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How Nandan Nilekani returned to Infosys

LiveMint logoLiveMint 31-08-2017 Anirban Sen

Bengaluru: When he left Infosys Ltd in July 2009 to head the Unique Identification Authority of India, Nandan Mohan Nilekani was clear about one thing, both in public and in private: he would never, ever return to the company he and six other co-founders built from scratch in 1981 into an information technology (IT) giant.

On the evening of 24 August, Nilekani found himself back at the company, battling the worst crisis in its 36-year-old history after the abrupt resignation of Vishal Sikka, its first non-founder CEO, a week earlier following a stormy three-year stint.

Named non-executive chairman, Nilekani said he would stay at Infosys “as long as it takes” to get the foundering company back on track after an ugly spat between iconic co-founder N.R. Narayana Murthy, 62, and the board over corporate governance issues.

“I will not put a time frame on this. I do hope it happens as fast as possible,” Nilekani said on an investor call, adding that he would step down the day he felt he was not needed anymore at Infosys.

“I’m here at the request of all shareholders to unravel a very complex situation and make sure that everybody is aligned—and take this company, which is a national icon, to its future,” said Nilekani, 62, who co-founded Infosys when he was 26.

When he left in 2009 to oversee the government project of providing a unique identity number to every Indian, it was clear that Nilekani wanted to carve an identity and brand name that would stand apart from Infosys. He hardly ever mentioned Infosys in media interviews and occasionally even chided journalists who prodded him to speak about the company.

Nilekani even turned down Murthy when the latter reached out to him after returning as Infosys chairman in 2013 to revive the fortunes of a company he (Murthy) called his “middle child.”

In August, as things unraveled rapidly at Infosys, Nilekani found himself in a position where he was reluctantly forced to break the vow he had made publicly, and privately to friends and family, and return to India’s second largest software services provider.

Sikka, who became CEO in August 2014, quit after the publication of the contents of a letter written by Murthy to half-a-dozen of his closest advisers. In the letter, Murthy wrote that three independent directors of Infosys had told him that Sikka wasn’t made of the stuff of a CEO and was more of chief technology officer “material”.

A few hours later, the board of Infosys issued a scathing, six-page missive against Murthy, blaming him for Sikka’s decision to resign. The letter spooked investors and wiped out a tenth of Infosys’s market value.

The letter backfired big-time for the board of Infosys, which over the next few days faced strong criticism from its largest shareholders, top current and former executives of Infosys and even sections of its 200,000-odd employees.

During the six days following 18 August, close aides and some board members of Infosys coaxed Nilekani to return to the company and salvage the situation.

“Nandan found himself in an impossible position. He could not possibly walk away from this situation, especially after the board issued that six-page statement,” said an executive with knowledge of the matter.

Nilekani and his wife Rohini had been scheduled to travel to the US on 21 August to spend two months with his daughter and grandchild. Even on 20 August, coincidentally Narayana Murthy’s birthday, they were making preparations for the trip, according to three people, including the executive cited above, aware of the matter.

But even then, Nilekani was deeply upset over the board’s angry note directed at Narayana Murthy. He had been visiting Narayana Murthy every day since that letter was issued, the people mentioned above said on condition of anonymity.

He wanted to do something about it, but he was undecided on the course of action to take, the people said.

At first he played a mediatory role between the founders and the embattled board of Infosys. Then the conversations started to become more serious and the prospect of his return at the company came up in one of those numerous meetings with his advisers and some Infosys board members such as Kiran Mazumdar-Shaw, D.N. Prahlad and Ravi Venkatesan.

Nilekani was initially averse to the idea of his return, given his vocal position on the issue in the past—but eventually, sensing the gravity of the situation that Infosys was in, he reluctantly agreed to return in a non-executive position.

Infosys had lost more than $4 billion of its market value in the space of two trading sessions. The company had lost its CEO and the search for a successor could not begin amid all the chaos. Nilekani caved in.

But he set one clear condition for his return: he wanted a shuffle of the board, which had repeatedly been caught on the wrong foot over the course of the past 18 months, amid alleged lapses in corporate governance that included the company’s $200-million acquisition of Israeli firm Panaya Ltd and an outsized severance cheque to former chief financial officer Rajiv Bansal.

The entire board, except two independent directors, offered to resign from their positions. Eventually four of those resignations—by non-executive chairman R. Seshasayee, co-chairman Ravi Venkatesan, Jeffrey Lehman and John Etchemendy—were accepted.

Nilekani wanted to retain at least a few board members, since he wanted a functional board to start with. He clearly had the upper hand in the negotiations and the complete backing of Murthy and most large investors in Infosys.

So he found himself back at the company he co-founded 36 years ago. As he would tweet later, life had come full circle for the man who has given more than a billion Indians a unique 12-digit identity number that’s become the bedrock of all government welfare programmes.

Nilekani was born into a traditional South Indian Brahmin family in Bengaluru in 1955. He spent his early years in Dharwad district of Karnataka and speaks Konkani at home. According to friends who have known him, Nilekani excelled in academics right from the start and was destined for greatness.

An Indian Institute of Technology-Bombay alumnus, his first tryst with the information technology industry came in the late 1970s when he walked into the Patni Computer Systems Ltd office of Murthy to ask for a job.

Sarvesh Kumar Sharma/Mint

A few years later, in 1981, he would join forces with the man who gave him his first job and five others to found Infosys. Stories of how the wives of all the founders would have to sell off their jewellery to help provide the initial start-up capital for Infosys have now become part of company folklore.

Murthy and Nilekani’s partnership worked wonders for Infosys—a number of Infosys executives have pointed out over the years that while Murthy was the soul of Infosys, Nilekani was its brain. And among all the founders, only Nilekani was seen as Murthy’s equal and eventual successor.

With so much history between the two men, who have been friends and colleagues for over four decades now, executives at Infosys said it was impossible for Nilekani to ignore the letter from the board and walk away from the situation.

“(Murthy is) the ‘father of corporate governance’ in India, such a great thinker who I personally respect because I began my career under him. I got my first job with him and he has made extraordinary contributions to India,” Nilekani said during his first address to investors post his return on 25 August.

In the 2000s, Nilekani would put Infosys on the global map and dazzled author Thomas Friedman with the phrase,”the world is flat” that eventually became the title of Friedman’s book. In 2006 and 2009, Nilekani was named as one of the 100 most influential people in the world by Time magazine —a rare honour for an Indian entrepreneur and businessman.

For a man who has achieved so much during his career and built an identity for himself that exists independent of Infosys, Nilekani has nothing left to prove, say friends and executives who know him.

But, they added, Nilekani will not leave Infosys without making sure his job is done—and in the process, his legacy is cemented.

Over the coming weeks, Nilekani is expected to be at the forefront and play the role of a “super CEO,” while helping the company’s board to find a new CEO and help re-constitute a depleted board.

So far, Nilekani has not wasted any time in executing key decisions, including appointing an executive search firm to help find the new CEO—and also ensuring that the board repairs its relationship with Murthy and the other founders.

On 25 August, the board of Infosys as good as retracted the withering statement it released a week prior targeting Murthy for the departure of Sikka.

“In recent days, there has been considerable discussion of the relationship between the Board of Directors of Infosys Limited and Mr. N. R. Narayana Murthy who established the culture and ethos of Infosys, especially its culture of adhering to high corporate governance standards,” the board said in a statement.

“The Board believes it to be unfortunate that various differences of opinion have arisen between Mr. Murthy and the Board in the recent past. The Board wishes to express that it was not its intention to cause Mr. Murthy or any other affected person any personal distress or anguish while stating its point of view,” Infosys said.

Nilekani had indicated that he would take a tough approach in fixing all the recent corporate governance issues on the Infosys board, including a previous probe report on the company’s 2015 Panaya acquisition that Murthy has repeatedly insisted should be made public.

So far, investors and analysts have welcomed Infosys’s decision to bring back Nilekani. On 27 August, the first day of trading after his comeback was announced, Infosys shares jumped 3.14%.

“We believe the introduction of Mr. Nandan Nilekani—Co-founder and former CEO and MD of Infosys, as the Chairman of the Board of Directors of Infosys is a positive development,” Aniruddha Bhosale, an analyst at Deutsche Bank, wrote in a note.

Following the resignation of four directors, including chairman R. Seshasayee, Nilekani will have to address the twin challenges of reconstituting the board and finding a replacement for Sikka, Bhosale noted.

“However, his impeccable track record at executing complex engagements—both in and outside Infosys, make him a favourable candidate for all stakeholders of the company and should help bring stability in business performance,” he wrote.

The appointment of Nilekani marks a significant victory for Murthy, who has repeatedly pulled up the company over the past 18 months for perceived corporate governance lapses. “We are moving quickly to put in place an architecture to move us forward, including getting the new CEO, and a board structure... on the CEO search, we are going to cast a very wide net,” Nilekani said.

In addition to finding a new CEO and reconstituting the board, Nilekani will also work with key executives, including the board’s committee of directors, to help outline a new strategy that is expected to result in a few management changes, according to comments he made in an analyst call.

Nilekani declined to comment on the strategy, calling it premature, but said details will be shared in October.

For now, the man from Sirsi has soothed the nerves of Infosys’s largest investors. If Nilekani can manage to fix all of Infosys’s present-day problems and leave on a high whenever he feels his work is done, he would have managed to pull off something that even his mentor and fellow Infosys founder Murthy could not manage with his comeback in 2013.

Given his past track record, the odds are very much in favour of Nilekani.

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