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Infosys and Tata Damaged by Boardroom Squabbles
Two of India’s most iconic and respected companies have been hit by damaging publicity caused when their previous chairmen objected to the way the businesses were being run by their successors.
In both cases, the main accusations have been that the new managements were breaking established traditions and ethics. This has led to questions not only about the wisdom of the former chairmen’s outbursts, but also about what this revealed concerning the general state of India’s corporate integrity.
Tata, India’s biggest and most respected conglomerate, has begun to emerge from its four months of damaging publicity with a new executive chairman, Natarajan Chandrasekaran, who took over on Feb. 21 from Ratan Tata at Tata Sons, the main holding company. Previously chairman for 21 years, Tata reappointed himself as interim chairman on Oct. 24 last year when he organized a boardroom coup that ousted his successor, Cyrus Mistry, 50, triggering legal challenges to his action and media exposure to negative aspects of his legacy.

Murthy (right) with Sikka
The other is Infosys, which is widely regarded as one of the most ethical and entrepreneurially successful of India’s big information technology companies, rivalled only by Tata’s TCS and Wipro. Criticisms were launched earlier this month with maximum publicity by Narayana Murthy, one of Infosys’s founders 36 years ago and the company’s first CEO. They raised questions about boardroom ethics and were aimed primarily at the current chief executive, Vishal Sikka, and at R. Seshasayee, the non-executive chairman and a former head of the Hinduja group’s Ashok Leyland autos company and IndusInd Bank.

Tata (left) and Mistry
Ratan Tata never made it really clear why he organized Mistry’s dismissal, using his power as chairman of Tata Trusts, the 66 percent majority shareholder in Tata Sons, beyond making often-contradictory claims about Mistry’s alleged performance failings, whereas Murthy could not have been more explicit when, having no boardroom or dominant shareholder power, he went for media headlines.
In an interview with The Economic Times earlier this month, Murthy complained about a “concerning drop in governance standards” as well as “arrogance” and a “complete lack of fiduciary responsibility.” He focused on a large Rs173 million (US$2.6 million) severance payment secured (initially without being recorded in board minutes) by the chief financial officer, Rajiv Bansal, who left the company in 2015.
Reflecting rumors that are still circulating in Mumbai despite denials by the company, he said that “such payments raise doubts whether the company is using such payments as hush money to hide something”. He also implicitly criticized Sikka’s US$7.3 million pay package (roughly double the earnings of Tata’s Chandrasekaran, who was then head of TCS, and four times that of Wipro’s top executive). Sikka has produced good financial results since he took over in June 2014, raising profits by about a third and starting a fresh approach to innovation, automation and other key issues.
Whistle-blowers
Murthy’s outburst prompted two anonymous whistle-blower emails to be sent to SEBI, the stock market regulator, linking the size Bansal’s severance pay to the purchase in 2015 of Panaya, an Israeli software company strong on automation, for US$200 million, 25 percent above a recent valuation.
The inference was that Bansal had not been happy with the deal so resigned and had to be compensated for his loss of job and silence. This has been denied in detail by Infosys, which also faced down other complaints, including Sikka’s use of executive jets.
A cacophony of complaints followed from other disgruntled former Infosys employees including Mohandas Pai, a regular performer on noisy television debates, who was praised by Murthy and was a top executive and board member till 2011.
Inevitably, Murthy’s action led to questions about his motives coming so soon after Tata had ousted Mistry and had temporarily taken over himself. But Murthy had already reinstalled himself as executive chairman in 2013 when the company’s performance led to poor financial results and a loss of market share. He stayed a year till Sikka was hired as chief executive from SAP SE, a German software company, and Seshasayee joined as non-executive chairman.
Seshasayee has refused to resign, but has admitted that there have been “cultural differences” with Murthy and the other founders. With Sikka, he has taken steps in the past few weeks to answer the criticisms and placate Murthy. Sources in India’s corporate world however believe that all the questions have not been adequately answered and that the company’s leadership has not yet been stabilized.
Murthy and his fellow founders together have about a 13 percent stake in the company, but their real power lies in their status as respected elders, though there is criticism of Murthy’s apparent search for the media spotlight.

Chandrasekaran (left) takes over
At the Tata group, the damaging allegations came ironically not from Ratan Tata but against him from Mistry after he had been sacked. They have raised serious questions about both the group’s and Ratan Tata’s claim to a clean record.
These issues will now have to be handled by Chandrasekaran. They include revelations of alleged questionable payments in a Tata aviation joint venture with Air Asia of Malaysia, and about financial deals which Ratan Tata did in the past with Chinnakannan Sivasankaran, a controversial south Indian businessman who has been surprisingly close to him, plus other telecoms investments and contractual relationships.
That is in addition to allegations of mismanagement by Ratan Tata and the Tata Trusts, and various legal and regulatory actions, started by Mistry at the end of last year. The most significant are rulings awaited from the National Company Law Tribunal (NCLT) on pleas by Mistry’s family firms, which have an 18.4 percent equity stake in Tata Sons, challenging Mistry’s dismissal and alleging mismanagement and oppression of minority shareholders.
Chandrasekaran, as he is known, will also have to deal with legacy issues left behind by Ratan Tata when he originally resigned in 2012 such as Tata Motors’ never-successful Nano car and Tata Steel’s UK Corus loss making business. Tata resented Mistry trying to solve these problems and there are others that need tackling in Tata Power and other companies. That is in addition to sharply declining earnings at Tata Motors, and the risk of TCS’s role as the group’s main cash cow being hit by President Trump’s likely restrictions on software engineers ‘US visas.
As he took on his new role this week, Chandrasekaran said he would “focus on three strategic priorities” – bringing the group closer together to leverage collective strengths, driving operating performances, and bringing greater rigor to capital allocation policies.
The question now is whether Tata is willing let him get on with those aims and stand aside without trying to wield veto powers as head of the Tata Trusts.
“Convinced that he was irreplaceable”
In a lengthy Financial Times article on the group last weekend, Simon Mundy, the Mumbai correspondent, had a specially telling paragraph about a longstanding acquaintance of Ratan Tata who said the “adulation” of him gave cause for concern as he approached the group’s mandatory retirement age of 75.
“In this last phase, an ordinary man became an icon. His health was beginning to get stressed, and I don’t doubt that he genuinely wanted to find a successor. It was not a charade. But the trouble was, he was convinced that he was irreplaceable,” said the (unsurprisingly) anonymous source.
Similarly, the question can be asked whether Murthy still considers himself indispensable as Infosys’s chief mentor, which is the title he was given when he first retired.
So what has Ratan Tata achieved with his vengeful ejection of Mistry? He has removed a chairman who wanted to reduce the trusts’ constant grip on Tata companies’ decisions, and who might eventually have tried to disrupt Tata traditions, though that has not been established.
With Chandrasekaran, an insider, in charge, the main Tata traditions of social and well as corporate aims are intact, even though tougher management decisions will have to be taken. But Ratan Tata has dimmed the previously venerated group’s protective halo by provoking Mistry to air allegations about ethics, and he has shattered his own halo.
He has also endangered the group’s Parsee traditions by packing the Tata Sons board with a motley collection of outsiders whom he knew would support him in ousting Mistry, but who observers fear might have other aims in the years ahead. Chandrasekaran can offset that by bringing more top Tata group executives onto the board – The Economic Times yesterday reported that this is being considered.
Neither Tata nor Murthy have earned much if any praise for the heavy-handed way in which they have tried to right what they have perceived as their successors’ failings. Both had understandable interest since they had built up the businesses, and they both had status as promoters under Indian company law. But that does not excuse the way that they took action.
The Tata group will begin to bounce back from the past four months’ hiatus as it approaches its 150th anniversary next year, though it has serious business challenges to face.
Ratan Tata’s personal image is unlikely however ever to regain its previous sheen. The same goes for Infosys and Murthy. And India’s corporate scene has few other prominent ethical icons to look up to.
John Elliott is Asia Sentinel’s New Delhi correspondent. He blogs at www.ridingtheelephant.com.