Vishal Sikka’s exit again shows India is no country for outsider CEOs

Exit stage left.
Exit stage left.
Image: AP Photo/Aijaz Rahi
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It’s becoming a familiar script—a tragicomedy in four acts.

Curtains open to an exalted patriarch announcing his retirement after far too many decades at the helm. An adoring crowd, of both colleagues and lay onlookers, wonder aloud the fate of his fabled enterprise. But wizened and wise, he then launches forth in finding a worthy successor. Speculation and media leaks ensue. Enter stage right: the scion, (typically) a man cast in old-school values but with the dexterity that the future will demand. At his anointment, there is, of course, only hope.

After the intermission, a few years long, there is bedlam—some real, some imagined. With the heir hemmed in, a familiar ghost appears: the patriarch, never truly gone, has returned to restore order. Mouths froth amid the verbal jousting of the penultimate act, until an impeachment ends it all. The successor is shown the door, or is forced to walk. Nobody comes up to take a bow.

In less than a year now, two of India’s biggest—and perhaps most respected—businesses have done just this, and demonstrated that there’s no place for the outsider CEO.

Late last October, Cyrus Mistry, then the chairman of the Tata group, was ousted after a board meeting in Bombay House. Ratan Tata, the patriarch of the Tata family, immediately stepped in, as a spectacular bout of very public mudslinging kicked off. It took the storied group, which produces everything from salt to sedans, the better part of two weeks to explain exactly why its first chairman from outside the Tata family had been unceremoniously sacked: a nine-page statement (pdf) in November laid out Mistry’s apparent non-performance and his “devious moves” to wrest control of group companies.

In comparison, the showdown in Bengaluru has been much more genteel.

After months of being harangued, including by the company’s founders, Infosys CEO and managing director Vishal Sikka put in his papers on Aug. 18. In a letter to the board of India’s second-largest information technology (IT) company, Sikka pulled no punches:

Over the last many months and quarters, we have all been besieged by false, baseless, malicious and increasingly personal attacks. Allegations that have been repeatedly proven false and baseless by multiple, independent investigations. But despite this, the attacks continue, and worse still, amplified by the very people from whom we all expected the most steadfast support…Therefore, I have come to this moment and the end of this journey.

The first CEO from outside the Infosys founders’ group, Sikka was brought in three years ago from Germany’s SAP to steady the giant IT company and help it pivot away from the legacy businesses. “Vishal brings valuable experience as a leader of a large, global corporation. His illustrious track record and value system make him an ideal choice to lead Infosys,” co-founder and former CEO NR Narayana Murthy declared back in 2014.

Sikka moved quickly to set the house in order, focusing on innovation, moving towards high-margin business, and improving employee morale. In an increasingly difficult business environment, the new CEO was able to ensure revenue growth from $2.13 billion in the first quarter of 2015 to $2.65 billion in the first quarter of the current financial year. “Perhaps more importantly, our revenue per employee has grown for six quarters in a row. Our attrition has fallen, from 23.4% in Q1FY15 to 16.9% this past Q1, and high-performer attrition is hovering at or below the single-digit threshold for a while now,” Sikka said in an email to employees after putting in his papers.

But by early 2017, Murthy, who led the company between 1981 and 2011, seemed disenchanted with his own choice. In an interview with the Economic Times newspaper, he raised concerns over corporate governance and questioned the severance pay extended to former CFO Rajeev Bansal. Other founders then joined in and reportedly even wondered if Sikka was being paid too much.

Days after Murthy’s interview kicked up a storm, Infosys’s board and Sikka spent two hours at a press conference in Mumbai trying to set the record straight. Still, the cloud of alleged financial impropriety over the acquisition of automation technology firm Panaya in 2015 refused to dissipate. A little over a week before Sikka resigned, Murthy is reported to have again raised the issue with some of his advisors and demanded that all probes into the deal were made public. The Infosys board has been steadfast in denying any wrongdoing.

In the end, it all became too much for Sikka. “What’s been going on over the last four-five quarters, especially since February of this past year or January of this past year, is really…I mean there have been continuous drumbeats of these allegations and news stories and same stuff about Rajeev’s separation, and Panaya and all of this stuff over and over and over and over and over again,” Sikka said in an investor call after resigning. “It is absolutely sickening.”

Of course, letting go after running the show can be tough for some founders, but there has to be a balance and proper systems must be put in place. After the Tata-Mistry fracas last year, this is how K Kumar, a family business and entrepreneurship professor at the Indian Institute of Management, Bangalore, explained the conundrum to Quartz:

Usually, a predecessor is fully involved in the process of selecting a successor. That being the case, the predecessor should own up (to) his or her choice of successor and fully accept the consequences (that includes erosion of business value and personal or family wealth) that arise from the successor’s conduct and performance. Keeping the back door open to second guess (the) successor’s actions and to pull the rug from under the successor’s feet only means that the succession has not happened in spirit. This is not to say that the successor gets a carte blanche—the successor can be held accountable through other governance mechanisms, like the board, family council etc. which can be structured to function without the involvement of the predecessor.

Infosys’s board has now hit back at Murthy.

In a sharply worded statement (pdf) on Aug. 18, the board said: “Mr. Murthy’s continuous assault, including this latest letter, is the primary reason that the CEO, Dr. Vishal Sikka, has resigned despite strong Board support.”

“Mr. Murthy’s letter contains factual inaccuracies, already-disproved rumours, and statements extracted out of context from his conversations with board members,” the statement added. “Mr. Murthy’s campaign against the board and the company has had the unfortunate effect to undermine the company’s efforts to transform itself.”

Has the hero of India’s IT industry turned into a villain?