August 22, 2017 / 2:52 AM / 10 months ago

BREAKINGVIEWS-Three steps to an Infosys reboot

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Una Galani

MUMBAI, Aug 22 (Reuters Breakingviews) - Confidence in Infosys has crashed. Investors have wiped $5 billion off the value of the Indian information technology company since the resignation last week of well-performing chief executive Vishal Sikka. That’s more than twice the value of a share buyback announced at the weekend. Disputes with one of its founder shareholders on issues ranging from pay to dealmaking raises questions about governance. To restore confidence, Infosys can take three steps.

Graphic: The IT firm's shares have lost $5 bln of value since its CEO abruptly resigned:

Infosys needs to streamline. It has too many leaders. As of April, it has two non-executive chairmen, the upshot of a power struggle between Sikka and founder Narayana Murthy. Sikka is also sticking around for now as executive vice-chairman. So a lot of people will be second-guessing the chief operating officer, U. B. Pravin Rao, who was appointed interim CEO to deal with the mess.

Second, Infosys urgently needs a strong outside CEO so it can retain staff and clients in what is a people-intensive business. This should not be the founders’ choice. They essentially chose Sikka to replace them, and if that did not work, it is not clear why they would do a better job given a second chance.

Local proxy advisory group IiAS suggests bringing another founder, Nandan Nilekani, back as non-executive chairman. He cuts an impressive figure having rolled out a biometric identity system to cover more than 1 billion Indians. It is also true that Apple and Starbucks both successfully brought back founders as chiefs but it has worked less well elsewhere, for example at Twitter and Zynga. And here this would be a backward step, returning this to a business run by its original entrepreneurs, rather than by professional managers.

Finally, Infosys can demonstrate it has nothing to hide by publishing a copy of a recent independent probe in response to anonymous whistleblower complaints. The investigation dismissed allegations of improprieties around acquisitions made in 2015 and the severance package of a former chief financial officer – two issues Murthy cited in his battle with Sikka. But only the conclusions were made public.

Without more details, investors cannot judge if the founders were right, or if the company’s rebuttals were merited. Publishing the report could at least help to decide which voices deserve to be ignored or heard in any overhaul. Rebooting Infosys will not be easy, but acting fast will minimize the damage.

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- Shares of Infosys have fallen 14 percent since Aug. 18 when Vishal Sikka unexpectedly resigned as managing director and chief executive with immediate effect.

- Sikka will be executive vice-chairman until a permanent CEO is found. Chief Operating Officer U. B. Pravin Rao will serve as interim-managing director and chief executive of India’s no.2 software services company.

- Founder Nandan Nilekani should return as a non-executive chairman, IiAS, one of India’s top proxy advisory firms, said on Aug. 18. Nilekani was one of seven founders and served as CEO between 2002 and 2007. He has since overseen the rollout of India’s biometric identity system, Aadhaar, which now covers more than 1 billion people.

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Editing by Quentin Webb and Kathy Gao

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