Infosys Co-Founder Murthy Returns to Right the Floundering Firm

Infosys_LogoIn a first-of-its-kind move in corporate India, N.R. Narayana Murthy, the iconic co-founder of Infosys, has returned to the software company as executive chairman almost seven years after stepping down from it in August 2006. In August 2011, Murthy turned 65, and, in line with company policy, he retired as non-executive chairman and mentor. To bring back Murthy into an executive role, Infosys has revised its retirement age for the position from 60 to 75.

On June 1, addressing the media from the company headquarters in Bangalore, K.V. Kamath, who stepped down from his position of chairman to make way for Murthy, said: “The board has taken this step keeping in mind the challenges that the technology industry and the company face.” Murthy added: “This call was sudden, unexpected and most unusual.”

But it’s been clear for some time now that Infosys, which for many years was highly admired and an industry bellwether is quickly losing its sheen. In financial year 2012-2013, Infosys grew at 6.6% — one of its worst performances since the company’s inception in 1981. The firm’s growth forecast of 6% to 10% for the current year is lower than the industry projection of 12% to 14%. And the company’s margins, once the best in the industry, have also slipped. In contrast, peers like Tata Consultancy Services and Cognizant have performed well, despite tough market conditions.

Infosys officials maintain that the firm is under pressure because of various factors, including greater exposure to discretionary spending and a large dependence on financial services. In addition, a couple of years ago, the company embarked on “Infosys 3.0″, billed as a “transformational journey” from being a technology solutions company to becoming a strategic partner to clients. It also adopted an IP-led and platforms-and-products-based approach. The results of this have yet to kick in.

Murthy’s return has thrown the spotlight on the founder-CEO model that he himself has strongly espoused. The company was founded by seven co-founders led by Murthy. Of these, including S.D. Shibulal at present, four have held the CEO position, one after the other. (Of the other three, two left early on and the third retired two years ago.)

But K. Ramachandran, a professor of family business and wealth management at the Indian School of Business, is emphatic that this leadership model is not the right one for Infosys or any other company. “[Murthy] should have shown the clarity of thinking in terms of separating ownership and management,” Ramachandran notes. “Also, the management capabilities required in different phases of an organization are not the same. [Murthy] is aware of it but did not apply the same in his own [case], maybe because of his soft [spot] for his ‘brothers’.”

T.V. Mohandas Pai, a former board member and head of human resources at Infosys, says: “The fact is that the company has not performed well while others have done well. It means that only a merit-based model will work.” Pai was with Infosys for 17 years and quit in 2011 when Shibulal became the CEO.

Murthy’s return brings to mind another question: Can a returning founder or CEO succeed? The most recent example globally is that of Procter & Gamble’s A. G. Lafley. Last month Lafley, who was CEO from 2000 to 2009, returned as chairman and president. Others include Starbucks’ founder-chairman Howard Schultz, Michael Dell of Dell Computers and Apple’s Steve Jobs. In a recent article in Knowledge@Wharton, Wharton emeritus management professor Lawrence Hrebiniak pointed out that “the returning CEO is a known quantity — someone the board and investors might know and trust, which is a plus. But even here, the answer isn’t always clear.”

According to ISB’s Ramachandran, bringing back a retired leader is not a good move. “No organization is or should be individual dependent. In this case, Murthy had a long [tenure] and had retired from executive responsibilities many years ago,” Ramachandran says. “As a board member and founder of the company, he should have facilitated the creation of a crop of [new] leaders at the top instead of taking up the mantle himself. [His appointment] shows the desperation of the company and the board to find a solution.” Ramachandran adds that Murthy’s return reflects the “conservative thinking” among the founding team at Infosys. “It means that they cannot think beyond the ‘family’ for leadership. It is a reflection of repeated poor decision making in terms of choosing key leaders.”

Pai, who has worked with Murthy closely, believes his return will give a boost to the company. “[Murthy] will be able to re-energize the company and get the sales engine chugging again…. He is a strong, decisive leader who thinks strategically and who inspires.”

Meanwhile, in another surprising move, Murthy, who had earlier strongly maintained that the children of Infosys co-founders should not join the company, has brought his son Rohan into the fold. Murthy says that Rohan’s term will be co-terminus with his for five years, and he is categorical that “Rohan’s charter is to be my executive assistant and not to aspire to become the next CEO…. The only role he has is to make me more effective.”

But not everyone is buying that. Shriram Subramanian, founder of investment advisory InGovern and a former Infosys employee, told Indian business daily The Economic Times that Murthy’s move “throws out of the window some of the professed principles around retirement age and [employing] family members of founders.”

So while Infosys may possibly regain its financial leadership under Murthy, has it lost the moral high ground that set it apart from other Indian firms? “Certainly, yes.” Ramachandran notes. “Particularly by Murthy insisting on bringing in his ‘private team’ — including his son.”

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