Infosys: The Indecent Proposal

On August 1st, I landed at Bangalore to meet Vishal Sikka, the new CEO of Infosys for the first time at their sprawling campus. At noon, a select few of us gathered at the hallowed boardroom of Infosys, overwhelmed by its high ceiling, the teak oval table and the leather upholstered revolving chairs.

As I looked around, what particularly drew my attention in that room was a white wall adorned with framed photographs of all those distinguished men and women who were once members of the Infosys Board. There were neatly framed in three rows across ten columns. The top row had a picture of Ashok Arora, one of its elusive founders, who sat alongside the venerable Sushim Datta. Giving them company was HDFC Banker Deepak Satwalekar smiling next to former CEO Nandan Nilekani and the charming Rama Bijapurkar. Then, there was Phaneesh Murthy, once NRN's blue-eyed boy, and Ashok Vemuri, who has now taken Phaneesh's job at iGate. In the third row were the beaming pictures of two gentlemen - V. Balakrishnan and TV Mohandas Pai, both former CFOs who once aspired for Vishal Sikka's job.

I told a former colleague standing next to me, "What a remarkable bench Infosys had". And she said "Yeah, anyone of them could have made the cut". True that.

But to me, there was a little more. To see all of them, irrespective of stature, accomplishments, contribution and burnt bridges, placed on the same pedestal, reflected the company's large-heartedness, decency, culture and spirit of democracy.

Little did I or anyone in that room that afternoon realise that two of those men had already fired a fresh salvo even before Sikka’s assumed office. In a letter dated July 29, Bala and Mohan, two former CFOs (along with former Senior VP, DK Prahalad) proposed to the Infy board to do a Rs 11,200 crore buyback at 52 week high of Rs 3850 per share. They offered 3 reasons:

1. To correct a "dramatic valuation disconnect": To illustrate this point, the letter said TCS trades 22x compared to Infy's 15.6x.
2. To use cash effectively: Infosys is sitting on Rs 30,000 crore of cash and has not done any game changing acquisition so far.
3. To signal a buyback as boost of confidence in the new CEO.

Bala and Mohan are extraordinary professionals and played important roles in building Infosys. As investors they are well within their rights to ask Infosys for a buyback. And, it is up to the board and the new CEO to decide whether it wants to sit on cash or return it to shareholders.

Why Now?
To write a letter of this nature even before Sikka begins his job reveals an indecent haste unbecoming of two former CFOs. It lacks gratitude towards an institution that created them and their wealth. Had this letter been written by institutional investors offering this cold, calculated logic of price and timing, it wouldn’t have struck a wrong chord.

The letter also states and I quote, "The Board of Infosys had been highly conservative in the past and the continuation of such extreme conservatism at the cost of destroying shareholders wealth is not in the best interests of the company"
So these two gentlemen were now accusing the Infosys' board of being 'extremely conservative' and ‘destroying shareholder wealth’. Remember, this is the same board they were members of! Where was this concern for shareholder wealth when they were part of the company?

In the past, both Bala and Mohan (in their days as CFO) had adroitly defended the need for a high cash balance and celebrated Infy’s conservatism as a virtue especially in the context of acquisitions. To say now, that the same conservatism may destroy shareholder wealth, seemed self-serving and reeked of opportunism.

Being opportunistic is not illegal. But it lacks grace, it lacks basic decency and is devoid of the large heartedness that Infosys displayed in treating some of its employees even after they had burnt their bridges.

It is akin to seeking a higher share of the family property from an ailing parent. At least be decent and wait till he recovers before you seek an additional pound of flesh.

This would hurt Mr Murthy!

Birth of a new Infosys

June 12, 2014. This morning, Infosys announced Vishal Sikka as its new Chief Executive Officer. This change of guard marks the end of the innings for the promoter group and the arrival of the first external professional CEO to take over the reins of Infosys. While the market reaction today has been muted, the importance of this move cannot be understated. Vishal Sikka, comes with an impressive and successful trackrecord as Board Member and CTO of SAP. His role in SAP's legendary battle with Larry Ellison's Oracle has been well documented. As a technologist, he will undoubtedly steer Infosys to the opportunities of the future. However, the challenge before him is daunting. He needs to first stop any further senior-level exits, revive the sagging sales shoulders and win the trust of employees, clients & key stakeholders of Infosys. Most importantly Vishal's first test would be to imbibe the culture of Infosys and go with the flow at the earliest.

Chairman Emeritus Murthy

The arrival of Vishal Sikka also marks the exit of NR Narayana Murthy and Kris Gopalakrishnan from their executive positions. Mr Murthy gets back as Chairman Emeritus. In a move that reinforces the exalting standards of corporate governance that Infosys has always stood for, Mr Murthy has dissolved the Executive Chairman's office and his son, Rohan Murty will leave the company. Infosys has been under intense media scrutiny for the past year since Mr Murthy came back. Particularly, the perceived 'back-door' entry of Rohan Murty has been questioned. In one fell swoop, Mr Murthy has shut all critics; reinforced his commitment to the principle of meritocracy and has reinstated Infosys as the most democratic corporate organisation in India. This deserves to be applauded.

Exit Shibulal

SD Shibulal, the current CEO, will relinquish his post and resign from the board from the end of this month. History will judge Shibulal poorly as he led Infosys during its worst phase ever. Investors and media have been particularly hard on the man. Here is one data point before you judge: Since August 2011 to June 2014, Infosys stock was up 43%. Compare this to TCS' 140% and BSE IT Index 83% during the same period.

Road Ahead

Infy's possesses world-class execution capabilities. Its biggest problem has been with sales and some would argue even with strategy. It remains to be seen how Vishal Sikka will effect change in a company that has not embraced change well, atleast not so far. Lastly, to combat bad press reportage on the recent exit of its senior executives, Infosys shot off legal notices against leading media outlets alleging defamation. This unusual move conveyed a sense of desperation that Infosys is not known for. For an organisation that has always believed in transparency, shooting the messenger was poor form. In Murthy's own words, "there should be no information assymetry internally and externally about Infosys". With this as a guiding principle, it would serve well if Vishal Sikka drops the cases at the earliest. That would be a positive start for Infosys to regain perception.

Why Infosys should not need Murthy And Why Murthy does not deserve Infosys!

In the past two days, almost everyone is singing rah-rahs about Mr Narayana Murthy getting back at the helm at Infosys, India's iconic technology company. The stock jumped 5% today and timelines are full of platitudes saying how it is such great news for Infosys. I am struggling to understand why is this is so wonderful for Infosys and all its stakeholders? No one is disputing NRN’s greatness or his contribution in creating that wonderful institution called Infosys. No one is taking away from the fact that he was the Chief Architect of the Infosys story - creating jobs for millions of Indians. We all know all of this! This story was written ten years ago. We can’t keep repeating the same fable over and over again. Here is the reality that Infosys faces in 2013:

Since Shibulal took over as CEO, sales and profit growth declined sharply. Its stock has taken a huge knock and so has its reputation. Two popular reasons why – Infosys refused to acknowledge quickly that clients in a slowing world want high quality service at bargain-basement price. Its pigheadedness on premium pricing meant Infosys lost the opportunity to grow fast. Infosys is growing slower than the industry and it expects to do so even this year.

Then there is the leadership issue. Ever since the last of the founders, the soft-spoken Shibulal took over, Infosys has seen a churn at the top deck. Industry watchers say he has neither managed to keep his flock happy nor has he managed to communicate the effectiveness of his strategy to clients. The mistake is strategy or leadership. Analysts say it’s both. And Shibu has not been able to disprove either.

So, this is the mess that welcomes Mr Murthy today. But does Mr Murthy really deserve Infosys?

Here are 6 reasons that he does not:

1. Mr Narayana Murthy was CEO during a different era. In the past three years, the game has changed so dramatically that the Global Delivery Model, mastered to perfection by Murthy and team, now faces a serious threat of survival. The days of so called ‘body shopping’ are over and India’s IT companies are fast finding new models to succeed. Add to this the looming threat of a new immigration law that can prohibit Indian companies from shipping young Engineers en masse from Bengaluru to the US. So why should it need a Narayana Murthy in an executive role to build or execute strategy for tomorrow? Why can’t the management team of today's Infosys fix and re-build strategy?

2. India’s best known banker KV Kamath understands growth and aggressive scaling up like no else does in India Inc. That’s exactly what he did at ICICI Bank and I reckon that’s what he’d have wanted to do at Infosys since the day he became Chairman in 2011. My guess is Infy’s conservatism must have crimped Kamath’s natural penchant for risk and style of functioning. It must have been embarrassing for Mr Kamath to be Chairman of company that sits on 24000 crore of cash and yet shows very little signs of aggression. What is stopping Infosys from making one or two large scale buyouts that can catapult it a new rung of growth?

3. If by all parameters the CEO of Infosys has not delivered, why not find a new man? Pundits say Infosys needs a young, agile, nimble-footed CEO who is able to execute a brand new strategy in the next 12-18 months. Look what Francesco D’Souza has done as CEO of Cognizant overtaking Infosys as India’s second largest IT player this year. Why not a new CEO? If not from outside, why not find someone internally? Why does Infosys need a legend from the past to chart the road ahead of the future?

4. The promoters of Infosys deserve all the credit for making Infosys what it was. But for Infosys of tomorrow, it would serve well if the same promoters cut the umbilical cord and let the company be run by the Board that consists of accomplished professionals. Why should the promoters continue to have a say?

5. When Mr Murthy retired in 2011 – he upheld two important values. That every promoter will quit at the age of 60 and that no family member can inherit leadership roles. By coming back, does Mr Murthy not dilute this rule himself? And by appointing Rohan Murthy as EA to the Executive Chairman, does the Board not lower the exalted standards of corporate governance that this institution has set for itself? Why...wasn’t there anyone else within Infosys capable of being appointed EA? Really? If it is NOT a leadership role, why then make an announcement? When was the last time anyone heard the appointment of an EA included in a press statement?

6. Lastly, what if Mr Narayana Murthy is unable to reverse the slide at Infosys? He is putting at stake his reputation and image that has been painstakingly built over the past several decades. So will the Board want to risk his legacy as someone who built Infosys or as someone who could not arrest its decline? At 66, Murthy could well do without this challenge.

Last word, if this move is about fixing perception than fixing the business, then then the jury’s out if they are going to be proved right on either.




(pic courtesy: businessweek)

Sex & Software: What turned Phaneesh Murthy On!

Dear Phaneesh Murthy,

Two days ago, a press release from your erstwhile company woke me up to tell me that you have been fired. I called up your ever-efficient media manager to ask him what the hell was going on. The events that have unfolded since have left me numb, sad and angry. I will tell you why.

I don’t want to sit in moral judgment of what you did or didn’t do. Frankly, I don’t care about your personal life. If what you have done is illegal, I suppose you will have to pay for it. Like you did the previous times. But that’s not the reason for my anger.

What I am most upset about is - WHY - Phaneesh Murthy would you do this to yourself again? That morning I was numb as it dawned on me that sometimes idols do have feet of clay. Yes! I was a fan boy, Phaneesh Murthy. I admired your professional achievements as a business leader and how you rebuilt yourself after your previous attempts at self-destruction.

The first attempt in 2002. You were the rising star of Infosys. Your scorching pace of growth ensured you exclusive access to the high table of ivy-league brahmins who ran India’s IT industry. You belonged there. It was from this pedestal were you hurled headlong to burn for the acts you committed. You deserved it then, Phaneesh.

But what fascinated me about your story was not the rise or the fall but your resurrection. How you remarkably dusted the past off and built a new future. I wondered how you found the inner strength and energy to start all over again. The world watched as you started a small company which got acquired by iGate.

Then as CEO of iGate, I remember distinctly how after every quarter you spoke passionately about your growing business, in your words, “Growth despite a challenging environment.” I noted the measured staccato, your attention to detail and your indefatigable drive to take on the world. It was with this drive that you audaciously led iGate acquire a company twice its size and make it a billion dollar enterprise. I heard from people who know you well that you worked fourteen-hour days and ran a mile daily.

Phaneesh, a lesser mortal would have crumbled by the weight of shame and ignominy of the past; Not you. You chose not to be written off. You meticulously built brick by brick, even as your clan sniggered, to get back on that pedestal arguably even taller.

As iGate completed the merger with Patni, and the company delisted from the exchanges, I thought, your life had come a full circle. I could almost hear you say “Yes, I f*cked up personally. But I still have it in me professionally to build a successful enterprise”. I, like many others, thought you made good and had proved your point. I couldn’t have been more wrong.

Because for you Phaneesh, the lines that divide professional and personal lives never existed. So look at you now....You have come crashing all over again. This time with a louder thud from where I am not sure you will ever be able to recover. Respect, Trust rebuilt painstakingly in the past ten years, all jerked off.

Sad.

So long Phaneesh, and oh before I go here is a piece of unsolicited advice...If you can, try therapy.

Get well soon!
Harsha

(Picture Courtesy: indianexpress)

2012 : Music begins

Vikram Akula’s Dilemma – Profit Vs Non-Profit

“We have given the poor a chance,” said the CEO of SKS Microfinance in an interview to CNBC-TV18. You usually don’t hear such things from the CEO of a company that is going public. But then Vikram Akula is not your typical black-jacket CEO variety, he prefers sporting bright cotton kurtas, avoids jargons like “inorganic growth going forward”. He is more likely the type who eats organic rice probably grown in the most arid parts of Andhra Pradesh where SKS operates.

Vikram Akula flung to fame when he rescued the poor in the Telengana region from the exploitative tactics of local moneylenders. His idea was pure and his execution impeccable. Lend money to those who need it but can’t borrow. Since 1997, SKS Society, a not-for-profit organization, has been lending money as low as Rs 100 to a maximum at Rs 15000 to millions of people. In CK Prahalad’s parlance, SKS was targeting the bottom of the pyramid. Over the years, his business grew big. Very big. Big enough to help millions, big enough for politicians to wonder how he did it and big enough for South Bombay bankers to salivate. Now, SKS is India’s largest non-banking finance company, bigger than many govt and private banks, and has a portfolio worth 1 billion dollars.

So far so good. Now SKS wants to grow bigger and needs more capital. So Akula has brought his baby to the shrine of capitalism – the stock markets. SKS is offering 1.68 crore share to the public to raise Rs 1500 crore through an Initial Public Offer (IPO). Stock market pundits are all singing rah-rah about the uniqueness of the business model, the untapped potential of the microfinance industry and the top notch quality of management. True, SKS Microfinance is a kickass stock to buy, even if it is a tad expensive off-the-counter, but that’s not where the problem is. The problem is what Vikram Akula stands for or atleast stood for. The vision of what began as a noble social initiative whose objective was to cater to the financial needs of the poor in a sustainable (not profitable) and professional manner seems muddled now (Remember, SKS Society started in 1997 as a not-for-profit firm). So muddled that skeptics have a reason to questions Akula’s intention in the first place. Some reports say that the initial investment of the promoter was anywhere between Rs 24 to Rs 137 per share. Now, Akula and others have sold to investors at a whopping Rs 636 per share. That was just one-fourth of his stock options that fetched him 26 times returns.Frankly, it does not bother me so much that Akula personally got a great deal. Here was an entrepreneur who had an idea started a business, created value and cashed out when the opportunity arose.What bothers me is ‘why’ SKS Microfinance wants to access the capital markets, and ‘how’ it has transformed into a capital hungry leviathan that is seeking profits. More importantly, my angst is its eagerness to allow private equity players and other market investors such as Sequoia Capital to become part owners of the company. I am told when the issue hits the market; Sequioa will sell 10% of its holding.Don’t get me wrong, I hold no grudges against the Sequioas of the world, in fact, quite the contrary. They do a fantastic job finding the right business, fund it, watch it grow and sell for a profit. So their objectives are very clear.
But what is SKS’s objective? The larger question – Is the goal of a microfinance venture making profits? Vikram Akula, in an interview to CNBC-TV18, defended saying, “We believe that if we use the commercial approach you can actually raise more capital and disburse to more people. We have disbursed over last 5 yrs, 3.2 bn dollars (Rs 14,000 cr). We feel that this in fact is the best way to put most money into most hands of people.”

That’s one view, here is the other: The Financial Times reports that Muhammad Yunus, the Nobel Peace Prize-winning founder of Bangladesh’s Grameen Bank, has criticised the commercialisation of the industry, saying profit-oriented microlenders are little different to the loan sharks they once set out to replace.Meanwhile, I came across some more information that disturbed me. One more part owner of SKS, Unitus Holding, originally a microfinance funding company sacked its employees and unwound its microfinance operations after Vikram’s IPO plans got finalized. Some of its Directors, I hear, will directly gain in their personal capacity from the public issue, as promoters.
Frankly, I don’t know what is right or wrong. So I reached out to Deval Sanghavi of Dasra.Deval argues that all social businesses should not have a goal to make profits but instead reach out to a greater beneficiary base in a sustainable manner. “Unfortunately, it is difficult for these organizations to raise large amounts of philanthropic funding therefore encourage investment from for-profit investors who at times decrease the organization’s social impact by demanding a greater ROI. Therefore once these two parties for-profit investor and social business are brought together questions do arise in terms of motives. At that time it is really up to the management team and board to determine which path to take,” he says.I haven’t been able to make up my mind on which side is right. I’ll leave you to do that. But my bigger fear is the fallout of the SKS’ IPO, if it succeeds. Tomorrow, sensing this valuation game every (dare I say) shady real estate company in India, under the garb of a social cause, may float a microfinance company.
We run the risk of several wannabe Akulas putting up a farce of lending to millions of “unbanked” people, wait for the business to gain some critical mass, sell stake to an investor and walk away with a profit. None of this is against the law.
But isn’t there a moral dilemma here?

Mani's Ramayana

"Has Maniratnam lost his marbles?" asked a friend, after watching his latest Raavan, in Hindi, starring Abhishek, Aishwarya and Vikram.
For the first time after watching a Maniratnam film, have I felt so ambivalent. The story, as the name suggests, is loosely based on the Ramayana. As one popular version of the legend goes, Ravana kidnaps Sita to avenge the humiliation suffered by his sister Shoorpanaka, by Rama's brother Lakshmana. Then Rama, with the help of all good forces, launches a battle against the demon king, good triumphs over evil. And...wait...before he accepts Sita back, she goes through an Agni Pariksha to prove her chastisty. End of story. This is the Ramayana we all know.

Now replace Rama with Dev, a cop played by Vikram, Aishwarya plays his wife, Ragini. And then, there is Bira played by Abhishek, who is the anti-god, the antagonist Raavana, who kidnaps Raagini, and falls in love with her. Bira, is a tribal leader, who the State is after. His sister is dragged out of her wedding by cops and ends up being a victim of custodial rape. This explains Bira's motivation to kidnap Ragini. So it is a pretty simple straightforward story, which you could argue, Mani does not attempt explaining in great detail. But then, why should he? The Ramayana, is pretty much part of our collective conscious. There is no needless banter to even an attempt to create a context or build character.

Instead, Mani employs the visual medium as the narrative. Many of his earlier films such as Roja or even Kannthil, had beautiful imagery or interesting frames as tools to create the intangible flavour of a Mani film. In Ravana, the medium is the message. The visual is the screenplay.
The breathtaking locales and the Santosh Sivan's brilliance leave you spellbound. The cinema of Raavana is so powerful that you cannot be a part of its cast and not get noticed . C'mon, how can you be a Ravana or even a Hanuman in anyone's Ramayana and not get noticed.

This treatment of Ramayana needed the actors to perform as if they were on stage, or maybe in a musical or a pantomime. The challenge, therfore, was to match the visual brilliance with the power of performance. No room for subtlety....you had to be loud. Which brings me to Bira and Abhishek Bacchan. What I felt the most about Ravan was that I did not feel anything for Bira. I was neither angry with him nor did I feel pity. Abhishek does very little to explain why the anti-hero deserves to be loved. The problem with Abhishek has been his inability to understand Ravana's pain or dilemma. His facial expressions make an attempt to reveal Ravana's neurosis and his self-destructive jealousy, but his body language is too much of lanky city-bred hip-hopper, whose pedicured nails, are out of sync with the anger that his eyes try to convey. The physical challenge that Abhishek, Vikram and Aishwarya have had to go through as Bira, Dev and Raagini is what makes this film, Mani's Ramayana. Abhishek unfortunately makes a feeble attempt at Bira. Vikram, on the other hand, is compelling, and makes me want to watch the Tamil version of the film where he plays Ravanan. Aishwarya is beautiful and refreshingly not affected.

This Ramayana needs to understood in many layers. It is a state versus renegade battle - so topical as the Govt of India is currently trying to crush the naxal movement across many parts of the country. It also reminds me in parts of the story of the forest brigand Veerapan. Perhaps why, the antagonist was named Bira.

So, in the final analysis, I dont think Mani has lost his marbles at all. This baby from Madras Talkies is different. Very different from what we have seen so far from his stable. To me, it is sheer poetry in celluloid. Watch it without comparing it to his previous works. The only point of reference is Valmiki's Ramayana.