How Infosys, Tata clashes play out in India Inc's new Kurukshetra

While the Infosys crisis is being compared to the Bengaluru-Palo Alto distance today, you can add one more appellation, "Kurukshetra" to refer to the corporate behemoth's tensions.

After what looked like a class-war between Infosys founder Narayan Murthy and CEO Vishal Sikka, the latter calling himself its new "Kshatriya" king who has come to stay and rule, it, perhaps, readily assumes that name of the famous battleground of Mahabharata.

Sikka is the first tech CEO in Infosys history. Earlier, operation and strategy took the front seat and the footsoldiers of technology followed the artillery.

But this means Sikka is new to operations, governance and financial control - the holy business trinity closely held by ultra-conservative, first-generation technical graduates-turned entrepreneurs like Murthy.

Amidst an ongoing tussle, CEO Vishal Sikka’s personal class remark has come like a thorn in the flesh. Such pugnacious display of words, perhaps, comes from an underlying penchant for change.

For Murthy, there is no letting go of his demand that the company’s board give a satisfactory explanation on the issues of poor governance. He won't rest before his demands for greater probity are met.

While Sikka and R Seshasayee, chairman of Infosys' board of directors, on the one hand say that the dispute is not a battle, it is publicly proclaimed that the former is a "warrior". It is said there is no question of governance issues and the affairs are run with the stamp of approval of the board and the majority shareholders. 

As the boardroom battle is already playing out in the public domain, it might be worthwhile to turn to the statutory requirements on disclosure of remuneration, severance fee or other benefits to directors and key management personnel (KMP) in the company.

Experts also point out that it wouldn’t suffice to comply with statutory requirements - it is necessary, but not sufficient condition to meet corporate governance standards set by a company.

As per Companies Act and the SEBI listing obligations and disclosure requirements (LODR) Agreement, 2015, companies are required to disclose the remuneration of directors and KMP in their annual returns and financials.

Under Sec 134(3) (e) of the Companies Act, firms are required to constitute a nomination and Remuneration Committee (NRC), which is - of course - in place in Infosys.

But the Board of directors’ report laid before the shareholders, along with financials, is required to contain the company’s policy on directors’ appointment and remuneration.

Rule 5 of the Companies (Appointment and Remuneration of managerial Personnel) Rules, 2014 requires that every listed company make several disclosures relating to remuneration to managerial personnel in the board’s report.

Rule 3 of the Remuneration Rules, on the other hand, requires every company to file details of directors and the KMP with the Registrar of Companies (ROC).

Section 202 of the Companies Act, allows a company to make severance pay to a managing / whole time director or a manager as a compensation for loss of office in certain circumstances.

The SEBI listing agreement requires clear disclosure of severance fees of directors in the corporate governance report.

While most legal experts agree that there may have been an element of non-transparency in relation to disclosure of remuneration and severance package of some KMPs, it appears to be a fact that the management has chosen perhaps to be a bit economical with the truth - with a mere passing footnote in the statements.

J N Gupta, founder, stakeholder empowerment services, a proxy advisory firm to Institutional Shareholders, says Infosys may have been legally compliant, but corporate governance practices go well beyond legal compliance.

Shriram Subramanian, who had taken up for the founder directors, is of the opinion that the promotes should also come out with solutions for a way forward.

Arun Duggal, an independent director, feels the tussle is an issue of corporate governance capacity, meaning the board should have been more proactive in its communication with important shareholders, who also happen to be the founders apart from institutional shareholders like LIC, which is backing the founders of Infosys.

A common thread in both the Tata-Mistry and Infosys cases is the difficulty that founders or promoters face in letting go and moving on.

While with the Tatas, it is largely promoters’ shareholding that mattered and, therefore, they could unceremoniously show the door to Mistry, at Infosys, it is a different story because the promoters collectively hold only 12.75 per cent plus those large shareholders like LIC supporting them, about whose total percentage we are uncertain.

The founders want questions on Vishal Sikka’s pay package and severance pay given to some top executives, apart from clarity on some poor corporate governance practices followed lately at Infosys - against the policy standards well set by the past board.

Grounds backing both Sikka and Seshasayee say the nomination and remuneration committee have followed all procedures while arriving at the figures of pay and severance of some KMPs.

Though the board admits cultural and other differences, it maintains that it will assert its independence. 

Also read - Tata Group, Infosys and the trouble with business these days