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Cognizant CEO Francisco D’souza: Shareholders are our owners, not a risk

LiveMint logoLiveMint 28-08-2017 Varun Sood

Bengaluru: US-based Cognizant Technology Solutions Corp., which was last year pushed by activist investment firm Elliott Management Corp. to change its business model, does not view any of its shareholders as a risk factor.

Chief executive officer Francisco D’Souza, in a rare media interview, indicated that Cognizant would always remain open to engaging with and listening to “constructive” suggestions from key shareholders.

“Our shareholders are our owners,” D’Souza said on Monday.

That’s unlike Indian peer Infosys Ltd, which in June said in a statutory filing to the US Securities and Exchange Commission that actions by activist shareholders could affect the company and devalue its stock. “Responding to actions by activist shareholders can divert the attention of our board of directors, management and our employees and disrupt our operations. Such activities could interfere with our ability to execute our strategic plan,” said Infosys.

On 14 June, Mint reported that although Infosys stopped short of calling out names, at least three company executives familiar with the development had said that some moves by its founders, who flagged governance lapses at the firm, clearly fall in the area of activism.

To be sure, that filing preceded this month’s far-ranging changes at Infosys, with chief executive officer Vishal Sikka quitting and co-founder Nandan Nilekani returning to the company in the role of non-executive chairman.

ALSO READ: The backstory to Infosys CEO Vishal Sikka’s resignation

“In regulatory filings we may disclose things about the business that we are required to disclose based on regulatory requirements,” D’Souza said. “If I were to answer it from a ‘learnings from Elliott’ standpoint, we had a constructive conversation with a shareholder that had ideas about how we should run the business and we arrived at a conclusion point that I think was good for all of our shareholders and was in the best interests of the company in the long run. So, that’s not my definition of a risk.”

In November last year, Elliott pushed Cognizant to get rid of what it felt was an “antiquated, growth-at-all-costs” business model, and focus instead on total shareholder returns.

D’Souza also highlighted that while Cognizant had discussed the matter with Elliott, the firm’s decision to change its business model was taken much earlier in 2016, when Cognizant was re-assessing its five-year goals.

“At the end of the summer of 2016, we started to work on a plan to accelerate certain portions of the Cognizant 2020 plan. As that happened in November 2016, the Elliot guys published the letter on their thesis on Cognizant. And much of what Elliott had outlined in their letter—things that we had been thinking about as we did the reset of the Cognizant 2020 plan,” said D’Souza.

D’Souza also dismissed suggestions that Cognizant has ditched its so-called “growth at all costs” mindset. “I wouldn’t characterize the first 22 years of the growth journey at Cognizant as ‘growth at all costs.’ At that phase of the industry, the market opportunity was significant. We needed to catch market share—when we started the company and when we took the company public, we were small. It was the right thing to do—to capture market share. As we transition, it was really important to say to investors that you should now expect us to be focused on growth that is high-quality and sustainable...and as part of that, we said we would slowly take margins up.”

Over the past decade, D’Souza, who was 38 when he took over as CEO at Cognizant in 2006, has steered the firm from a revenue base of $1.42 billion to $13.49 billion at the end of 2016. In 2010, Cognizant overtook Wipro Ltd, and the next year, surpassed Infosys in terms of both quarterly and annual revenues.

Since the beginning of 2010, Cognizant has been the only IT outsourcing company which has had over $1 billion in incremental revenue every year. If the company grows at the lower end of its guidance for this year, it will end with $14.7 billion in revenue— translating into $10.35 billion in new business over the last seven years. In simple words, under D’Souza, Cognizant, since 2011, has added as much as the total revenue of Infosys, which ended with $10.2 billion in revenue in the year ended March 2017.

Experts tracking corporate governance matters said the different approaches of the two firms were primarily due to a difference in the relationship that they enjoy with their shareholders. “Clearly, Cognizant’s board aligned with its shareholders while Infosys’s former board was misaligned with some shareholders, who also happen to be the founders,” said Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research. “I hope Infosys reverses its decision of calling out some set of shareholders as a risk factor.”

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