[Ratan Tata reportedly went to the RSS headquarters in Nagpur to help broker the changes that he has asked for in the Tata board. NarayanMurthy is accused of lobbying hard to become India’s President.]
There are two questions that people ask about India. What is happening with demonetization and what is going on with the Tatas. The issue of demonetization has been discussed threadbare in various columns. The Tata story is equally bizarre and has a number of interesting facets. And even as a new Chairman gets ready to take over on the 21st of February, the spotlight is back on India’s corporate sector because of new developments in anther respected brand, Infosys.
In a repeat of what happened at Bombay House, we have another founder Chairman, Narayan Murthy asking for a review of corporate governance at Infosys. His former colleague and then CFO, Balakrishnan has been more direct in asking for the sacking of the Chairman Vishal Sikka. The new board at Infosys is being blamed for giving a very large hike to the Chairman and huge severance payouts to two senior employees.
Infosys raised the annual pay for Vishal Sikka, whose term has been extended till 2021, to nearly 80 crore rupees a year, $11 million, which includes variable pay subject to certain performance-based targets. The former chief financial officer Rajiv Bansal's was given a severance package of Rs 17.38 crore, equivalent to or 24 month's pay. In the US, Infosys paid its former general counsel David Kennedy a severance payment of about 5 crore rupees and other reimbursements over 12 months.
These two examples are noteworthy for a number of reasons. The Tatas are an old and established brand. They made their mark and their money in the old fashioned manufacturing sector, making steel and cars, before they also set up India’s largest software company, TCS. Infosys was a new age company set up by a bunch of technology graduates, leveraging India’s strengths in the service sector to build one of the greatest software brands in the world. Both then acquired multinational status but remained firmly rooted in India even as they set up offices across the globe.
Both these groups emerged as India’s showcase companies, maintaining very high ethical standards and building a global presence based on trust and recognition. Ratan Tata and NarayanMurthy acquired iconic statuses as individual leaders and were respected across the political and business spectrums. Both continue to have large presence in the philanthropic space and have defined corporate giving in the country. Their names are associated with some of the largest and most influential educational institutions in the country.
The mistakes they made were dismissed as minor misdemeanors given their vast contributions. Ratan Tata reportedly went to the RSS headquarters in Nagpur to help broker the changes that he has asked for in the Tata board. He was definitely embarrassed when some unseemly conversations of his came out with the Nira Radia tapes. NarayanMurthy was accused of lobbying hard to become India’s President. Infosys and TCS were both named by te US Labour department in investigation on the possible abuse of H1B visas used to hire temporary workers to work in the US.
Despite all this, the two big names, Ratan Tata and NarayanMurthy remained above board and hugely respected. This was not the case with other corporate giants whose reputations collapsed completely with allegations against them. Vijay Mallya and Subroto Roy are two recent examples of larger than life individuals whose companies collapsed along with the owners who either had to flee the country or land up in jail. Ramalinga Raju suffered huge losses, a jail term and a literal dissolution of large global brand built over The same period as Infosys.
The questions that arise are many. The first is one that ironically Ratan Tata had himself asked a few years ago. Why does Mukesh Ambani live in such opulence, Ratan Tata had asked. He explained that it is the display of such wealth which could lead to revolutions. Income disparity is not something that should be flaunted especially where a large portion of the population lives amidst great hardship. Today, NarayanMurthy and co founders are questioning this huge raise given to Sikka. Should there be a cap and regulation on what corporate CEOs pay themselves?
The second question that arises is, should former Chairmen and founders interfere in present day management? Ratan Tata had resigned fours years ago, himself appointing Cyrus Mistry. It was NarayanMurthy first, who had quit in 2011 came back in 2013 to become Chairman again. He then himself chose Vishal Sikka and made him CEO in 2014. Three years later he has started questioning Vishal Sikka’s working style and asking for changes to be made on the board. Ratan Tata similarly came up with the demand to sack Mistry at a board meeting after four years at the helm.
What does all this mean for how businesses run themselves? Should they be tightly regulated by the Companies Act? What is the responsibility that Directors owe to the company, the board and its shareholders? Should they keep silent when they notice, like NarayanMurthy is saying, something unethical and illegal being carried out by the senior management? And when they do so, should they be held liable and penalized?
There are a number of tough laws we have passed. SEBI, FEMA, Competition law and the Companies Act each have been enacted to bring transparency and accountability in corporate governance. They define the duties and rights of Directors on the board. But when these same Directors decide to collude or look the other way when their management indulges in short cuts, the law is rendered irrelevant. There is already a hue and cry that Indian legislation is draconian and does not allow firms in the country to grow large and profitable by giving the board freedom to take its decisions.
It is indeed unfortunate that such drama is unfolding in the board rooms of our most respected firms just when brand India was looking to take off. Even as our firms establish offices abroad and seek listings in stock markets across the world, doubts raised on their ethical standards will act as dampeners. On can only hope that these are stray incidents that will not dent the country’s growth story. Also that it is mere coincidence that this board room activity has played out in dramatic fashion in two of our most respected firms at around the same time.