You are using an older browser version. Please use a supported version for the best MSN experience.

Infosys stops just short of calling founders activist shareholders in risk factor assessment

LiveMint logoLiveMint 13-06-2017 Varun Sood

Bengaluru: Infosys Ltd has warned that actions by activist shareholders could affect the company and devalue its stock. Although the company has stopped short of naming names, people familiar with the development said that some moves by its founders clearly fall in the area of activism.

“Actions of activist shareholders may adversely affect our ability to execute our strategic priorities, and could impact the trading value of our securities,” said Infosys, listing it as one of the risk factors in its 20-F document, which was filed on Monday. The document is a filing with the US Securities and Exchange Commission. This is the first time that Infosys has called actions of any of its shareholders a risk factor.

In a response, an Infosys spokesperson was at pains to stress that the company was not referring to its promoters as activist shareholders: “Our industry is undergoing significant transformation. Over the past year, there have been specific instances of companies in our industry seeing active participation and discussion with shareholders and stakeholders leading to corporate actions. This is the reason we have chosen to highlight this risk factor in our disclosures. We would like to categorically state that ‘activist shareholders’ called out as a risk in our Form 20-F does not refer to any particular group of investors or individuals,” the spokesperson said.

Infosys’s founders together hold 12.75% equity in the company.

Led by N.R. Narayana Murthy, they have publicly expressed their disenchantment against some of the decisions by the current board, twice in public, since February this year. In February, Murthy lambasted non-executive chairman R. Seshsayee and the head of nomination and remuneration committee, Jeffrey Lehman, over the board’s decision to give a generous and unexplained Rs17.38 crore in severance money to its former chief financial officer Rajiv Bansal.

In April, in response to an email questionnaire from Mint, Murthy again chided the Infosys board’s decision to award a higher salary to its current chief operating officer, U.B. Pravin Rao.

Only five of the seven original co-founders—Murthy, Nandan Nilekani, S.D. Shibulal, Kris Gopalakrishnan and K. Dinesh—are categorized as promoters of the company.

The 20-F filing says: “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.”

Interestingly, in April, the company’s board as well as management did term the noisy and public spat with the founders a distraction.

“This may also require us to incur significant legal fees and public relations costs. The perceived uncertainties as to our future direction could affect client and investor sentiment, resulting in volatility in the price of our securities,” Infosys added in its filing.

Whoever it is aimed at, Infosys’ move to mention activist shareholders is a deviation from what its rivals have done. Neither Wipro Ltd nor the Nasdaq-listed Cognizant Technology Solutions Corp., which actually saw one of its activist shareholder write a strongly-worded letter to the management last year, has classified actions by its shareholders as a risk factor

In November last year, Elliott Management Corp., a hedge fund which owns a 4% stake in the company, asked the management of Cognizant to improve its operating margins, have a structured capital allocation policy and induct new members on its board. Cognizant took note of its shareholder’s concerns, and earlier this year outlined a new capital allocation policy and also outlined that it expects to have a 22% non-GAAP (generally accepted accounting principles) operating margin by 2019, up from its current 19-20% margin.

On 12 February, Mint asked Seshsayee at an Infosys press conference in Mumbai if the company expects to classify the actions of some of the founders as a risk factor. “I hope not,” Seshsayee said then.

More From LiveMint

image beaconimage beaconimage beacon