Tata Group, Infosys and the trouble with business these days

Troubles between the founders and the CEO/board of companies are common with start-ups. As the novice operation experiences success, the founder is found to lack the skills needed to take the company to the next level, resulting in the board appointing an outsider CEO.

This can cause much heartburn for the founder, but is an accepted norm in Silicon Valley, and back home in Bangalore, as an essential rite of passage for the company’s growth.

What we have witnessed in the Indian boardroom in the recent past is a somewhat different beast. Both the Tata Group, which ousted chairman Cyrus Mistry in October last year, and Infosys, whose founders are reportedly unhappy with the way the company is functioning under Vishal Sikka, are established marquee names of Indian industry.

The Tata Group has a legacy spanning over a century while Infy is the IT bellwether that heralded a whole new services sector.

Reports suggest that Infy founders, led by NR Narayana Murthy, are unhappy with recent happenings at the Bangalore-based firm. Issues involve the huge severance packages given to two outgoing employees as well as the stratospheric compensation awarded to Sikka.

For a man famous for his asceticism - tales of Murthy standing in line with other employees in the Infy canteen are legion - his successor’s propensity to spend big monies has disturbed Murthy and other founders.

The Tatas’ drama has more obscure origins. No one really knows what transpired at Bombay House to merit the sort of animosity that precipitated Mistry’s sacking, but indications are the Group, euphemism for Ratan Tata, was unhappy at the way things were being run.

Of the over 50 companies under the Group’s umbrella, only TCS and Tata Motors JLR are doing well. Mistry wanted to right matters by taking bold, if uncomfortable, decisions that would have diminished Tata’s legacy. This brought about the downfall.

Sikka has defended the remuneration on the grounds that if Infy is to become a truly global company, it has to keep pace with compensation patterns in mature markets. This is especially so, Sikka has said, if Infy is to get out of its traditional business and explore artificial intelligence and the Internet of Things, the driving forces of tomorrow’s IT. 

In both cases, the newly anointed CEO is seen to take decisions based on a fresh analysis of the variables before him. Both Sikka and Mistry have stressed the need for their respective companies to revamp themselves if they are to remain relevant and profitable in the future. Their stance, while meritorious, is looked upon as an attack on the values and legacy of their founders.

That said, there are real differences in the two sagas that have been papered over in the rush to spot a trend. Murthy’s objections arise from his commitment to “compassionate capitalism”, a philosophy that, at Infy, has translated into the unspoken rule that the highest salary in the company will not be greater than 50-60 times the median compensation.

In the latest fracas, he has been careful not to condemn Sikka but to raise questions about the way compensation has been altered from how it has been traditionally decided at Infy.

The Tatas’ case is roundly different. By all counts, the measures Mistry was contemplating to right the ship were needed for the company. His justified criticism, since made public, of Tata Steel’s acquisition of Corus was seen within the company as a frontal attack on Tata who championed the move and was hailed as a corporate czar by Indian media when the deal went through in 2006. Likewise his intent to bring the many hotel properties under a unitary Taj brand to make Indian Hotels profitable, an idea so necessary it will be implemented even under the new dispensation.

The Tata imbroglio has also raised questions on corporate governance within the Group. The surgical manner in which Mistry was ousted from the Group companies before being eliminated from the Tata Sons Board this week makes mincemeat of the reputation of its independent directors.

Startups are often dissed for the emotional roller-coaster they become for employees and the other parties involved due to their founders’ eccentricities. From Steve Jobs and Elon Musk and Travis Kalanick to Rahul Yadav of Housing back home, there is perpetual tension in reconciling their brilliance with the less savoury side effects it brings.

The recent spate of unease at more established boardrooms points to how this phenomenon is not restricted to upstarts.

Also read: Immeasurable harm done to Tata Group's reputation: Read Cyrus Mistry's letter