Disequilibrium: Old Wounds Don’t Heal

With public memory being woefully short and media attention equally so, Nirav Modi has been replaced by Kathua and Unnao rapes only to find it interchangeable with the modern version of Dynasty Chanda Kochhar & family saga, interspersed as it was with the Nataka in Karnataka with all its cheap name calling evoking derision as the political discourse plumbed new depths. Needless to say that one of the dominant headlines of 2016 recently found traction in spurts, but no one has really attempted to connect the dots. The searching catechism may well be over, papered over by the change in dispensation with one of the Founders returning to take control of Infosys, a new CEO installed and the board deciding to sell the contentious Panaya, writing down $90 million in the process. But the cracks remain, a catalogue of questions too still unanswered and the entire transition too pat. And these questions are substantive from the collective prism of probity, integrity, corporate governance and conflict of interest. At the very kernel of this lack of conviction in the Infy story closure remains the March 2017 decision of the Infosys Board of Directors Audit Committee retaining Gibson Dunn and Control Risks to conduct an internal probe into allegations in two whistleblower complaints made to Sebi.

The complaints were as follows:

improprieties in connection with Infy’s acquisitions of Panaya Inc and Skava Systems in 2015 – NO EVIDENCE

the CEO requested the improper deals be made with customers – NO EVIDENCE

the M & A team acted without securing proper approvals – NO EVIDENCE

the CEO received inappropriate compensation and incurred excessive expenses relating to travel, security and the Palo Alto office – NO EVIDENCE

In the June 19, 2017 response filed by Charles J Stevens and Benjamin Wagner, a clean chit was issued on all four counts. Yet, Founder Narayan Murthy continued to raise Cain, railing against the management decision not to reveal the entire text of the findings absolving the Vishal Sikka led board. The vexed pain points remained disputed, elephants and camels brushed under the carpet as Infy underwent spring cleaning. The wound from a shareholder perspective appeared cauterised.

Murthy fulminated for the full disclosure of Gibson Dunn report and why such a large amount had been paid by the board to CFO Rajiv Bansal and long time Infy groupie, claiming that it was hush money for keeping quiet and not spilling the beans.

Then suddenly earlier this month, one read that former CFO Rajiv Bansal has invoked the arbitration clause in his severance contract asking for the rest of his allotted payout.  Bansal’s severance payout was at the core of the governance battle being waged at Infosys’ board. When Bansal left in 2015, Infosys had agreed to pay him Rs 17.38 crore as severance, about two years of pay. But the company paid out only about Rs 5 crore before suspending the payments. Infy’s take is that it suffered financial loss due to deletion of data from his official laptop. Bansal’s (lawyers) defended his action saying it is normal for senior executives who leave an organisation to delete data in their official systems and the company should have stored such sensitive data on its servers. During the hearings, Bansal’s legal team also questioned Infosys for backtracking on its commitment to pay the severance pay, saying the “pact was not from an individual (Sikka) but from an organisation that has a standing in the corporate world”. The hearings between the two parties were completed recently, with written comments required to be submitted to the sole arbitrator — former Supreme Court Justice RV Raveendran. A final award could take up to three months.

Internally, in Infosys, it was heard that revealing the complete contents of the Gibson Dunn report would have led to a witch hunt within the company for many people were interviewed during the course of the investigation. Their names would have been outed leading to more ugliness and all round suspicion. Moreover, with United States being a litigant society, there was a possibility of a class action suit being slapped on Infy in the US. The Gibson Dunn principal investigators reportedly met Murthy as well. They were convinced that no wrong doing took place corroborating the earlier Cyril Amarchand Mangaldas reports of 2015 and 2016. A section at Infy felt that the anonymous whistleblower never provided real evidence. Sadly, despite all this the impression of a great cover up remains. None of the controversial questions answered transparently.

In this three-legged stool, we come to the second major development. Nearly nine months after the departure of former chief executive officer (CEO) Vishal Sikka, India’s second largest software exporter Infosys Ltd made a bold admission. Infosys effectively conceded that the large acquisitions that it undertook under Sikka had failed to bear fruit, with the company deciding to jettison two companies—Skava and the controversial Panaya—through a proposed sale, which many analysts interpreted as a fire sale of sorts.

Infosys bought the companies on Sikka’s watch. It spent $320 million on the two. Now, less than two years later, it has decided to sell them. More tellingly, Infosys has written down $90 million—nearly half the amount it spent buying Panaya.

“As part of our strategic review, we put together a set of criteria for our entire portfolio. When we looked at Skava and Panaya, they did not meet that criteria. We then decided to take the actions that we’ve taken,” said Parekh.

“Both Skava and Panaya put together, the revenues from them are not material for us,” said chief financial officer M D Ranganath during a post-earnings address. Scaling down of almost everything Vishal Sitka did or announced has happened. Nilekeni has reduced Palo Alto to a listening post – We see the Palo Alto office as a listening post to the latest developments in tech happening in Silicon Valley, in machine learning, AI, deep learning, virtual reality, automated reality, self-driving cars. The entire SAP gang, which joined Infy, along with Sikka, has gone. Kiran Mazumdar Shaw has joined the board as an independent director, Infy has chosen to dissolve the three member finance and investment committee which oversaw investments and acquisitions during Sikka’s time. The slate has been wiped clean. Sikka and his memory erased.

While Sikka’s acquisitions have been buried six feet under with the sale, Infy has chosen to buy WongDoody Holding Co, a US-based digital creative and consumer insights agency, for $75 million.

Last but not the least, the voluble Ravi Venkatesan, independent director since 2011 and briefly co chairman stepped down late last week – “I joined the Board at a time when Infosys was beginning the complex journey of transitioning from founder-led to professional management. This was also a time of tectonic industry shifts. I am pleased that this mission has been accomplished. Infosys is strong, in good hands, and is gaining momentum.” Nandan has thus effected a clean sweep, without revealing anything. All the skeletons have been pushed into the attic even as material decisions on board reconstitution and perilous acquisitions have been upfront. The vacuum cleaner has worked with great enterprise, but we still don’t know the answers to charges of corruption, nepotism, probity and of course governance standards.

Nandan’s handprints are visible as his calming influence at the helm of the company is deeply appreciated by one and all. What is singular in this fire fight with Murthy’s blazing fusillade managing to topple Sikka is that if nothing was broke, why did we try to fix it? What of shareholders big and small including the founders whose notional wealth went for a bungee jump when the crisis was at its peak? Where was market regulator – Sebi – always last to come to a troubled institution to provide succour to investors? When the Infy share price tumbled below 900, who lost money? Hapless shareholders, as always! Sebi is not a post office, which receives anonymous complaints and delivers them to company managements, which is what happened in Infosys. Is this Sebi’s job and function? It is Murthy who appointed Sikka just as Ratan Tata chose Cyrus Mistry. In both cases they got it wrong. In both cases shares were pummelled into submission.

I am just wondering what the SEC would have done in the US had an Infy type of fragging case turned up?


Sandeep Bamzai