Infosys CEO resigns after long-running feud with founders

By Samantha Kareen Nair and Sankalp Phartiyal

BENGALURU/MUMBAI (Reuters) - Vishal Sikka, the chief executive brought in to turn around India's Infosys (NYSE: INFY) three years ago, resigned on Friday, blaming a "continuous drumbeat of distractions" and a long-running row with the founders over company strategy.

Sikka's resignation spooked investors in India's second-biggest IT services company and sent its shares down nearly 10 percent, wiping $3.45 billion off its market value. The stock touched its lowest level since the start of Sikka's tenure.

The tussle between Infosys and its founders began in February after founder and former chairman Narayana Murthy accused the company of corporate governance lapses.

The Infosys board has denied the allegations repeatedly and on Friday blamed Sikka's resignation on Murthy's "continuous assault", describing the billionaire's latest salvo questioning the integrity of the directors and management as the final nail in the coffin.

The board said Murthy's campaign had undermined Sikka's efforts to transform the business and it had no intention of asking him to play a formal role in the governance of the firm.

Murthy said such claims were "baseless" and that he was "extremely anguished by the allegations, tone and tenor of the statements" and that he was not making a power play. He said his main concern was the governance standards.

The founders, who still own 12.75 percent of Infosys, have previously questioned a pay rise granted to Sikka and Chief Operating Officer Pravin Rao, who takes over as interim CEO. Sikka will remain at the company as executive vice chairman until a permanent CEO is appointed.

'UNTENABLE ATMOSPHERE'

"I cannot carry out my job as CEO and continue to create value, while also constantly defending against unrelenting, baseless/malicious and increasingly personal attacks," Sikka said in a blog post. (http://bit.ly/2wlae62)

"The distractions, the very public noise around us, have created an untenable atmosphere," added Sikka, who was German software group SAP's chief technology officer before joining Infosys.

Sikka's exit comes as the $150 billion Indian IT services industry battles a slowdown in new deals from western clients and braces for changes to visa rules in the United States, on which Infosys and its rivals rely heavily.

The company's push into automation, cloud computing and data analytics, meanwhile, has yet to reap big revenues.

The public row at Infosys is reminiscent of Cyrus Mistry's unceremonious November ousting as boss of Tata Group over differences with the Tata family patriarch, Ratan Tata.

Infosys was set up in 1981 by Murthy and six others after he borrowed 10,000 rupees ($156) from his wife. Headquartered in the southern city of Bengaluru, India's Silicon Valley, Infosys grew to become the country's second-largest IT services company.

Murthy led the company until 2002 and continued as chairman and "chief mentor" until 2011. Much like Steve Jobs' return at Apple , Murthy rejoined Infosys as executive chairman in 2013 to steer it after disappointing earnings and loss of market share.

FRESH APPROACH

Sikka, on the other hand, was unlike previous Infosys CEOs in that he is not one of its founders and spent most of his time in the United States, from where the company derives the bulk of its revenue.

Sikka is frequently seen clad in black t-shirts and blazer, reminiscent of a style made famous by Apple's Jobs, whom Sikka quotes in his resignation blog post.

Since Sikka took the helm on Aug. 1, 2014, Infosys shares had risen more than 20 percent by Thursday's close, outpacing a 5 percent gain in India's benchmark IT index <.NIFTYIT>. The company's market value surged by $4.6 billion to $31.78 billion over the period.

Sikka set an ambitious 2020 revenue target of $20 billion, which he has since acknowledged will be difficult to achieve in light of the headwinds now facing the sector.

Infosys, which counts Apple, Volkswagen and Wal-Mart Stores (NYSE: WMT) among its customers, has underperformed the Nifty IT index this year amid the attacks from its founders and its U.S. challenges.

"Sikka was trying to change the way we do business. He was trying to make Infosys an innovation-driven company, not a commoditised service provider," said an Infosys engineer who asked not to be named because of the sensitivity of the issue.

The CEO's resignation comes a day before a board meeting that could approve major share buyback. In April Infosys said it would return up to 130 billion rupees to shareholders in the financial year ending March 2018.

"This does not augur well for the future of the company, for the shareholders, big and small, and more importantly for the employees," said Gaurang Shah, head investment strategist at Mumbai-based brokerage Geojit Financial Services.

(Additional reporting Tanvi Mehta, Jessica Kuruthukulangara and Gaurav Dogra in Bengaluru, Abhirup Roy, Rafael Nam and Euan Rocha in Mumbai and Krishna Das in New Delhi; Writing by Aditi Shah; Editing by Himani Sarkar and David Goodman)

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• All eyes on Micron earnings tonight as sell-off raises stakes for AI memory trade
• Hertz cuts guidance, announces notes and stock offerings, shares sink
• Take-Two prices 'Grand Theft Auto VI' at $79.99, sticks to November 19 launch