3 Reasons Why Vishal Sikka Resigned; Infosys Share Prices See A Steep Decline

Dear Board Colleagues,

Over the last few days, since our earlier call, I’ve met Sesh several times, talked to you individually at length, and spent time thinking things thru with Vandana. During this time, one of our employees, Sandeep Karamongikar, died in his sleep, likely of a massive heart attack. He was working on the chatbot frontend in Nia. Also over the weekend, in possibly the greatest demonstration of AI capability ever, a bot built by the researchers at OpenAI (yes, that OpenAI), defeated the world’s best players of DOTA2, a multiplayer online video game, a game where the bot learned to play entirely from scratch. Further demonstrating that the force to automate routine, even advanced, activities is an unstoppable and exponential one. And the Charlottesville incident here in the US demonstrated once again the power of words and silences to cause real damage, or to heal.

After much reflection, I have concluded that it is indeed time for me to leave my current positions as MD and CEO, and I have communicated my resignation to Sesh.

I will be working closely with Sesh, Ravi, Pravin, with all of you, and the senior management team to plan out the details and the timelines to ensure a smooth transition and in the meantime, continue our work without disruption, and ensuring that we protect our company, the employees, the clients, and the interests of every shareholder. You can count on my commitment to this.

I came here to help navigate the company through what I saw as a massive transformation opportunity, to transform our company and restore strong profitable growth, as well as help transform the business of our customers. I came to do this with the power of technology, given my experiences with similar transformations, my background in AI, and the structural changes that I saw happening in the IT services industry. This needed new skills, new thinking, new initiatives, and a transformation in the culture, from a cost-oriented value delivery, to entrepreneurship oriented value delivery. You have heard me articulate this many times before. This type of a transformation has always been a passion for me, indeed I took this job for this reason. We have achieved much in the last 3+ years, and for sure we can all be proud of the powerful seeds of transformation that have already been sowed. No one anticipated the additional headwinds like the geo-political disruptions (Brexit, Trump, visa etc.) that made this transformation even more challenging, but also rewarding. But, the distractions that we have seen, the constant drumbeat of the same issues over and over again, while ignoring and undermining the good work that has been done, take the excitement and passion out of this amazing journey. Over the last many months and quarters, we have all been besieged by false, baseless, malicious and increasingly personal attacks. Allegations that have been repeatedly proven false and baseless by multiple, independent investigations. But despite this, the attacks continue, and worse still, amplified by the very people from whom we all expected the most steadfast support in this great transformation. This continuous drumbeat of distractions and negativity over the last several months/quarters, inhibits our ability to make positive change and stay focused on value creation. Addressing the noise by itself is damaging; hundreds of hours of my own time has gone into this recently. But the structural challenges this engenders within the organization, has a very damaging effect on our ability to carry out any kind of a transformation, especially one that is as fundamental as transforming from a cost-oriented to an innovation oriented value delivery to clients.

Therefore, I have come to this moment and the end of this journey. I hope that it gives everyone a chance to reflect, and give the transformation effort another big push and move the company forward rapidly to build its future, to build upon the foundation that we have laid over these past 3 years. If these types of attacks continue, I hope each of you will continue to be the voice of fairness and reason – providing the active, emphatic and unequivocal support that the company, the management, the employees, and all of the stakeholders and friends of the company need in order to succeed. Since the board deeply believes in the cause we have started, I will be happy to support all of you to achieve a smooth transition, and serve as your Executive Vice Chair as discussed.

I would like to thank each one of you, my dear colleagues, my friends and mentors, and look forward to working with you to close this chapter and open a great new one for all of us.

Best, V

Bangalore – August 18, 2017: [NSE, BSE, NYSE: INFY]: At its board meeting held on August 18, 2017, the Board of Directors (the “Board”) of Infosys Limited (“Infosys” or the “Company”) accepted the notice of resignation of Dr. Vishal Sikka as the Managing Director and CEO, effective immediately.

In his notice of resignation to the Board, Dr. Sikka reiterated his belief in the great potential of Infosys, but cited among his reasons for leaving a continuous stream of distractions and disruptions over the recent months and quarters, increasingly personal and negative as of late, as preventing management’s ability to accelerate the Company’s transformation. The resignation intimation receivied by the Board from Dr. Sikka is attached as Annexure A.

The Board understands and acknowledges Dr. Sikka’s reasons for resignation, and regrets his decision. In particular, the Board is profoundly distressed by the unfounded personal attacks on the members of our management team that were made in the anonymous letters and have surfaced in recent months. As the Board has previously stated, a series of careful investigations found no merit to the unsubstantiated and anonymous allegations that had been asserted.  The Board denounces the critics who have amplified and sought to further promote demonstrably false allegations which have harmed employee morale and contributed to the loss of the Company’s valued CEO.

The Board thanks Dr. Sikka for his outstanding leadership of the Company, and for his extraordinary contributions during a period of rapid evolution in this industry. The Board also appreciates Dr. Sikka’s commitment to facilitate a smooth transition to new leadership fully equipped to lead Infosys forward in this new era in our industry and to ensure continuity in our service to our valued customers.  Consequently, the following arrangement (for which shareholder approval will be sought, as applicable) has been put in place as of today:

Dr. Sikka has been appointed Executive Vice Chairman effective today, and will hold office until the new permanent Chief Executive Officer and Managing Director takes charge, which should be no later than March 31, 2018.

Dr. Sikka will continue to focus on strategic initiatives, key customer relationships and technology development. He will report to the Company’s Board.

Mr. U. B. Pravin Rao has been appointed Interim Chief Executive Officer and Managing Director reporting to Dr. Sikka under the overall supervision and control of the Company’s Board.

Dr. Sikka will receive an annual salary of $1 during his tenure as Executive Vice Chairman.  Any Company equity awards held by Dr. Sikka that remain outstanding and unvested shall, during his term as Executive Vice Chairman, remain outstanding and shall continue to vest (and, in the case of stock options, become exercisable) in accordance with their terms.

When Dr. Sikka took over, the Company was lagging behind industry growth.  During Dr. Sikka’s tenure as CEO, Infosys revenues have grown from $2.13B in Q1FY15 to $2.65B this past Q1, with strong margin performance and cash generation, throughout his tenure.  Dr. Sikka’s approach to profitable growth delivered increase in liquid assets (including cash and cash equivalents) from $4.9B in June 2014 to $6.1B in June 2017, while paying dividends of over INR 19,000 Cr. (including dividend distribution tax) over these three years.

Under the leadership of Dr. Sikka, Infosys launched breakthrough new programs to drive innovation, education and entrepreneurship on a large scale. These programs included (i) Zero Distance, a program which was the first of its kind in the industry intended to drive grassroots innovation at a massive scale, through every employee, (ii) Design Thinking training, the largest program of its kind to drive creative confidence and problem-finding in every Infoscion, and (iii) Zero Bench, a bold notion of leveraging the bench as a means to drive additional value for clients. Employee attrition has decreased dramatically during Dr. Sikka’s tenure, particularly among high performers, utilization is at a 10-year high, and client satisfaction is at an all-time high. The Company launched more than 25 new services which rose to 8.3% of revenue last quarter, from zero percent in April 2015. Dr. Sikka has also been a thought leader and visionary in artificial intelligence technology, recognizing early on the unprecedented value Infosys could deliver through automation and artificial intelligence-led innovation in clients’ businesses. Under his leadership, Infosys developed and launched its artificial intelligence platform Nia, and already has more than 160 artificial intelligence scenarios deployed with more than 70 clients. Infosys has also ventured into new horizons both with design-thinking with clients and its start-up investment fund. Further, the Infosys US foundation has done inspiring work in bringing computer science education and a culture of innovating to the masses.

“Vishal has made a seminal contribution to the transformation of Infosys, and he will be remembered for infusing a refreshed sense of direction, purpose and energy in the organization. His vision for the future of the industry and the Company will remain a strong reference point as we chart the future course for Infosys in this new era in our rapidly evolving industry. On behalf of our entire board of directors, I wish him well for the future,” said R. Seshasayee, Chairman of the Board.

Ravi Venkatesan, Co-Chairman of the Board, said: “I want to thank Vishal for his commitment to ensure a smooth transition and his commitment to a seamless experience for our clients. Pravin is a veteran Infoscion with deep knowledge of the business, and his long experience in the Company will help ensure a smooth transition.”

Dr. Sikka commented, “I started my journey as the CEO of this iconic Company with a mission to transform it on the basis of software, especially [artificial intelligence], and innovation, enabled by education. Three years later, I feel proud of our progress and achievements, from profitable revenue growth to rapid purposeful adoption of software, new services and grassroots innovation, to the extraordinary recognition from our clients worldwide. I am deeply grateful to our Board for providing me with strong support and guidance, and especially wish to thank our Chairman [Seshasayee] for his extraordinary and thoughtful stewardship, and look forward to working together on a smooth transition.  Congratulations to my friend and partner Pravin on his appointment, and heartfelt thanks to all Infoscions for their warmth, amazing support and the sparks of their imagination.”

The Board has mandated the Chairman and the Nomination and Remuneration Committee to expeditiously identify and select a permanent CEO and Managing Director.

The company will organize two investor calls at 11:00 a.m. IST and 6:00 p.m. IST/8:30 a.m. ET, and will be hosting a press conference at 2:00 p.m. IST. The details for the calls will be made available on the website.

Bangalore – August 18, 2017: It has come to the attention of the Board that a letter authored by Mr. Murthy, the Founder of Infosys has been released to various media houses attacking the integrity of the Board and Management of the Company alleging falling corporate governance standards in the Company. The Board takes great umbrage to the contents of the letter and places on record the following:
 
Mr. Murthy’s continuous assault, including this latest letter, is the primary reason that the CEO, Dr. Vishal Sikka, has resigned despite strong Board support. 
 
Mr. Murthy’s letter contains factual inaccuracies, already-disproved rumours, and statements extracted out of context from his conversations with Board members.
 
The Board assures its shareholders, employees, customers and communities that it is committed not to be distracted by this misguided campaign by Mr. Murthy and will continue to adhere to the highest international standards of corporate governance as it executes its strategy of profitable growth for the benefit of all Infosys stakeholders.
 
Mr. Murthy’s campaign against the Board and the Company has had the unfortunate effect to undermine the Company’s efforts to transform itself.
 
The Board has been engaged in a dialogue with the Founder to resolve his concerns over the course of a year, trying earnestly to find feasible solutions within the boundaries of law and without compromising its independence. These dialogues have unfortunately not been successful.
 
The Board declines to speculate about Mr. Murthy’s motive for carrying out this campaign, including the latest letter.  The Board believes it must set the record straight on the false and misleading charges made by Mr. Murthy because his actions and demands are damaging the Company and misrepresent its commitment to good corporate governance.
 
FACT: Since Dr. Vishal Sikka was appointed as MD and CEO in August 2014, Infosys has delivered competitive financial performance through profitable revenue growth. 
 
Infosys has, under the leadership of Vishal, developed and articulated a strategy to transform itself to meet the rapidly changing needs of the marketplace in the 21st century.  The Company was lagging significantly behind industry in growth rates when Vishal took over and now we are in top quartile from a performance perspective.
 
Infosys has grown in revenues, from $2.13B in Q1FY15 to $2.65B this past Q1. This was done while keeping a strong focus on margins, closing this past quarter at 24.1% operating margin, beating some competitors for the first time in many years, and improving against nearly everyone in the industry. 
 
The revenue per employee of the Company has grown for six quarters in a row.  Attrition has fallen, from 23.4% in Q1FY15 to 16.9% this past Q1, and high performer attrition is much lower than the overall Company attrition. 
 
The Company grew its $100M+ clients from 12 in Q1FY15, to 18 this past Q1, and increased its large deal wins from ~$1.9B in FY15 to ~$3.5B this past year.  This has all been done while improving overall utilization (excluding trainees), to a 15-yr high this past quarter, and an all-time high including trainees, while improving our cash reserves, rewarding Infoscions with a new equity plan, and returning Rs. 19,000 Crores as dividend (including dividend distribution tax) over the last three years.  This has all been done while improving standing with clients, to the highest ever in the 12 years with a jump of 22 points in CXO satisfaction.
 
FACT: Infosys has continued to maintain the highest standards of corporate governance that the Company is known for.
 
The Board of Infosys is carrying out its shareholder mandate to be an independent board, working towards the best interest of the stakeholders.
 
The Board has sought the counsel of some of the most respected governance experts and legal advisors in the world, which have thoroughly investigated all anonymous allegations and concluded that no wrongdoing occurred.  For Mr. Murthy to imply – with no evidence whatsoever – that three well-respected international law firms, members of the Infosys Board and certain employees are engaged in some grand global conspiracy to conceal information is not tenable on its face. It is important to mention here that Mr. Murthy was interviewed as part of the investigation by Gibson Dunn & Crutcher LLP in pursuance of the investigation in the Panaya acquisition, and was invited and welcomed to provide any information or evidence he believed would support the allegations being investigated. He did not provide any evidence since none exists. However, he has not mentioned this is his media communication against the investigation.
 
As previously announced by the Company on June 23, 2017, the Board thoroughly investigated each anonymous allegation with the assistance of highly respected external counsel and experts and determined that the allegations were entirely without merit. The Board will make no additional disclosure of the investigation report because further disclosure would be inconsistent with best corporate audit practices and would compromise the confidence of employees that they could report honestly, openly, and candidly to the company in any future investigation or legal matter.
 
The Board also believes that any further use of resources and time on these matters would be a distraction for the Company and would enable those wishing unfairly to attack Company personnel to continue this harmful conduct.  Therefore, the Board has formally closed the investigations of the anonymous allegations so that the Company can focus on strategy, performance, and the creation of shareholder value.  The Board remains focused to continuing to support Infosys’s strategy, which it believes is in the best interests of the Company’s shareholders, employees, clients and communities.
 
FACT: Mr. Murthy’s has made repeatedly made inappropriate demands which are inconsistent with his stated desire for stronger governance. 
 
Illustratively:
 
Mr. Murthy has demanded that the Board adopt certain changes in policy, else he will attack board members in the public, which threat was carried out when the Board did not acquiesce;
 
He has demanded that the Board appoint specific individuals onto the Board under similar threat, without appropriate disclosure and without regard to basic determinants of appropriateness or fit of the candidate for the role as a Board member;
 
He has demanded operational and management changes under the threat of media attacks;
 
Notwithstanding that the remuneration package of senior management was approved overwhelmingly by shareholders (including members of the promoter group), Mr. Murthy preferred his dictat to prevail with no place or tolerance for the outcomes of shareholder democracy. 
 
Mr. Murthy wanted the demands to be adhered to without attribution to him.
 
The Board has, in its fiduciary role to consider all shareholder inputs, treated each demand from Mr. Murthy as a suggestion and only acted on suggestions which we believed was in the best interest of the company and declined to act on others. Over time the demands have intensified, which when declined by the Board resulted in the threats of media attacks being carried out. 
 
FACT: Mr. Murthy may be in the process of engaging in discussions with certain key stakeholders of the Company to further his criticisms of the Board and Management.
           
We are concerned that this type of campaign runs the risk of confusing investors and undermining the Company’s management efforts.
 
FACT: The Board is a fully independent Board, with professionals as its members who have been appointed by a clear majority of the shareholders.
 
Given the commitment of the Board to remain independent and pursue a chosen strategy, the Board currently has no intention of asking Mr. Murthy to play a formal role in the governance of the organization.
 
Co- Chair of the Board, Ravi Venkatesan has repeatedly over the past few weeks publicly stated his and the Boards support for Dr. Sikka. The Company categorically rejects any speculation or allegation of discord between the Infosys Board and Dr. Sikka.