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Vishal Sikka exit revives promoter vs outsider debate for Infosys CEO post

LiveMint logoLiveMint 18-08-2017 PTI

New Delhi: The promoter-versus-outsider debate has returned to the fore on running a blue-chip enterprise in India with experts blaming differences between the top management and some founders for Vishal Sikka exiting as Infosys CEO.

Sikka took charge as Infosys’ first non-founder CEO in 2014, prior to which the top post at the company was held by one or other founders of the country’s second largest IT firm.

The company on Friday announced a surprise resignation by 50 -year-old Sikka, who cited “a continuous stream of distractions and disruptions” for his decision, while the Infosys board was direct in blaming “continuous assault” and “campaign” by founder and ex-chairman NR Narayana Murthy.

This is the second high profile exit of an ‘outsider’ from the top post of a big enterprise in India, after Cyrus Mistry was removed as the head of the over $100 billion Tata group. While Mistry’s family has a significant stake in Tata Sons, the group’s holding company, he was still seen as a non-Tata.

The main reason cited for his exit by several experts was differences with Ratan Tata. Tata group has appointed N. Chandrasekaran, again a non-Tata but a long-timer at the group firm TCS, as its new chief.

A large number of Indian blue-chips are run by promoter family members and include Bajaj, Hero Group, Bharti, Mahindras, Dr Reddy’s, Lupin and Sun Pharma. While several of these appoint professional outsiders as CEOs and for other top positions, the top-most executive positions (including as executive chairperson) are held by the promoters.

At the same time, there are also large groups like ICICI, HDFC, ITC, L&T and Axis Bank where the top-management positions are held by non-promoters and for several years together without any disruptions in several of such cases. At several family-run companies, children are seen to be groomed as successors and some of the examples include both the Reliance groups, Wipro, Godrej Cipla and Adani.

While 70-year-old Narayana Murthy’s son Rohan Murthy was also associated with Infosys for a while, the IT czar asserted on Friday he is not seeking “any money, position for children, or power” and his concern primarily was the “deteriorating standard” of corporate governance at Infosys. Still, several experts and industry leaders opined it was the differences between the promoters and the top management that led to Sikka’s exit.

Entrepreneur and Rajya Sabha member Rajeev Chandrasekhar tweeted that it is a low point in the history of Infosys and it is “inconceivable” that a professional CEO appointed by the board and shareholders will be “hounded out”.

Industrialist Harsh Goenka tweeted, “To run an organisation effectively you need to humour and understand the axis of power... Cyrus, Sikka didn’t”.

Investor advisory firm IiAS said transitioning from a ‘promoter’ led culture to a professionally managed company is a challenge—for both the company as well as the professional manager.

HDFC Securities’ VK Sharma said Sikka’s exit draws a long-drawn out boardroom battle to a close. “While the company did better than the industry during Sikka’s tenure, it was no where near achieving Sikka’s own $20 billion target by 2020. The forthcoming buyback may delay the stock from falling more,” he said.

Sharma said Sikka’s allegation that he was continuously being distracted does not wash as he had long enough a honeymoon period to make his mark. Sikka’s resignation also led to Infosys’ stock plunging sharply and the company’s market valuation saw an erosion of over Rs22,000 crore.

VK Vijayakumar, chief investment strategist at Geojit Financial Services, said the market has signalled its displeasure with the stock tanking by 10 per cent, but this unfortunate incident might turn out to be an opportunity if the board quickly finds a new CEO who can lead from the front without “disruptions” from the promoters.

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