Leadership crisis

Infosys has finally found a new CEO in Salil Parekh – but that’s just half the battle won

The last few years have been one of the toughest periods for Indian IT, particularly due to the changing technology landscape.

Infosys may have overcome a big challenge by finding a new chief executive, but that’s not even half the battle won for the country’s second-largest IT services company which has been struggling for years to regain industry-leading growth.

On December 2, Infosys said it has appointed 53-year-old Salil S Parekh as its CEO and managing director effective January 2, 2018. An IIT-Bombay alumnus, Parekh joins Infosys from French IT services company Capgemini where he was a member of the group executive board, roughly equivalent to a deputy CEO’s post.

Reacting to the appointment, the company’s shares opened 2.6% higher on BSE today (December 4). At 11.40 am, the stock was trading up 3.8% apiece.

The cheer among investors is justified, as Parekh’s appointment ends a period of speculation sparked by the abrupt resignation of Vishal Sikka, the company’s first non-founder CEO, in August.

Described by his former colleagues as “a very important man,” Parekh played a vital role in building Capgemini’s team in India from just 300 people when he joined in 2000 to over 60,000 in 2015. Parekh had come to the French company after it acquired Ernst & Young’s consulting division where he was a partner since 1992.

“He [Parekh] has nearly three decades of global experience in the IT services industry,” Infosys chairman and co-founder Nandan Nilekani said in the statement announcing Parekh’s appointment. “He has a strong track record of executing business turnarounds and managing very successful acquisitions. The board believes he is the right person to lead Infosys at this transformative time in our industry.”

The task before Parekh requires all of these skills – and much more.

Restore reputation

Parekh is joining Infosys at a time when the Bengaluru-headquartered firm has been making headlines for all the wrong reasons, eroding its once stellar reputation.

In February, an anonymous whistle-blower raised allegations of financial irregularities in Infosys’s $200 million acquisition of Israeli software firm Panaya. Around the same time, founder NR Narayana Murthy made a media statement claiming that the company’s then board was acting in a way that hinted at attempts to “hide something.” He also questioned the Rs 17.4 crore ($2.7 million) severance paid to former CFO Rajiv Bansal, asking if it was “hush money.”

The board, then chaired by R Seshasayee, tried to defuse the situation by providing a point-by-point rebuttal on all issues raised by Murthy. However, between then and August, Murthy and his fellow founders continued to raise the same questions several times. On Aug. 18, Sikka quit Infosys, citing “the constant drumbeat of the same issues over and over again.” Seshasayee, along with independent directors Jeffrey Lehman and John Etchemendy, also resigned.

Since his return to Infosys in August, Nilekani has been trying to end this uncertainty. “The board also firmly believes it is time to put these issues to rest. It seeks the support of all stakeholders to look towards the future, and to collectively focus on strategy, operations, and growth,” a company statement said on October 27. But he wasn’t able to entirely pacify Murthy.

“If there’s something in the news every other day, the management ends up spending a lot of time in dealing with the press, clearing the air, and sharing its point of view. That cannot be good for any company,” Amit Tandon, founder and managing director at proxy firm Institutional Investor Advisory Services, had told Quartz in October.

The recent leadership churn may also have left clients confused over the company’s future strategy, which Parekh will have to fix. “Sikka came from a software products background and tried to build Infosys’s product offerings... So there is a misconception in the market that Infosys is moving towards becoming a product company, which Parekh will have to undo,” said Sanchit Vir Gogia, chief analyst at Greyhound Research. “He will need to establish that the company is focused on its bread-and-butter IT services business.”

Rebuilding the team

In 2014, when revenue growth first began to slow down and Infosys’ last founding CEO SD Shibulal failed to fix it before stepping down, it exposed a key shortcoming: the lack of internal leadership.

Most of the in-house candidates – former president BG Srinivas; the then head of North American business Ashok Vemuri, and ex-CFO V Balakrishnan, among others – were deemed unfit and later resigned. This issue played out again when Nilekani had to step in earlier this year. Besides, Sikka’s resignation led to further erosion in Infosys’s leadership team with the exits of senior vice-president Sanjay Rajagopalan and head of technology Navin Budhiraja, among others.

“Building leadership will be an important mid-term challenge for Parekh,” Gogia of Greyhound said. “Managing and maintaining employees’ confidence is very important for Infosys right now.”

The task will not end with just rebuilding top-level talent. Parekh will need to win back the confidence of the company’s nearly 200,000 employees, too. Attrition has been on the rise at Infosys since February 2017, when the entire Murthy-versus-board fracas began.

Data: Infosys. (Annualised standalone)
Data: Infosys. (Annualised standalone)

Prepare for the worst

The last few years have been one of the toughest periods for Indian IT, particularly due to the changing technology landscape. The industry is estimated to grow at just 8% during the financial year 2018, compared to the over 30% annual growth it used to clock a decade ago.

While Sikka did try to bring Infosys to pace by training employees and making acquisitions of companies like Panaya and e-commerce services provider Skava, growth has not yet stabilised – in fact, it has even lagged the industry. So, a key challenge for Parekh will be to help Infosys win new contracts in core operations and boost revenue, while investing in newer capabilities, such as artificial intelligence and automation, that will keep the company relevant in the long term.

Data: Infosys
Data: Infosys

At the same time, the industry must also contend with the other constant bugbear: visa regulations. Already a tricky situation, Indian IT’s woes have been compounded since Donald Trump moved into the White House earlier this year. The US administration has often indicated that it may make it harder for immigrants to get US work visas. Indian IT services companies are among the biggest beneficiaries of such visas and have built their businesses around supplying cheap workers from India.

This article first appeared on Quartz.

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