Forbes India 15th Anniversary Special

Once Upon a Family: The Churn at Infosys

Corporate transitions invariably have their casualties. Thatís why Mohandas Paiís exit from Infosys Technologies at this crucial juncture has raised eyebrows

Published: Apr 22, 2011 06:24:59 AM IST
Updated: Apr 21, 2011 03:27:01 PM IST
Once Upon a Family: The Churn at Infosys
Image: Namas Bhojani / Bloomberg via Getty Image
T.V. Mohandas Pai, Director in charge of human resources and administration, Infosys

In January this year, T.V. Mohandas Pai told his wife and two sons about his decision to quit Infosys Technologies, give up his seat at the board of one of India’s best-known companies and start a new life. No one else knew that he had planned to announce it just before the board met on April 15. He had taken the decision one year ago, and told Founder-Chairman N.R. Narayana Murthy about nine months ago. The board had left it to him to decide on the timing and the manner. “I deliberately held it so close to my chest, because once I tell anyone, then that leads to speculation, the news leaks and then the media comes to know. I didn’t want it to be this way,” Pai told Forbes India two days after the momentous decision.

So at 10.30 pm on April 14, he sent an email to Murthy and Kris Gopalakrishnan, the Infosys CEO to whom he reported. An early riser, Murthy read the email at 4.45 am and called Pai two hours later to ask if he was certain or if he wanted to reconsider. Pai said his decision was final. An hour later, the Infosys board met to discuss the last quarter results. “Murthy informed the board that he had received my resignation; he applauded me, talked about what I had done for Infosys and then invited me to address the board. As I started speaking, I choked. I started discussing thetime I had joined Infosys, and how my father was in coma at that time. But I spent most of my time at Infosys, the guilt  of that time and my emotions about my father washed over me and I couldn’t speak, it was a very emotional moment for me,” recounts Pai.

For the world at large, the sudden exit of Pai, an Infosys veteran of 17 years, has heightened the drama surrounding one of the biggest corporate transitions in Indian business. Till 2006, Pai was the public face of Infosys as its chief financial officer and later as its director in charge of human resources and administration. The chartered accountant was handpicked by Murthy in 1994 from Prakash Roadways after Murthy was impressed by the tough questions Pai would throw at him during the Infosys AGM.

Murthy did everything to make sure he fitted into the management echelon dominated by passionate founders. In fact, he allowed Pai a lot more latitude than many of the founders. Pai revelled in that freedom, sometimes bullying people and even contradicting Murthy. In the Infosys system, not many had the guts to do that. Besides, he was given generous stock options, a seat on the board and was later made a director responsible for driving HR in this people-driven business.

While his record in the finance department can only be described as stellar, his HR stint proved to be a bit controversial. He was unpopular among sections of the 130,000 employees for his radical policies. They resented him for forcing them to clock 9.15 hours every day and blamed him for thrusting on them a new HR model called iRace that led to hundreds getting demoted during the slowdown. A former board member describes him as an enfant terrible among Murthy’s children.

Still, if there was any possibility of a management reshuffle, there was every chance that Pai would have been in contention for a stab at the top job. So why did he leave? And what impact would that have on the succession planning process inside Infosys?

The final answers may not emerge until around 6 pm on April 30, when the Infosys board is expected to announce Murthy’s successor and the resultant changes in its top deck. But the circumstances in which Pai is leaving reveal a lot about how the power equations have changed at this legendary company and how smooth or otherwise its transition from being a founder-led organisation to a professional one is going to be.
At a time when the Infosys stock is losing its bell-weather status to Tata Consultancy Services, this leadership transition will have a significant bearing on the future of the company.

When it comes to financials, Infosys always follows a policy of ‘disclosing when in doubt’. But when it comes to internal affairs such as any differences of opinion, the founders seldom make anything public. And if anything, Pai’s decision to quit — and his candid interview with Forbes India — suggests a significant difference of opinion on the pace at which the founders at Infosys plan to hand over the reins to the next generation of leaders.

No Revolutions, Please
In early April, when Infosys announced a shake-up of its management structure, no one knew that Pai was leaving, except for Gopalakrishnan and Chief Operating Officer Shibulal. It was the three of them that had planned many of the changes in the last six months, says Pai.

As far back as 2007, Pai pushed hard to bring younger leaders on the executive council, which had been dominated by the founding team. “The reason I pushed for the concept was that you have to give these new leaders an enterprise view of the business. So far all they had was the business unit view,” he says. Besides, it offered a platform for the board to look at the next generation leaders to understand who among them could be the next CEO or COO.

Once Upon a Family: The Churn at Infosys
Image: Mallikarjun Katakol for Forbes India
infosys Founder-Chairman N.R. Narayana Murthy

Yet, even though a broad-based executive council helped the power-sharing, much of the critical tasks like capital allocation and staffing were still tightly managed by the group of four: Gopalakrishnan, Shibulal, Chief Financial Officer V. Balakrishnan and Pai. With the re-organisation, that will begin to change. The company has now divided its entire business into four key lines of business, led by four managers handpicked from within.

The businesses have been consolidated so that each of these ‘vertical’ heads will now manage a business unit worth $1.5 billion. This in effect makes them mini-CEOs, allowing them to take quicker decisions more in sync with the market, rather than through one centralised apparatus at the Bangalore head office. “In the past, we had 14 P&Ls [profit and loss accounts], multiple business units, and service lines. The new structure is a simple four by three matrix. There are fewer people reporting to Shibu and that means faster decision making,” says Subhash Dhar, who now leads the portfolio of a new Innovations Group, while remaining the sales and marketing head of the company. Over time, the executive council will be expanded to induct a few more leaders. And some may even fall off the map if their performance isn’t up to the mark.

While there was ample consensus on building this executive council, Pai says he was a bit disappointed at not being able to convince the founding team or the board that a younger leader be given a chance to lead the organisation while the founders were still around. “It has been my dream to see a non-founder run the organisation, before all the founders retire. I have been saying this to the board as well,” says Pai. He reasons that the spirit and the values of the company can be passed down much better that way.

As an organisation, Infosys had always remained inherently conservative. Its DNA has been geared up for deliberate, careful changes, rather than dramatic, quick-fire decisions. And so, the dominant view that it was far too risky to hand over a $6 billion corporation to someone younger. “I don’t deny that. But four to five years later, when the founders retire, this will be a bigger corporation and then the risk will be greater,” says Pai.

Cramped at the Top
There was another reason why Infosys has been perceived as somewhat slow in reacting to changes in the business environment. It had a very large board, with as many 15 members. A part of the reason was historical. In keeping with Murthy’s desire to have equal rights for all his co-founders, there were as many as seven internal members, and an equal number of independent directors. That meant many more discussions and debates and more delicate handling of egos, etc. “I personally think there should be not more than two or three people internally on it. [Yet] there are a lot of people internally who have the aspiration to be on the board and it is never easy to manage that. In this company, there is also a lot of precedence to that,” says Pai.

However, once Murthy, K. Dinesh and Pai step down, the number of ‘insiders’ on the board will then come down to just three. “It is up to the board to decide whether they want more people from inside or not,” says Pai. (Co-founder K. Dinesh has said he won’t seek re-election to the board).

Nine months ago, when Pai first told Murthy about his decision to quit, Murthy asked him if he had CEO/COO aspirations. He said he had none. Murthy was very upset that Pai wanted to leave. You must be around to take Infosys to the next level, he told Pai.  “I could have stayed on as a board member but there are people inside who have the aspiration to be on the board and my staying on would have blocked that,” says Pai. (In an interview to CNBC-TV18, Murthy said he only ‘discussed’ Pai’s ambitions with him. And it won’t be right to say he ‘offered’ anything to him. Only the nomination committee had that locus standi.)

“Plus, when the board draws up a succession planning — they would have to consider me for the CEO and COO role. I don’t have aspirations to be the CEO, so if I had turned it down it would not have been right. If they didn’t offer it to me then it would be highly awkward for me,” he adds.

Ironically, when 52-year old Pai was talking about the need to make way for younger leaders at the press conference on April 15, his two colleagues seated with him, Gopalakrishnan and Shibulal, both 55, looked on. Both are expected to be elevated to new positions: Shibulal as the new CEO and Gopalakrishnan most likely as vice chairman with a new chairman (widely expected to be K.V. Kamath) settling into Murthy’s shoes. When asked about the irony of it all, Pai says, “I can’t speak for anyone else. I stand for my principles.”

(This story appears in the 06 May, 2011 issue of Forbes India. To visit our Archives, click here.)