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Infosys founders take control of company in board shakeup

August 24, 2017

A group of Infosys Ltd. founders, led by N R Narayana Murthy, gathered support from investors to take back control of the Indian technology company and engineered the ouster of several board members.

The group installed co-founder Nandan Nilekani, 62, as chairman and forced the exit of Chairman R Seshasayee along with three other directors, the company said Thursday in a statement.

Murthy’s group had been pushing for board members to step aside, said people familiar with the effort. While the discussions were fluid, Seshasayee stepped down along with Vishal Sikka, the executive vice chairman, and directors Jeffrey Lehman and John Etchemendy. Ravi Venkatesan resigned as co-chairman, but remained an independent member of the board, the company said.

Murthy and the founder group have clashed with the board in recent months over the company’s performance, corporate governance and the compensation of former CEO Sikka. Those tensions ultimately led to Sikka’s exit last week, followed by a $4 billion drop in the company’s market value and downgrades from analysts.

Infosys officials have said Sikka's exit won't change the company's plans to hire 10,000 U.S. workers, including 2,000 in Indiana by 2021. Infosys last week announced a five-year agreement with Purdue University to train many of the U.S. workers it plans to hire in the coming years,

Representatives of Infosys investors including Franklin Templeton and HDFC Asset Management Co. called for Nilekani’s return to the Infosys board on Wednesday. “The recent developments are very concerning to each of us,” the group wrote. They said Nilekani’s return would restore the confidence of stakeholders including customers, investors and employees and also “facilitate the resolution of contentious issues.”

It isn’t clear whether the investor group supports Murthy’s broader aims. Infosys said it would not comment on rumors and speculation; Murthy did not immediately respond.

Infosys shares advanced 2.2 percent in Mumbai on Thursday, the biggest gain in a week.

Infosys is struggling with infighting and seismic changes in the industry it helped pioneer. Growth in the technology services business has slowed amid rising competition and automation. Infosys and its peers also get most of their revenue from the U.S., where the Trump administration is changing policies they have used to service clients.

Nilekani, who has perhaps the highest profile among the founders, may be the most effective means for the founders to regain influence. He ran the company as chief executive for five years until 2007 before becoming co-chairman. He left Infosys in 2009 to join the government to lead the rollout of India’s biometric identity program, Aadhaar. He now plays a prominent role in India’s startup scene and has been an active venture investor.

“Besides proven track record as a successful CEO, Nilekani also brings in a neutral image, which will also go well with minority shareholders," said analyst Sudheer Guntupalli of Ambit Capital Pvt. in a note on Wednesday. He hasn’t “sided with either parties of the battle.”

Nilekani, who couldn’t be reached for comment, may have been reluctant for at least two reasons. Infosys faces enormous business challenges, including managing the board, finding a CEO, streamlining management and navigating an increasingly competitive IT services market. In addition, Murthy has come under fierce criticism for reinserting himself into the business after leaving -- and Nilekani may be similarly targeted.

The founder group wants the eventual removal of all but three directors on the 11-member board, said one of the people, who asked not to be identified because the discussions are private. But the moves will take time since members are required to oversee audit and risk committees, among other responsibilities, the person said.

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