The controversy in Infosys post the takeover of Panaya elucidates the tussles that may ensue between the promoters and the board as a result of failed transformation of a largely promoter driven company into a professionally managed enterprise. It brings to the fore the promoters’ unwillingness to loosen their grip on the company despite voluntarily stepping down and entrusting the administration in the hands of carefully chosen highly qualified outside professionals. Right from his appointment as CEO in August 2014 till his resignation in August 2017, there was continued discord and acrimony between Vishal Sikka and the promoters as regard the best way of managing one of India’s largest software companies.
In February 2015, Infosys acquired US-based automation technology company Panaya for $200 million (over Rs 1,200 crore). the valuation was six times the multiple of Panaya’s revenues, making the acquisition Infosys’s second-largest acquisition ever. The transaction reflected Vishal Sikka’s desire to bring more automation to the IT services model that had so far depended heavily on people. According to Sikka, the acquisition exemplified Infosys’ execution of its Renew and New strategy to enhance the competitiveness and productivity of current service lines by leveraging automation, innovation and artificial intelligence. Panaya’s CloudQuality™ suite would enable Infosys to leverage automation for several of its service lines through an agile SaaS model, and help mitigate risk, reduce costs and decrease time to market for clients.
Despite the Panaya deal being pulled off amidst great zeal and expectation, it was not long before it was shrouded by controversy. Sikka and team suffered a major blow when two anonymous whistleblowers sent emails to SEBI alleging wrongdoing on several counts in relation to the Panaya deal.Inter alia, the emails made the following major allegations.
Infosys categorically denied and refuted the allegations, labelling the insinuations as false, malicious and defamatory. Sikka defended the decision to buy Panaya as a prudent business decision aimed to transform the company and dismissed the charges, calling them slanderous. He categorically denied that any executive was involved in any prior investments in Panaya.
Two independent firms, Gibson Dunn & Crutcher, a US-based law firm, and Control Risks, a risk consulting firm, appointed by Infosys cleared the company of all charges of financial impropriety, as alleged in the two anonymous letters. They found no evidence whatsoever to support any of the allegations in the complaints regarding wrongdoing by the company or its directors and employees. The investigating firms claimed that there were no conflicts of interest or kickbacks, the requisite approvals for the acquisition were obtained, thorough due diligence was conducted, the valuation of the target company done by an outside financial advisor was reasonable, and the purchase price was within the range of values determined by that advisor.
Narayana Murthy’s allegations
Infosys co-founder and past Chairman, Narayana Murthy had since past six to seven months been lambasting the Board for lack of transperancy and objectiveness in administration. He was miffed with the company’s acquisition of Panaya and the incidental developments that ensued, especially after the revelations made in the whistleblowers’ mail to SEBI.
In his letter dated 8th July 2017, he raised the following major issues:-
Folowing a series of public spats, allegations and counter allegations between Narayana Murthy and the board, Mr. Sikka resigned from the post of CEO in August 2017. Consequently, the Board unanimously appointed co- founder and CEO Nandan Nilekani as non executive Chairman.
In October 2017, while posting its quarterly results, the Infosys board headed by chairman Nandan Nilekani gave a clean chit to the Panaya acquisition. “After careful consideration, the Board reaffirmed the previous findings of external investigations that there was no merit to the allegations of wrongdoing. Moreover, Nilakeni rejected the demand for publishing the full investigation report, which he said could impair cooperation. Emphasising that confidentiality was key to ensuring the cooperation of whistleblowers and other participants in any investigative process.
Though, things seem to have settled down now after Mr. Nandan Nilekani’s appointment, the Panaya incident has greatly dampened the image of a company hitherto an example for sound governance and visionary leadership.
(Author Details:- Turab Chimthanawala, CS, BA, LLB, Email: firstname.lastname@example.org)