Dracarys – And poof goes the Infosys Board

Understanding the plot behind Infosys GoT Saga

As the curtain falls on a painful episode that threatened to engulf the credibility and by extension the brand of an iconic institution, it is clear there is more hard work in store for the new leadership team under the Chairmanship of Nandan Nilekani. While the headlines around governance practices under the dispensation of the erstwhile board may temporarily take a breather, it is clear that the new leadership team has its task cut out. While it seems soothing that Nandan will be at the helm of affairs, as long as it is necessary as per his own count, it is clear that the broader market and stakeholder community will look for definite and decisive signals on how this transition from a promoter-driven institution to a professional- managed one will be undertaken. Especially given that the earlier exercise, notwithstanding its fair intent, failed to achieve this congruence. Nandan will be well aware that despite the halo around him, the business community may not have infinite patience with him, and would like to see concrete steps being undertaken towards setting the agenda for transition.

The issue is not just about Infosys alone. In fact, the approach that Infosys decides to adopt may well become a template for the rest of the business community. After all, it was Infosys responsible for ushering in path breaking voluntary initiatives with respect to governance, transparency, reputation management that eventually became policy directives for the business community as a whole. This also needs to be seen in the backdrop of the issues that cropped up at TATA Sons exactly a year back, which is another iconic institution of great pedigree. In both these cases, which are considered beacons for corporate India, there were clearly serious management issues requiring a decisive intervention from the promoter group. So this is not just about one company alone. This is about defining a certain doctrine that seeks to establish a decisive practice that guides promoters in achieving a smooth, progressive and purposeful transition. And therein lies the challenge.

While lot of noise, as well as headlines, has been created around this episode, it is surprising that no one seems to have been able to zero in on the nub of the issue. There have been intense speculation in both the instances of Infosys as well as TATAs that promoters have been trying to wield influence over the affairs of the company, without holding any fiduciary responsibility. Post, the TATA Sons episode, a committee has also been constituted by SEBI to look into the issue of appointment/ removal of independent directors, as well as what specific price sensitive information can be shared by the Board with promoter group while it is yet to be made public. Further, it has also been made out that there have been serious governance lapses that have led to a situation wherein promoters had to weigh in with their interventions. This could not be further from the truth. It is to be understood that in both Infosys as well as TATA Sons, the CEO / Chairman respectively were chosen after intense scrutiny and careful application of mind. It would therefore appear incredulous that the Boards failed collectively in identifying the most suitable candidate for managing this transition – especially given the fact that in both instances the founder/ promoter were closely involved in the selection exercise.

What also added a comical twist to the tale was the decision by the erstwhile Infosys board to elevate Vishal Sikka as Non Executive Vice Chairman of the Board and having an interim MD & CEO reporting into him. Additionally the Board remained committed to Sikkaʿs strategic vision under the new dispensation to arguably assuage market sentiment. Imagine a Board which had three Chairman with different prefixes to their title. And what made bizzare reading was that the Board had removed accountability from Sikka while continuing to give him management oversight. The Board clearly in its infinite wisdom to appease Sikka had gone from the proverbial frying pan to the fire. So much for the collective wisdom and ethical conduct. Fortunately this charade was not allowed to be played out for long and the erstwhile Board should assume total responsibility for this ill advised move.

So what brought about these deep fissures between the promoters and the professional managers? Was this a case of misplaced confidence on behalf of the promoters in their governance assumptions? Was it a case of misguided priorities of the Board and their failure to understand the sensitivities of the promoters? Was it a case of poor articulation and communication of the unwritten but defining ideology of the institution that was in existence? Or was this the case of absence of leadership maturity in anticipating the transition challenges, especially with respect to decision making paradigm? Clearly there is no one single reason that contributed to this precipitous development. It would appear that the issue faced by both Infosys as well as TATAs was a combination of all these questions in addition to the complexities of the broader business environment that the new leadership was confronted with. The challenge of transition was as much internal as it was external in terms of its impact and influence. And therein lies the conundrum of trying to solve this complex puzzle of what led to the creation of this impasse.

Let us therefore attempt to put things in perspective. This was never a case of establishing back seat control in the first instance. Were it the defining consideration, promoters in both these institutions could have well initiated guidelines that secured their pre-eminence as well perpetual continuity on their respective Boards without raising eyebrows. After all, they enjoyed enormous influence as well as credibility with all stakeholders to meet any semblance of opposition to their continuation. Further they were the principal architects of defining their institutions’ ideology which had created extraordinary value for their stakeholders. On the other hand, to impute any motive to the professional board/ leadership team in driving a certain agenda is pure speculation and reflects poorly on the selection maturity of the promoter group. Moreover these individuals also came with considerable heft as well as industry experience. One can perhaps question their priorities or approach, but even these were clearly above board in terms of their intent. So to what then do we attribute these seemingly perfect decisions?

The one common and singular driver between both these episodes is absence of clear awareness about the ‘Ambient Environment’ of these institutions. It is this undefined force that gives shape to as well as define the thinking, decisions and conduct of an institution. Popular thesis refers to it as the culture of an enterprise. But it goes beyond that. This is about a defined orientation and calibration with which an institution establishes its core operating principles and which comes to define its unique ideology. When there is a gap in assimilating this way of functioning between the incumbent and the prospective leadership teams, it can lead to divergent perceptions and therefore skewed decisions. Careful assessment of the episode at both Infosys as well as TATAs would seem to attest to this unintended gap that came up. Clearly despite the best of intentions, the transition arrangement put in place was designed to fail given that there was a lack of appreciation and understanding from both sides in anticipating this challenge. Particularly in case of Infosys this was even more pronounced given that Sikka and team had arguably delivered stellar performance despite the global challenges and steered Infosys towards a new paradigm of delivering innovation driven value.

The leadership team at Infosys, it would appear, was plagued with the following transitional challenges –

  1. Consciousness Congruence– Clearly the founder/ promoter group at Infosys was operating at a higher level of consciousness. While they were running a business, they were very clear in their understanding that they were building a purposeful business with deep commitment to their stakeholders. It was not just about the intent alone, but also about the orientation that defined their action paradigm. The problem was the promoters failed in establishing a broad congruence with the professional board to ensure continuation of their well established principles.
  2. Cognitive Engagement – Once the above congruence was achieved, it was vital to establish cognitive engagement in terms of how each aspect of the business was to be managed. This was about determining the optics and world view with which they gave articulation to their decision making process. Absence of a well aligned cognitive connection between promoters and professional management led to intense speculation about misplaced priorities and unintended perceptions.
  3. Governance Equivalence – It appears that from a mind set perspective, the founders and the Board were not operating on the same wavelength. Actions of the Board would indicate they were quite happy to exhibit a tendency to me marginally above the minimum standards of corporate governance as was required under the listing guidelines. This reflected a compliance mind set rather than a commitment for excellence. The founders on the other hand thrived in voluntary establishing governance benchmark which was all about creating deep trust and integrity. Failure to establish equivalence on the definition of governance proved to be a colossal mistake.
  4. Moral Ambivalence – It is folklore that when in doubt, always err on the side of caution. In this instance while there appeared to be specific events that demanded greater scrutiny and better disclosure from the Board, subsequent actions and the manner in which selective leaks happened through anonymous sources greatly damaged the overall credibility of the Board as well as the market standing of the institution. It would appear the Board with its ambivalent, confused and reactive stance at several instances set a precedent wherein transparency and accountability started becoming a casualty. The Board clearly did not cover itself with glory when they hid behind the compliance veil. This position created more questions than dousing the raging fire.

When all of four factors come together naturally with sharp alignment, it sets in motion an institutional flow leading to cognitive handshake. A tightly coupled cognitive handshake results in establishment of a Positive Trust Architecture, the fundamental driver of an effective leadership transition. Clearly both in case of Infosys as well as TATAs this cognitive handshake failed to materialise.

So what do we learn from the Infosys episode –

Failure to achieve an effective transition from promoter to professional management can lead to disastrous consequences. Leadership selection is not just about skills and expertise – it is more about establishing enduring trust by deepening the ideological pool of the founders while acting as custodians of the institutional equity. Promoters will do well to ensure that they have extensively well documented doctrines that reflect the Identity, Design and Culture of an institution – collectively representing the consciousness, cognition and ideology of the institution. Failure to define this upfront can lead to intense pain and speculation on the actions of either side. Professionals in turn will be better positioned to deliver value through deep congruence, alignment and balance between their strategic paths and founders’ ideology.

Nandan Nilekani and his revamped board, as it happens, would serve Infosys best by putting in place decisive guidelines on leadership and governance practices. They can establish a benchmark by not only adopting such doctrine at the Board level but perhaps also have it adopted, approved and passed through a formal shareholder resolution. After all, this is about going beyond a compliance mindset to a commitment mindset. This could well establish a new benchmark for public listed firms to create vibrant, progressive and synergistic framework for leadership and governance practices leading to smooth transition.

Perhaps it took two of our greatest iconic institutions to undergo trial by fire which could become litmus test for establishing enduring principles of managing leadership transition from the promoter group to a professional management. It would appear to unleash Governance 3.0 paradigm in the Indian context and taking management practices to the next level. With careful navigation, it would appear that we may be on an evolutionary path of building excellence in leadership and governance.

 

 

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