean Lehman, vice chancellor of NYU Shanghai, Kiran Mazumdar-Shaw, chairperson and managing director of Biocon Limited, D N Prahlad, founder and CEO of Surya Software Systems Private Limited and Ravi Venkatesan, chairman of the Board at Bank of Baroda.

Infosys CEO Vishal Sikka and COO Pravin Rao are members on the Board from within the company.

The source said that the founders had raised 3-4 issues to the Board but were given unsatisfactory answers.

Apparently, the founders are not very comfortable with the “political appointment” of Punita Sinha, who is the wife of minister of state (MoS) for aviation Jayant Sinha. She joined the Infosys Board in January last year when her husband was the MoS for finance.

According to the source, the founders believe Sinha’s appointment was in conflict with company’s interest as it has many government IT contracts. The source said Infosys was “doing a lot of work for income tax (I-T) department and ministry of corporate affairs (MCA)”.

“I don’t think Infosys ever took people with very strong political connection on to the board. This is the first and they (founders) are unhappy with that. Infosys also has a large Indian business, mainly from the government and when you have person who is wife of a minister, it creates conflict,” he said.

On being queried on getting Sinha on the Board, the source said the response from directors on Board was “wishy-washy”; This (Sinha’s appointment) is a very unusual appointment. They gave some wishy-washy response that is not convincing”.

Other concerns put forth by the founders related to steep severance package of former chief financial officer (CFO) Rajiv Bansal and ex-general counsel David Kennedy, and exorbitant compensation package of Sikka.

“I don’t think the board and the management have given proper explanation on why such a (separation) payment was required. They were not happy with Sikka’s compensation, which was fixed very high and there was no disclosure on what basis it is going to be paid. The Board has not come out clean on all the issues they (founders) have raised,” said the source.

Interestingly, former US senator Larry Pressler, who was on the Board of Infosys, joined only after he retired from politics in 2001.

When DNA Money contacted Mazumdar-Shaw, part of the Infosys Board, she declined to respond saying “media is raking up the past issues”.

In response to a questionnaire sent to the company via an email, the company wrote back; “The Board receives suggestions and inputs from various stakeholders, including Promoters, which are evaluated with due importance. The company will continue to be guided by the overall interests of all stakeholders. With regard to concerns on governance being discussed in the media, we would like to reiterate that all decisions have been made bona fide, in the overall interest of the Company, and that full disclosures have already been made thereon.”

On whether the clash could see present Board members being changed, Infosys’ corporate communicate said; “this questions is baseless and speculative”.