Pai's exit shows up the faultlines at Infosys
Rahul Sachitanand and Suman Layak April 29, 2011A day before Infosys Technologies announced its fourth quarter and full-year results, Chief Mentor and Non-Executive Chairman N.R. Narayana Murthy received an e-mail he was dreading. It was 10.30 pm and Murthy was wading through official mails, when board member and human resources head T.V. Mohandas Pai's message came in. The normally combative Pai announced tersely that he was quitting to pursue opportunities beyond Infosys.
For the company, this was a big loss. Pai had been with Infosys for 17 years, been its Chief Financial Officer, steered its listing on the NASDAQ and then given up the post to try his hands at HR. A blue-eyed boy of Murthy, Pai had often been cited as a future operations chief, if not chief executive.
However, Pai's e-mail of April 14 ended all such speculation. But it also lent credence to accusations that have been whispered for some time: Infosys, a company that prides itself on its professionalism, is at heart run like a family-owned enterprise. In this case, the 'family' are the founders. Though three of the original team of founders - Ashok Arora, N.S. Raghavan and Nandan Nilekani - have quit the organisation, the remaining still exercise a vice-like grip on it. As the oft-repeated story goes, Infosys was founded three decades ago with just Rs 10,000 and grew to a $6-billion (Rs 27,000-crore) technology company. "The founders have been dominating the management stream," Pai had said in a conversation with BT in March. "We discussed the re-organisation earlier but decided the time was not opportune."
Critics claim the founders failed to identify a bunch of new leaders quickly enough. While it was well known that seniormost co-founder Murthy would retire later this year and the rest of the management in four years from now, the effort to identify new talent was insufficient. "It is best to have the bad news early," says Vishesh Chandiok, National Managing Partner at audit, tax and advisory firm Grant Thornton India. "Not everybody has the desire to work for a company forever and the succession planning should start early, and involve potential successors."
While Infosys has a three-tiered leadership structure and uses its institute in Mysore to train its brightest talents, few are visible in the market, say competitors. Once co-founder Nilekani left, Infosys struggled to find someone with the same C-level contacts, they argue. What's more, rapidly evolving rivals have been able to catch broad economic trends and changes in technology faster. The information technology industry is growing beyond its comfort zone and top leaders need to grow their skills to match this trend, says Sunny Banerjea, head of performance and technology at audit and accountancy firm KPMG. "The Indian IT industry is now more global and two companies - TCS and Cognizant - are charging ahead because they have stable and focused leadership," he adds. Banerjea believes that "shared leadership devoid of clear accountability is not a characteristic of highly successful companies".
In Infosys's case, the departure of the 52-year-old Pai also put the spotlight on the firm's overbearing founders who want to have their say in the smallest matters. For example, a few years ago, after he had relinquished executive control at Infosys, Murthy was spotted by BT poring over building plans, paint shades and tile colours for the company's development centres in Pune. Junior managers complain that founders and oldtimers monitor administrative work and fetter their freedom. "In the early growth years it was pure merit... but after 2001, it became bureaucratic," laments one ex-employee.
While the halo that the founders built lasted during the good times, the slowdown burst this bubble and unhappy employees began questioning the firm's position and the equations between the founders such as current CEO Kris Gopalakrishnan and CEO-designate S.D. Shibulal. A former senior manager at Infosys was blunt: "Mohandas Pai can't get along with Shibulal and won't report to him." But others say Pai himself was the source of discontent. Infosys did try to reorganise its management sometime ago, but abandoned the plan midway. "We did have a plan but postponed it since we wanted to focus on the market," Executive Council member B.G. Srinivas, a contender for a place on the firm's board, had told BT in an interview in March.
What's interesting is the code of silence governing current and former senior managers at Infosys, especially on issues of discord between the board and the rest of the management. "Business Today is dear to me, but Infosys is dearer," says former HR chief Hema Ravichander when asked to comment. Srinivas was also equally cryptic: "I have no comment to offer on leadership issues," he said in the March interview. A handful of senior managers say that with a management recast just days away on April 30, no one wants to risk the ire of Murthy, or Gopalakrishnan and Shibulal, who will be the last two founders left with executive responsibilities. (Cofounder K. Dinesh retires in April.)
"Mr Murthy will be chairman emeritus... his presence will continue to be felt on campus," says one of them. Infosys has just begun its management shuffle in earnest, with Prasad Thirkutam replacing telecom business head Subhash Dhar. Ashok Vemuri, another contender for a board slot, has been given charge of health care and insurance in addition to banking and financial services, Infosys's largest revenue earner. Dhar continues to be global head of sales and marketing.
There has been a sharp spike in attrition, which touched 17 per cent in the latest quarter. Pai's contentious plan called iRace, to expand the technical and managerial options for Infoscions, too faced the axe. "Infosys is not the hallowed employer it was once," says Venkat Sastry, who heads technology recruiting for Korn Ferry.
"The rise of the multinationals has been a game-changer." Restive junior managers have also begun to flood recruiters with their resumes. An overhaul of management and a professional setup will help Infosys regain some of its lost sheen.