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    Narayana Murthy, Infosys board set to take battle to shareholders

    Synopsis

    On Tuesday, Infosys co-chairman Ravi Venkatesan met Finance Minister Arun Jaitley.

    ET Bureau
    BENGALURU | MUMBAI: Founder NR Narayana Murthy and the board of Infosys are independently approaching investors to garner support for a possible extraordinary general meeting (EGM), according to three people aware of the unprecedented move, signalling an escalation in the raging dispute over corporate governance within India’s second-largest software services company.

    Murthy, 71, who has been vocal in his demand for a change in the board of the company, is likely to seek the approval of shareholders for some new directors, said one of the people cited above. The prospect of an all-out public spat at one of India’s most celebrated corporations — once feted for being the gold standard for probity and culture — is triggering alarms over further harm being inflicted on the company.

    “This is no longer a matter for this board. This is now a matter for the founders, the institutional investors and the retail shareholders who have seen their shares drop. It is a shareholder’s right to nominate directors,” the person with direct knowledge of Murthy’s plans told ET.

    Both parties are seeking to determine how the $10-billion company will be run following the shock resignation of CEO Vishal Sikka on Friday after months of friction between Murthy and the board of the Bengaluru-based company.

    Image article boday


    On Tuesday, Infosys co-chairman Ravi Venkatesan met FM Arun Jaitley, in another indicator of the direction the battle is taking.

    For his gambit to work, Murthy will need the other founders to vote with him. Shareholders owning over 10% of a company can call an EGM, and Murthy — who together with his family owns a3.44% stake — does not make the cut on his own.

    He will need the support of his team of cofounders, including Aadhaar architect Nandan Nilekani, and former CEOs Kris Gopalakrishnan and SD Shibulal. Together, the founders own 12.75%.

    “There are ongoing discussions to get the company’s other founders — Nilekani and Gopalakrishnan — to publicly come out in support of Murthy’s stand,” said the source named above, who is privy to Murthy’s plans. Murthy and Nilekani did not reply to email queries from ET on the developments. Gopalakrishnan said, “I do not talk on Infosys.” Infosys declined to comment.

    Separately, the Infosys’ board, led by chairman R Seshasayee and Venkatesan, is also fanning out to talk to investors. Board members will meet leading institutional investors in the next few weeks to seek their opinion on conducting an EGM, which will be seen as shareholders’ verdict on the matter.

    “A clear mandate from shareholders will essentially show who should run the company. Since the board members are not shareholders, an EGM will demonstrate the mandate of a broader set of shareholders,” said an Infosys official privy to the issue, requesting anonymity. The official said the board has not yet decided on the point of deliberation at the proposed meeting.

    Any hopes of a peaceful rapprochement of the nearly eight-month-old dispute receded after the board accused Murthy of causing Sikka’s departure, in a statement released to stock exchanges on Friday. The board also accused Murthy of threatening them with negative media coverage to achieve his ends and said they would not give him a say in Infosys’ corporate governance, unless that is something shareholders wanted.

    Since Friday, when Sikka announced his resignation, Infosys shares have plunged 14%, eroding the company’s market value by Rs 33,000 crore. The stock closed at Rs 876 on the BSE on Tuesday.

    LAST-DITCH ATTEMPTS AT PEACE
    Despite the turmoil and the hardening of stances on both sides, people in the know said attempts are still being made for a possible peaceful resolution. Nilekani has made a ‘few calls’ in an attempt to defuse the situation, a second source with knowledge of the calls told ET.

    Institutional investors including foreign funds, insurers and domestic mutual funds own 57.72% in Infosys. Large institutional shareholders, such as government-run Life Insurance Corporation —which owns 7.03% stake — will play a key role in deciding the company’s future.

    While the founders are believed to be in agreement on the issue, Murthy, as the sole public face of discontent, has come under a great deal of fire.

    Another key adviser to Murthy revealed the iconic founder has been ‘pained’ by his fellow founders’ refusal to step up, but that could change. “They have always been together. Now there are discussions about them coming out in the open as well. You should see something soon,” the source said.

    A second Infosys executive said the company was also preparing for the eventuality of the founders putting up a fight at the EGM. “When you have a fight and then you slight the founders in a statement, this is what you should expect,” the executive said.

    Fund managers said they have not been approached yet by the board members on the issue. While they are yet to take a final decision, the bias will be towards backing the candidate put forward by the board. “Founders like Narayana Murthy are minority shareholders like everybody else. If the company goes to vote, we are going to back the board,” said the chief executive of a leading mutual fund.

    BOARD TOO RESPONSIBLE
    The chief investment officer of another large mutual fund said the board too will have to be held responsible for the fiasco.

    “The board was more concerned with placating Narayana Murthy, who is just another minority investor. It could have handled the issue better,” said the CIO.

    Murthy’s attempt to work around the existing board was actually flagged by Infosys in the letter attacking him. “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,” the board said in its statement on Friday.

    But shareholder advisory firms said the possibility of an EGM would damage the alreadybattered company.

    “An EGM, called by founders, is always a possibility. This could lead to further animosity between the board and Murthy. Or the founders could approach NCLT (National Company Law Tribunal) alleging mismanagement. These steps are retrograde, and the reputation and credibility of Infosys and the founders will take a beating,” Shriram Subramanian, founder of corporate governance advisory firm InGovern Research Services, told ET.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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