Narayana Murthy of Infosys Technologies: Putting the Institution above the Individual

Infosys Technologies, India's iconic software firm, is in the midst of its biggest leadership change ever. In keeping with the policy he framed when he co-founded the company in 1981 with six other software professionals, industry doyen N.R. Narayana Murthy will be stepping down as non-executive chairman and chief mentor on August 20 when he turns 65. Though Infosys has now increased the retirement age of the chairman from 65 to 70, it will not apply to any of the founders; Murthy says that would be putting the individual above the institution. He will, however, continue to be associated with Infosys as chairman emeritus.

On April 30, putting to rest months of intense speculation, Infosys announced Murthy's successor: K.V. Kamath, currently an independent director on Infosys's board and the man credited with having molded India's largest private sector bank — ICICI Bank — into a financial powerhouse. Kamath will be the first non-founder at Infosys to hold this position.

There are other changes, too. Co-founder, CEO and managing director S. Gopalakrishan (Kris) will become co-chairman; and co-founder and COO S.D. Shibulal, will take over from Kris. Both will step down from executive roles when they turn 60 in a few years, making way for a new generation of leaders.

In a conversation with India Knowledge@Wharton, Murthy shares his thoughts on leaving the company he co-founded, the new leadership team and the challenges ahead. Murthy says that he believes that the single biggest achievement of Infosys is that it has been a beacon of hope for young entrepreneurs.

An edited transcript of the conversation appears below:

India Knowledge@Wharton: Mr. Murthy, what are your thoughts as you get ready to leave Infosys, the company you co-founded 30 years ago and have taken to such great heights?

N.R. Narayana Murthy: There is one side which is sadness, because you are leaving something that you have given birth to — something that you have nurtured over the past 30 years. Somebody like your daughter. At the same time, you are also happy that the daughter is going to be with somebody, a team which is smarter, more dynamic, more energetic, younger and has even better vision.

India Knowledge@Wharton: Why did Infosys think in terms of the co-chairman model post your retirement?

Murthy: Well, we have had this earlier, too, when Nandan was the co-chair. [Nandan Nilekani, co-founder Infosys, was appointed executive co-chairman in 2007. Nilekani quit Infosys in 2009 to head the government's Unique Identity Program.]

India Knowledge@Wharton: Yes, but in an earlier conversation on succession planning you had mentioned that the co-chair position had been created for Nandan so that Kris [co-founder S. Gopalakrishnan] could become the CEO, and that after Nandan quit it was felt that there was no need to continue with that position. So why has the model been revived now?

Murthy: Our philosophy is that whenever we bring about a change we try and bring in improvements. When the date of my departure started looming on the horizon, [the Board] started thinking about how best it could be handled. They felt that we should do something even better than what we are [doing at present] as we move ahead. They felt that we have to strengthen both our customer, employee and investor connects on the one hand, and world-class board governance on the other hand. And therefore, they said why not have an extraordinary individual like K.V. Kamath who will handle board governance, succession planning and other board-related issues, and why not strengthen the company's need for customer, employee and investor connect by having Kris as co-chairman, having this primary responsibility.

I have tremendous confidence in the board of directors. Kamath is an extraordinary individual. I have seen [as a member of the Board of ICICI] Kamath make a presentation on his vision to take ICICI from a development financial institution to a universal bank, and he executed it flawlessly. There are very few people like him. Kris is a visionary who has managed the company well even during the financial tsunami. He is a gentleman's gentleman. He listens to everybody before taking a decision. Shibulal's commitment is absolutely second to none.

India Knowledge@Wharton: What will your role as chairman emeritus entail?

Murthy: My role will be to add value to any member of the board and the executive management and to any Infoscion, but only if asked. And it doesn't have to be only about Infosys — it can be personal problems, anything at all.

India Knowledge@Wharton: There is a perception that your role as chairman emeritus suggests that perhaps neither you nor Infosys have been able to cut the umbilical cord. Was there any thought of making a clean break?

Murthy: Well, in some sense it is a clean break. I am not part of the board or the executive management. Yes, the company has the right to call upon me for any advice that I could give, and at the same time I have the privilege of meeting youngsters. I love meeting youngsters. Therefore, I think it is good for everybody.

India Knowledge@Wharton: How did the idea come about at all?

Murthy: It was entirely something that the board suggested. When we had a discussion on changing the retirement age from 65 to 70 [this change was part of the recent announcements], I was the first person to say that it has to be on a prospective basis. It should not apply to me, because then we would not be putting the institution above the individual.

India Knowledge@Wharton: You have emphasized that as chairman emeritus you will give your advice only "if asked." But is there a possibility that given your stature and your relationship with the top management there will be a tendency on their part to lean on you frequently? Is there a danger of creating two power centers, so to speak?

Murthy: As long as it is voluntary for them, as long as they see benefit from consulting me and as long as whatever I say is in the best interests of the organization, I don't see any problem. At the end of the day, in a meritocracy like Infosys, people will ask for my opinion only if there is value in it. I have seen in this company itself several senior people [in the 1990s] who did not add significant value in the eyes of the youngsters, and nobody went to them.

I will not be privy to board discussions or senior management discussions. On August 21, my non-disclosure agreement will be over. After that, no member of the board, no member of the management, will discuss anything with me that has any impact on the stock price of the company.

India Knowledge@Wharton: T.V. Mohandas Pai [board member and head of human resources who quit last month] has recently made statements implying that Infosys gives more credence to seniority than merit. You, of course, have clarified this. [Murthy has said that that for any role, if there are equally competent people within the company, then seniority will be taken into account.] My question is on another aspect. At Infosys, you have always maintained that whatever be the internal differences, as a team you must present a common face to the outside world. In the context of this culture that you have so carefully nurtured at Infosys, did Mohan's public statements disappoint you? Do they indicate that the culture within is changing?

Murthy: [Presenting a common face] has been the culture [at Infosys], but we are a pluralistic environment — there are different personalities involved. And in the heat of the moment, in the excitement, [Pai] probably said something that he should not have. But he took back his statements. And when someone as bright as Mohan retracts his statement and corrects himself, it is a joy. I have a very close relationship with him and a lot of affection for him. He is a very bright man. But all of us commit mistakes. So I wouldn't say that I am disappointed.

India Knowledge@Wharton: In recent times, Infosys is seen as having lost some of its steam and its sheen [in terms of its financial performance], as compared to its peers. What are your thoughts on this?

Murthy: We are the only company in our industry in India which gives both topline and bottomline guidance for the quarter and the year. This stemmed from my philosophy that I, as the CEO, must clearly have a target about what I and the company have to achieve, both for the quarter and the year. If I don't have [that], then I should not be the CEO because this can't be a rudderless ship. I must know where I am going. I also said that given that we have a large number of shareholders amongst the employees in the company, if we don't make public what our targets are for the topline and bottomline, then we will be creating asymmetry of information, and therefore possibilities of insider trading.

So as matter of principle, we said we would give topline and bottomline guidance and that we are to be held accountable for redeeming the promise that we make to our shareholders. So what I bother about is whether we have performed according to the guidelines that we have given. We cannot go by what others from outside say that we should have achieved.

India Knowledge@Wharton: Sure, but when you directly compare Infosys's financial performance to its peers, say TCS, is it a matter of concern for you?

Murthy: I have tremendous respect for all our competitors, but we also have to look at other aspects. If we look at the quality of earnings at Infosys, if we compare in terms of depreciation policies, revenue-recognition policies, provisioning policies, investments in technology, investments we have made in our training program — we have the world's longest training program of 29 weeks… So if you look at all these things, hopefully you will get a better appreciation of where we are vis-a-vis our competitors. I personally think that after having said 15%-16%, if we have grown 25.8% [in revenue growth for FY 2011], then there is no issue [for concern].

India Knowledge@Wharton: There have been issues on other fronts, too. For instance, recently, there have been allegations of misuse of [H1B] visas by Infosys.

Murthy: That is under investigation right now. We have hired a well-known legal enterprise in the U.S. It is work in progress. We don't know the details and whether there is any issue at all. So at this point of time, I am not able to comment.

India Knowledge@Wharton: Going ahead, what is the biggest challenge that you see for Infosys?

Murthy: The challenges are many. One, we have to become more multicultural. Second, we have to raise our brand to such a level that the CIO of a Fortune 500 corporation must be anxious to get a bid from Infosys for a billion-dollar project. Third, we have to retain our margins while growing at a healthy pace. Fourth, the talent situation in India is becoming graver and graver. Therefore, all of us — the industry, the government and the company — have to work together to correct this. McKinsey has said that there is a US$300 billion opportunity that we can get to as an industry [IT] by 2020 or so. But [we can achieve this] only if we handle this problem; otherwise we will miss out. These [challenges] are for both Infosys and the entire [Indian IT] industry.

India Knowledge@Wharton: Infosys has many "firsts" and many "bests" to its credit. What, according to you, is the single biggest achievement of Infosys in all these years?

Murthy: I think the biggest achievement of Infosys is the fact that hundreds and thousands of youngsters in the country who want to become entrepreneurs have got the hope and confidence that comes from what we have done. They feel that if these seven people could do this, so can they. I think that is the finest contribution of Infosys. Frankly, I don't know if there is any other company that can claim this, and to me that is contribution enough.

India Knowledge@Wharton: How much time do you spend on Infosys in your current role, and what will keep you busy post August 21?

Murthy: Right now I spend around eight to 10 days a month on Infosys. After August 21, that will come down to almost zero. I am on the boards of different companies and foundations. They will all continue. In addition, I also have my venture fund, Catamaran. We have made some early-stage investments. That will continue. I travel around 20 days in a month, and this is outside of Infosys work. So that will also continue. And I have just become a grandfather, and my son is getting married soon. I hope to spend more time with all of them.

India Knowledge@Wharton: Do you have any plans in the social sector that you can share?

Murthy: My wife and I, we contribute every year, but I don't like to talk about it. I personally believe that philanthropy should not be talked about much.

India Knowledge@Wharton: Do you see yourself becoming involved in any government role?

Murthy: In my own small way I am already involved. I am part of the committee for creating employment for youth in Jammu and Kashmir. I am on the prime minister's council on trade and industry. I was on the committee for financial inclusion, and others, too.

India Knowledge@Wharton: Would you be interested in playing a larger role in social building or with the government in any way?

Murthy: Any opportunity that will allow me to speak to youngsters about how they can make this a better country, a country that the whole world can be proud of, how they can make sure that the poorest child has access to the basic needs — that's what I would be very happy doing.

India Knowledge@Wharton: What would be your advice to young people in India who want to become entrepreneurs?

Murthy: They have to follow what was so well conveyed by Shahrukh Khan [Hindi film actor] and his team of hockey players in [the Hindi film] Chak De India — about meritocracy, discipline, teamwork, subordinating one's ego in favor of the community or the team. I think if our youngsters did all of that, we would be a wonderful country.

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