Q-n-A with InGovern MD on Infosys’ Leadership Concerns

InGovern MD answered to queries of various journalists and media persons on the leadership concerns at Infosys Ltd. Listed below are some of the questions by reporters and their replies by InGovern.

Q. Does a leadership model in which one founder succeeds another ever work?

A. In general, leadership should be based on competency and merit. At different stages of a corporation‘s evolution, different competencies are required. So, when a company is started and being built, the founders who started the company are well versed in leading the company. However, when the company achieves a stage of maturity and is large, it is not necessary that the founders are equipped to lead the company. So, unless all founders are competent, just one founder succeeding another never works. Also, if a company raises external funding and/or is listed, the Board of Directors has a duty to all the shareholders of selecting the most competent leader – irrespective of whether he/she is a founder or not – to lead the company.

Q. Infosys was considered an icon of corporate governance even while founder succeeded founder. Did critics fail to blow the whistle?

A. Proxy advisory firms like InGovern and some investors and analysts did raise concern of founder succeeding founder without any emphasis on merit and competence. Some large investors did vote with their feet, selling their holdings, due to the non-performance of the company under some founders of Infosys.

Q. If a Board does not sack a non-performing CEO just because he is the cofounder, can it be considered to have failed in corporate governance?

A. The Board of Directors should have taken necessary measures when the founder was non-performing as the company failed to achieve even the average industry growth rate. It is definitely a failure on the part of the Board to proactively address the leadership issue. It was the collectively responsibility of the Board and it failed the shareholders.

Q. K. V. Kamat who was the earlier non-executive chairman of the Infosys Board stepped down as independent director last year when N R Narayana Murthy came back as executive chairman. Kamat has now been elevated to his earlier position of non-executive chairman. In keeping with the norms of good corporate governance, should Infosys have got a new chairman?

A. It isn‘t necessary that Infosys get a new chairman. K.V.Kamat is held in high regard by investors and is considered capable and competent for the role of chairman.

Q. What happens to the culture of an organization and the morale of the employees when the founders / top management compromise on their own rules? Murthy not only came back – he also brought his son as his executive assistant, despite always maintaining that family members of founders would not join the company?

A. It is likely that morale of employees in the company decreases. Also, employees may compromise on their own values knowing that the value system professed by the founders/senior management has been compromised. Also, it is likely that some members of the Board who were opposed to the induction of Rohan Murty into the Chairman‘s office also demit office. This seems to be case with Ann Fudge.

Q. As an outsider, what extra leadership capabilities does a new CEO need to bring to the fore to hold the company together and also prevent more senior level exits?

A. The new CEO needs to energize the senior management team towards a common goal which would be a shared vision for senior management. This would prevent senior level exits while also enhancing morale across the organization. The common goal could be as simple as (a) to re-achieve the 2nd place in the Indian IT services industry (b) achieve the highest growth rate in the industry.

Q. Has Murthy done the right thing by leaving now and giving the new CEO the freedom to chart the course for the company. Did Murthy have a choice but to leave? Would an external CEO have agreed to join if Murthy had continued?

A. The role of the founders had become untenable with the induction of a professional non-founder CEO and Managing Director. It is unlikely a non-founder CEO would have agreed to join if Mr. Murthy had continued for an indefinite period as it would likely have defeated the purpose of having a CEO lead the company into the future.

Q. What lessons can one learn from the leadership crisis at Infosys?

A. Board of Directors should take a proactive role in leadership and succession planning, and not wait for a crisis to precipitate issues. There was ample time for the Board to plan and work towards an organized succession planning. Also, the fact that Infosys had to eventually seek to hire an external candidate for the role of CEO indicates that the investments made by Infosys in the past for leadership grooming seem to have gone waste. The company needs to redouble its efforts to have a strong second tier leadership who are capable of stepping up as a CEO even at a moment‘s notice.

Additionally, the company should make greater investments in hiring star potential candidates even at SVP and unit head levels, and also make investments in training its SVPs so that they can be groomed to be potential CEOs.

Also, any succession planning exercise should be a discreet process. The company has made the CEO hunt process a very laboured one than it should have been. There was no compulsion to make the announcement on April 11, 2014 of conducting a search process for Mr. Shibulal‘s successor, and the appointment of 2 advisory firms (DDI and EZ) to evaluate candidates. Discretion was needed in the search process, and this announcement just unnerved potential candidates and investors. Rather the company should have selected the successor CEO and then made an announcement.

Q. Infosys has always prided itself on its leadership development capabilities and its Leadership Institute. In the light of the leadership crisis at Infosys, has that been a failure?

A. Yes, the investments made by Infosys seem to be largely in developing junior and mid-management cad-res. The investments don‘t seem to have prepared the company for a leadership crisis at senior managerial levels. Infosys should articulate a genuine leadership development program. Aspects of leadership development like job rotation, mentoring, accelerated career development programs, external trainings, etc. should be part of the program.

Q. Anything else you would like to add.

A. The company needs to strive to connect with clients and also strive to become an employer of choice.

Questions on Investors Concerns on CEO Succession Planning

Some of the queries were also regarding various investors‘concerns on the succession planning‘ procedure at Infosys.

Q. You had spoken of how some top institutional investors had raised concerns over the ongoing CEO succession planning at Infosys. Could you detail what their concerns were?

A. The immediate concern is that of CEO selection. The departure of several potential candidates especially during the selection process is a concern. The broader concerns relate to leadership development and succession planning. On whether the investments made by Infosys in leadership development need to be relooked, so that in future there is a strong second tier leadership. In addition, there are concerns about the role of the promoters in future, would they continue to have executive or non-executive roles?

Q. If possible could you share the names of the investors?

A. No, but there are a few FIIs and one large Indian institutional investor who have raised these concerns.

Q. What is InGovern‘s response to these investors?

A. We advice that investors should demand that management bring a quick closure to the CEO selection process, and the current anxiety amongst all stakeholders be put to rest. The company should also articulate a plan on how future leaders will be developed. We advice that investors seek clarity on the role of the other 2 executive promoters (executive chairman and executive VC) post the appointment of a CEO who replaces Mr. Shibulal.

Q. What is your personal take on the ongoing CEO hunt at Infosys and the way the current management is carrying out the process?

A. The company has made the CEO hunt process a very laboured one than it should have been. There was no compulsion to make the announcement on April 11, 2014 of conducting a search process for Mr. Shibulal‘s successor, and the appointment of 2 advisory firms (DDI and EZ) to evaluate candidates. Discretion was needed in the search process, and this announcement just unnerved potential candidates and investors. Rather the company should have selected the successor CEO and then made an announcement.

Additionally, the company should make greater investments in hiring star potential candidates even at SVP and unit head levels, and also make investments in training its SVPs so that they can be groomed to be potential CEOs.

Q. Have some investors raised concerns over the entire second generation of leadership having quit and there being a leadership vacuum in the company?

A. There is obviously some concern, but, the larger concern is that of investments made by the company in leadership development.

The larger concern is also that of demonstrating dynamism by the leadership. The concern is whether the current second generation of leadership can demonstrate new and bold thinking. The other concern is whether the promoters would be able to let go of executive and non-executive roles within the company, and remain mere shareholders.

Q. What is your take on this?

A. I think many of the second generation of leaders within Infosys have been rewarded for loyalty to the company and for being YES men. For this to change, I believe that Infosys should articulate a genuine leader-ship development program. Aspects of leadership development like job rotation, mentoring, accelerated career development programs, external trainings, etc. should be part of the program. Why cannot Infosys hire external candidates at SVP levels?

I believe that the time has come for the promoters to repose faith in a CEO and the Board. The promoters should opt out of executive and non-executive roles (not even as members of the Board), and remain mere shareholders. Such a step would be bold, but, will at least make the company a truly widely-held company with no promoter on its Board.

Q. Lastly, what you tell investors are the key questions they should be raising at the upcoming Infosys AGM and why so?

A. Investors should raise questions on: (a) When is the CEO selection process going to end and what is the date of announcement of the CEO? (b) What is the role of the promoters post the new CEO taking charge? (c) What actions will Infosys take on leadership development that will ensure that such a situation doesn‘t arise in future?