Infosys gains in price, surrenders its values - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
Infosys gains in price, surrenders its values A  A  A
4 JUNE 2013

The news broke that N. R. Narayana Murthy is back as Executive Chairman of Infosys.

Infosys also announced that Rohan Murthy, the 30-year old son of the main co-founder, will be the Executive Assistant to the newly appointed Executive Chairman.

Deflecting any fears that the Infosys founders were going back on a promise they made many years ago that none of their children would have a role in Infosys, Murthy reportedly told a press conference, "He has no leadership role."

Infosys has long claimed it is "driven by values".

Narayan Murthy has been crowned as the king of corporate governance. True, he did not ask for that crown but we, the people, gave it to him. And he chose to wear it.

In a country that is sick and tired of dynastic rule in political parties (the Nehru clan in the Congress, the Pawar clan in NCP, the Karunanidhi clan in DMK) and in businesses (Ambani, Birla, and Tata to name a few), Infosys was a breath of fresh air.

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Infosys was an experiment of 4 individuals, not backed by any politician, not supported by any bribe, not built on any illegal transfer of a natural and national resource to a private party at a cheap price.

In a world of the opaque and the corrupt, Infosys was a beacon: It stood for transparency and doing the right thing. What a joy to see something of such tremendous value created during our lifetimes!

But the cracks had begun to appear in the past few years. As I noted in "The GHIT has hit the fan", each of the CEOs of Infosys have been founders. The last two CEO's (Kris Gopalakrishnan and S D Shibulal) may not have been as "qualified" as the first two (Narayana Murthy and Nandan Nilekani) were. This method of succession planning raised a red flag: was it some clear entitlement that every founder must be a CEO? That in a company with 140,000 employees, there was no one else to take over? Or did Infosys never reach out to hire the best and the brightest at senior management levels - because they knew (and the candidates guessed) that the tops lots were reserved for the founders.

"Market cap" wins over "Torch bearer"?

At one level, the decision of Narayana Murthy at the age of 66 years, to head back to the chair can be explained as pure wealth protection. His family owns own about 5% in Infosys. That is worth some Rs 7,000 crore today. The April announcement of lower visibility saw a 20% knock in the share price - a loss of some Rs 1,500 crore for the Murthy family in that one day. That is a lot of erosion of wealth for any family.

Graph 1: Infosys adds no wealth to family coffer, TCS surges

Maybe, Murthy and Son are back in there to fix Infosys, to ensure that it is back on the growth trajectory, that it regains its standing as the darling IT stock of the markets. If the one-day price movement of June 3 is anything to go by, then the Murthy and Son act has worked: TCS was down -4% and Infosys was up +4%. Of course, there is still a long way to go to narrow the gap in performance of the businesses and the share price between TCS and Infosys.

Seen from this angle, there is nothing wrong with the Murthy Version 2.0 evolution. But, if this is the case, then the press statement should honestly state this: "Infosys is in trouble, my family wealth is at stake, and my son and I have come to fix it. We will all benefit as shareholders. Meanwhile, I recognise that it violates many of the principles of Infosys, but think of us as benevolent dictators. We have suspended democracy and corporate governance for a while. The two wrongs (of having only founders as CEOs and now having us come in to fix the problems) will make a right."

As the Father-Son duo move into action, the family wealth may be restored.

But at what cost?

Torch bearers have a responsibility, they can never stumble.

They may not have asked to be the mantle of virtuousness but - when placed on such a pedestal - they should deny it. By accepting the crown - even if not asked - they carry with it a responsibility.

Over the past few decades, Infosys - and Murthy in particular - have carried the torch.

On June 1, the runner stumbled.

Big time.

Every political party will now justify nepotism.

Every corporate chieftain will continue to rule their company in a "baap ka raaj hai" attitude.

And their justification will be: "woh Murthy ne bhi kiya hai".

The proponents of dynastic rule must be celebrating and laughing all the way to their family coffers.

Maybe there was no other choice and Murthy was the only Great White Hope; maybe Rohan Murthy will be confined to being a stenographer, travel agent, and appointment scheduler for a bargain salary of Rs 1 per annum.

Yes, Infosys may gain in share price and market cap.

But this has cost India a tremendous loss of value.

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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.

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30 Responses to "Infosys gains in price, surrenders its values"


Jun 14, 2013

I agree with Dayal. The values are to be practiced and implemented, else why make a statement at all.


Murali Pitchai

Jun 9, 2013

your article is little harsh on Mr Murthy returning back to Infy. Never did he amass wealth at others cost. Rather he was a pioneer in sharing the wealth of a corporate to a wide spectrum of employees. assuming he is to protect his own wealth, he is also going to protect the wealth of thousands of share holders, if he demonstrates his capability again in Infy. May be we may require couple of Murhtys in our political / public life to demonstrate sincerity and commitment for excellence. Let's welcome Mr. Murhty and wish him the best in his turnaround game.



Jun 6, 2013

NRN Murthy is surely more concerned about Infy's performance than his wealth. He could have easily kept his stake in Infy much higher than what he actually has. He shared his wealth with Infy's employees. Infy is going thru a very bad phase and global economic situation is also not very conducive. Its worth giving a shot. Wish him all the very best.



Jun 6, 2013

I do not think even Narayan Murthy can turn around Infosys. But there is nothing wrong in he coming back to Infosys. He trying to save his wealth is far fetched idea. As far as his son is concerned, he is getting into just Assistant role. He is qualified enough to come as VP.

Nepotism wont work in IT companies. Azim Premji's son is working in Wipro for years without making anywhere near to top post. Azim Premji is creating wealth alright, but not for his family. He is giving big chunk of it to social cause. NRN is also not after preserving his welath.


K G Mantri

Jun 5, 2013

The criticism of Murthy and company is completely one sided. Its a puritan's thought. What is wrong if Rohan becomes CEO after proving himself in first few years? After all he is not a ordinarily qualified BA/B com guy, he does not only has signifcant stake but qualified too. And what is wrong with the succession plan? Its far easier for sone of an actor to be successful as an Actor and that of a doctor as a doctor. After all succeessive generation gains from the experience of parents and carry forward the legacy. This in no way deprives the capable ones in any walk of life. Lal Bahadur Shastry or Anil Agrawal of Vedanta or Sunil Mittal or Prab Mukherjee or Lalu or Kapildev or Sachin, there are a lot of people in each filed who have proved themselves without any dynestic support. Therefore I feel the criticism not appropriate.



Jun 5, 2013

I respected your opinions,so far, but here I feel you haved dropped in my esteem. In the dumps where you are presently,you might share the Company of Ambanis.
Here Rohan will be doing good for the Company with his upto-date knowledge,so very vital in this specialised industry.You may like to issue a rejoiner to salvage the situation,for a much respected man as NRN who has done great for India.

Like (2)

Sachin Salunkhe

Jun 5, 2013

Sorry Mr dayal,
I also dont agree with you this time...Probably your views are drifting away from being rational...Even if NRN fails it will not be a wrong decision to return...Steve Jobs and some other have returned.NRN is a simple man of values and an icon just like Tendulkar. India needs these all old folks to work till death. Family wealth has not much to do with this decision.

Like (2)


Jun 5, 2013

Dear Mr. Ajit,
Was there any where a mention by infosys founders that thier children will have no business in Infosys, anytime?
Then i will be surprised at Mr. NarayanMurthy's decision to get his son on the infosys payroll if that is confirmed news. And, will ask the question why in the world they made that statement before.

Secondly, I am guessing the very "infosys experienced" talent is packing their bags after many years of their stint in the company. This act of Mr.Narayan Murthy coming in at the helm is reassurance for this talent to stick on in this talent driven industry.

Lastly, his son coming in can raise the eyebrows of next to CXO talent and a question as to who is this new adopted new member to the business when we did not see the pregnency term of this new member....

THis is just some points i am sure the Mentor is aware of but just ignorance and little brahness may i say.

However, I wish Infosys all the best for Infosys a former darling child of India.

Like (2)

Dr M Chandrashekhar

Jun 5, 2013

I agree with you in toto. It appears to be Baap Ka Raj. NRN has turned out to be a sly hypocrite. All self imposed rules have been broken by his coming back along with his son. NRN too suffers from 'Son Stroke'.

Personally feel Shibu & Kamath should have been sacked & Krish suitably warned for the mess they have created.

NRN may think his son has the calibre of Nandan but he is mistaken. NRN can show results only if Nandan rejoins.

Like (2)


Jun 4, 2013

There is nothing wrong in the board of Infosys requesting Mr. Murthy to return in their hour of need. He is there not to safe guard his wealth, but the wealth of all loyal shareholders. God forbid - will you keep quiet, with crossed arms, if after retirement you were to see Equitymaster is not creating value for its subscribers? His son is there to help him with the current technology and a person whom he can trust. No nepotism there. Please read Mr. Mohandas Pai's interview to see the other point of view. We should welcome the bold move of the board and wish all the best to Mr. Murthy.

Like (2)
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