India is fast becoming a country of conflicts. Conflicts among political parties are par for the course and are being witnessed daily in Parliament, paralyzing its proceedings. Likewise the Executive has its differences with the Judiciary and there are running conflicts between them. Judiciary recently had an extraordinary internal conflict between the CJI and a Senior Judge of the Supreme Court collegium responsible for recommending names of judges for appointment.
Now the infection has spread to the Corporate world where intra-company board level wars have broken out in two of the largest, bluest of blue chip companies, the Tatas and Infosys. The Tata Mahabarath war has been well publicized and the conflict is reaching the courts for a resolution. The Tata business group was seen as a highly professional and ethical Corporate till recently. Suddenly its reputation has snow dived and the public is disillusioned.
However the current open spat between the founder group of shareholders and the present board of Directors of Infosys has come as a rude shock to the general public. Narayana Murthi, the founder and ex-Chairman of the Board, has alleged some serious mal-governance against the current Board of the Bangalore behemoth. He has questioned the Board of Management on the unconscionable quantum of severance packages sanctioned by the Board for two of their very senior executives, nomination of the wife of a Central Finance Minister as an Independent Director, and astronomical compensation approved by the Board at the highest level. As an Independent Director on the Board of a listed company, I can appreciate the seriousness of his criticism.
It is surprising Narayana Murthy’s criticism has not been met squarely. Instead an Independent Director of the company, Ms Kiran Mazumdar Shaw (a stalwart corporate leader in her own right), has spoken out of turn and issued a public statement, misinterpreting Murthy’s criticism by unfairly accusing him of being against current CEO and MD, Vishal Sikka. She has praised Sikka’s technical competence and innovative skills as if Murthi had questioned these qualities in Sikka. She has made a flippant remark “What worked for the last 20 years will not work for the next 20 years…there will always be disgruntled voices”. In the context of Narayanamurthy’s personal standing as a practitioner of corporate governance these insulting remarks are unpardonable, even more so given Ms. Shaw’s own stature. Most importantly as an Independent Director she should not have acted as a mouthpiece of the Management. Ms. Shaw says, “If shareholders voted in favour of the proposals, I do not think there is a Governance issue. Governance means following due processes and the Infosys board has followed it. Whatever processes needed to be passed – be it Punita Sinha’s appointment, Sikka’s salary or even Jeffrey Lehman’s extension- all have been passed through shareholder vote”. This is at best an uninformed statement and at worst, an alibi for a patently indefensible position.
Coming as it does from an Independent director of a highly reputed corporate, these statements raise a serious doubt on the functioning of the Board. I believe that she has not spoken impromptu. As a prudent person she would have certainly consulted some bright minds before rushing to make this controversial public statement. Quite possibly the entire Board thought of her as the best face to present an untenable excuse accompanied by character assassination of Murthy. By allowing herself to be used in this manner, she has unwittingly failed to discharge her obligations as an Independent Director.
Murthy’s observations should have alerted her. She should have taken his reservations to the Board and requested the Board to give a convincing response by inviting Murthy and other large minority share holders to a meeting. This episode demonstrates the sorry state of the general level of corporate governance in India even in the topmost corporates.
SEBI should strengthen its listing agreement to empower groups of minority shareholders with a sizeable holding to raise questions a corresponding obligation of the management to provide satisfactory answers and resolve issues in a transparent manner.