If one goes by the management books, it is the perfect combination. A promoter-owned company run by a professional CEO. This helps keep a company nimble-footed and allows the promoter space to look for other entrepreneurial pursuits. But the success of the arrangement calls for a sorted promoter to let go of the reins of the company, especially if he founded it.
Take a look at Sunil Mittal. The founder of Airtel, the country’s biggest telecom company (at least until the Vodafone-Idea merger comes through), is Chairman of the company. Below him (see Chart) is a well-defined organisational structure that includes the MD & CEO, and vertical or regional heads who report to him.
But not all of these arrangements are ideal. One of them broke down spectacularly this morning, when Vishal Sikka announced his resignation as the CEO of Infosys. A few hours later, the company sent another release to the BSE. In the statement, the IT major's Board lists in detail why it thinks that “since Dr Vishal Sikka was appointed as MD and CEO in August 2014, Infosys has delivered competitive financial performance through profitable revenue growth.”
Board support for Sikka
At the same time — mincing no words — 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.”
There is no denying which side the Infosys Board, led by R Seshasayee, has chosen to support. Founder-promoter NR Narayana Murthy and his kin own 3.44 per cent of Infosys shares. Altogether, the founders have a 12.75 per cent shareholding in the company. It will be intriguing to see how the tussle pans out in the coming days and if it prompts Murthy and other founders to exit the company, as has been rumoured for some time.
Or will Murthy, seen as a market darling, stay put and find a way for his word to prevail in the company? Either way, the shareholders of Infosys will worry because the company was in the middle of a transformation amidst tough conditions, and this episode might derail the process.
India Inc legacy
While the Infosys episode might end up the most dramatic tussle between a founder and a professional CEO of company, there have been similar episodes in India Inc.
In the very same IT industry, there was the case of Vivek Paul’s exit from Wipro in 2005. Now, the relationship between Paul, who was the Vice-Chairman, and Azim Premji might not have had soured as badly as in the case of Sikka and Murthy; but Paul himself admitted in an interview that there was ‘friction’ between the two.
It didn’t help that Paul, under whom Wipro had gone from $150 million to $1.5 billion in revenues in six years, had become the company’s brand ambassador. Many of his colleagues at the company’s top management were not comfortable with his high profile. It was said to be against the Wipro culture, personified by the promoter himself, who preferred to be away from the camera glare.
Ranbaxy story
Two years earlier, Devinder Singh Brar announced that he would be vacating his seat as the CEO and MD of Ranbaxy Laboratories. It was a surprise as Brar had been handpicked by Parvinder Singh to head the company in 1999, before the latter died of cancer. Under Brar, Ranbaxy had become among the top 10 generic pharma companies in the world and generated nearly half of its revenues from the US.
Parvinder was one of the earliest votaries of keeping the ownership and management of a company separate. But surely his sons Malvinder and Shivinder didn’t agree. Brar’s resignation paved the way for Malvinder to take over at the pharma major. The rest, as they say, is history; and in Ranbaxy’s case, it isn’t a pleasant one.
The Infosys episode, though, could be a rare one. Of late, there are many instances when the promoter-professional CEO arrangement has worked well. One of them is Analjit Singh and his Max India Group. The Burmans of Dabur also seem to have perfected the art and, down south, the Murugappa family too has tasted success with professional CEOs heading the group companies.
It will now be interesting to see how this latest episode in the Murthy-Infosys saga pans out.