Infosys Brings Back Founder as Chairman in response to shareholder demands to revive the struggling technology company

June 2, 2013 Leave a comment

June 1, 2013, 5:43 a.m. ET

Infosys Brings Back Founder

By DHANYA ANN THOPPIL

BANGALORE—India’s Infosys Ltd. 500209.BY +3.00% brought back its founder, N.R. Narayana Murthy, in response to shareholder demands to revive the struggling technology company.

Mr. Murthy was named executive chairman and added to the board Saturday. He will hold the post for five years. He served as the chief executive, chairman and chief mentor of Infosys before being appointed chairman emeritus in 2011.Banking veteran K.V. Kamath stepped down as nonexecutive chairman to take up the position of lead independent director, the company said, while S. Gopalakrishnan, formerly executive co-chairman, is now executive vice chairman, focusing on key clients. S.D. Shibulal will continue to be the managing director and CEO.

All appointments are effective from Saturday.

The leadership changes are in response to shareholder demands to strengthen the company’s executive leadership, said Mr. Kamath in a statement announcing the changes.

The Bangalore-based company, India’s second-largest software exporter by sales, has struggled to grow since 2011, when Mr. Murthy left the company. Infosys blames cost cuts by its main clients—large U.S. and European companies—as a result of a global economic slowdown.

“It’s not as tough a market as Infosys wants everybody to believe,” said Sudin Apte, the chief executive of advisory and research firm Offshore Insights, who said the leadership overhaul won’t change the company’s fortunes overnight—though it may boost investor confidence, rattled by a couple of years of underperformance.

Market leader Tata Consultancy Services Ltd. 532540.BY -0.06% and nearest rivalCognizant Technology Solutions

Corp. CTSH -0.23% have both grown faster than Infosys in the past two years, grabbed a greater share of the outsourcing market.

Critics say Infosys is hamstrung by as focus on high profitability and higher-margin contracts, fast drying up in a volatile economic environment. In a note in February,J.P. Morgan

JPM -1.85% said the company is caught in a “vicious cycle” that starts with “margin and profitability fixation,” which in turn is limiting its market-share gain and constrains investments. This in turn is slackening revenue growth and squeezing margins, the brokerage added.

As part of the latest restructuring, the 67-year-old Mr. Murthy wants to create a chairman’s office to assist him. The chairman’s office will include his son Rohan Murty who will act as his father’s executive assistant, the company said.

Published: Saturday June 1, 2013 MYT 6:05:00 PM

Under pressure Infosys recalls Narayana Murthy as chairman

MUMBAI: Indian IT services firm Infosys Ltd, grappling with a string of disappointing results and loss of market share, has recalled founder and former chairman N.R. Narayana Murthy to act as executive chairman for five years.

He replaces current chairman K.V.Kamath, who will become lead independent director, effective June 1. The current executive co-chairman S. Gopalakrishnan will be re-designated executive vice chairman, while current chief executive officer S.D. Shibulal will remain in his position, Infosys said in a statement on Saturday.

“The board has taken this step keeping in mind the challenges that the technology industry and the company faces,” Kamath said in the statement, also acknowledging calls from shareholders to strengthen executive leadership of the company.

Infosys said it will put the matter before shareholders at its annual general meeting on June 15.

The company, for years an investor favorite for exceeding its earnings targets, has struggled in the past two years as its big customers in the U.S. and Europe cut costs and seen rivals such as Tata Consultancy Services and HCL Technologies Ltd take away market share.

In April, Infosys forecast full-year sales growth that missed analyst expectations by a margin of up to 50 percent, pushing down its shares to their lowest close in a decade.

“This is a drastic, some might say, welcome move,” said Ankur Rudra, sector analyst at Ambit Capital, which has a “sell” rating on the stock. “Probably, this could be a step towards a new strategic direction and leadership as well.”

The company’s troubles have spurred criticism of everything from its method of choosing CEOs to its pricing strategy to what is seen as an insular and risk-averse culture.

Chief executive Shibulal is one of the seven engineers who launched the company in 1981 by pooling together $250. All four CEO’s so far have been from this group.

Murthy, who has earlier served on the board of HSBC and Unilever, said the calling was “sudden, unexpected and most unusual,” while accepting the position.

He also requested the Infosys board to appoint his son Rohan Murthy as his executive assistant for a period of five years.

Shares in Infosys closed 3 percent higher on Friday, ahead of the announcement. The stock is up 4 percent so far in 2013, compared to a nearly 7 percent increase in the sectoral index. – Reuters

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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