Case Study: Infosys Limited: Governance Imbroglio
Q1.There are multiple governance issues in infosys Limited. List atleast four them and rank them according to their seriousness and explain. (600 word)
May 2019. Infosys Limited, once the bellwether of the IT industry, announced that its performance for the financial year 2018-2019 was in line with the guidance its new CEO, Salil Parekh had given at the beginning of the year. Annual revenues at $11.8 billion had grown by 9% (against the guidance of 68% ), and profit margin at 22.8% was within the guidance of 2224% provided to the investors 1 (see Exhibit 1). More importantly, Parekh's efforts to "stabilize" the company, after a tumultuous period that witnessed a public face off between the company's board and its iconic founder, N R Narayana Murthy, which resulted in the exit of Dr. Vishal Sikka, the CEO and R. Seshasayee, the Chairman of the board, seemed to be working. In April 2018, along with the new Chairman, co-founder Nandan Nilekani, Parekh had outlined a three-year transformation plan. He declared: In year one, we will stabilize the company and invest. In year two, we will begin to show momentum and in year three, we will accelerate growth. 2 There are some things which take that amount of time. No matter what pressures are there internal or extemal, my experience is that it is best not to compress that time because you can make a real mess of it, if you compress it. 3 The challenges confronting Parekh were not restricted to compression of time. The bigger dilemma was negotiating the classic trade-off between growth and margin. While Parekh preferred to privilege growth over margin - he believed it would be difficult for the company to remain relevant to its clients without making investments, especially in acquiring expertise which would inevitably dampen margins - founder Narayana Murthy had gone public with his views that he did not believe in reducing margins. Murthy said: 4 The biggest challenge that the Indian IT industry has faced in the last 40 years and has still not solved is the inability to move from being "reactive problem solvers" to "proactive problem definers and solvers." Our customers used to tell me that our youngsters were sincere in doing whatever the customer asked them to do rather than suggesting solutions to customers' problems proactively. That was the situation in 1980 and it is the same in 2018! This is a huge cultural issue in India. Huge investment in training by companies and a lot of hard work by employees are needed to overcome these cultural challenges... Once you say publicly that you are willing to give up margins for growth, it becomes a slippery slope. Your sales team will start selling the same deals at lower margins. The company becomes weak over time since it has less money to invest in better employee salaries and perquisites, R&D, training, quality, productivity, technological and physical infrastructure, branding and to offer better retum to investors. Every responsible board member and every CEO has to resist this temptation. Peter Bendor-Samuel, CEO of Everest Group, a leading management consulting and research firm in the technology space, disagreed. He said: Investors have had Infosys in an unsustainable equation where they expect it to move into digital, while keeping growth and margins high 5... Salil has shown tremendous integrity and strength by forcing the firm to confront this dilemma. Until Salil solidifies his support they will continue to be a house divided. A version of this is what eventually sunk Vishal, in that Vishal never fully gained the support of the senior leaders and they resisted many of his initiatives. With a divided leadership team, execution in sales and other areas suffers. 6
