When Vishal Sikka finally submitted his resignation on 18th August, there was little by way of surprise. The relations between the founding promoters and the current board had deteriorated to a point from where there was really no turning back. Even as the slanging match between the promoters and the board goes on, there are three key things to understand here.…
Easier said than done…
When Murthy and his co-founders gave up full time management of the company 3 years back, the idea was to move Infosys from a promoter-run business to a professionally run business. That transition is apparently much harder than was originally envisaged.Even in normal times, it is not easy for founder promoters to cede decision making control to professional managers. This is more so,when the iconic brand was built by the founders over a period of more than 3 decades. Professional managers, like Vishal Sikka, obviously came in with a different set of expectations to the table. Obviously,Infosys did not have the institutional framework that could support this kind of a major transition. The rift was already wide open in the last one year because while institutional investors do control the majority shareholding of Infosys, it is the founding promoters who still have a control over the DNA of the company. Eventually,this decision was all about a DNA mismatch!
What happens to the stock?
If the initial reaction to the resignation of Sikka was any indication,then markets have reacted negatively to the news. The Infy stock was down over 10% and had witnessed heavy selling from institutions.However, this could be more of a temporary phenomenon and the prices could reverse once there is clarity on the road ahead for Infosys. At the end of the day, Infosys has been a tough company that has seen business disruptions like the tech meltdown in 2000 and the global financial crisis in 2008. Of course, there the challenge will be to focus more on the digital side of the business where most of the tech spending is actually happening.
Undoing the damage…
The first priority for the company is to undo the damage over the last 1 year. Not only has the stock taken a beating in terms of weak business performance, but the aura around the company has also faded.For long, Infosys literally spoke in just one voice. After Murthy,CEOs like Nandan Nilekani, Kris and Sibulal ensured that the DNA of the company was intact. The best way to restore the DNA of transparency and corporate governance is to fall back upon the promoter group to run the company. That may amount to giving up on its professionalizing ambitions, but at the current juncture, that will be in the larger interest of Infosys!
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