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Old 22nd August 2017, 21:24   #16
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

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Originally Posted by androdev View Post
I have seen one transition from founder to professional management up close. Here is what I observed:


The lesson for founders is to groom the future leaders from within the ranks to carry forward the values and culture.
You have summed up accurately the transition issues. I agree with the fact that most CEO's from outside are rarely conservative in terms of utilizing the perks and they end up with a huge exit parachute while the company suffers with a depleted cash reserve and consumer confidence. Thanks for your analysis.
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Old 22nd August 2017, 22:33   #17
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

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Nice thread, Avdhesh .

When you build something great from scratch, you'll obviously have your heart & soul in it. We see so many Indian companies where the founder or his descendants continue to control the company. In fact, these far outnumber companies where founders have handed over control to professional managers.
Slightly offtopic - Hope you have a Succession plan in place for Team Bhp
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Old 22nd August 2017, 22:42   #18
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

Sounds pretty close to Wipro story around 13 years ago... The CEO wanted to grow inorganically but wasn't really appreciated by the founder who had transformed it painstakingly

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I have seen one transition from founder to professional management up close.

Last edited by GTO : 23rd August 2017 at 10:26. Reason: Please quote ONLY the relevant bits of a post. Quoting a full, long post inconveniences our mobile readers. Thanks!
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Old 22nd August 2017, 23:27   #19
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

The founder (and in fact the original founding team that rotated the CEO role among themselves) thrived on frugality and nickel and diming in an era when cost controls and offering coders at low man hour rates would actually produce a profit. And well - that model had its day the instant people started noticing that a single deployment of chef and puppet would replace a large team of unix admins deploying stuff manually, and that test automation would do with a small team what took a huge team executing manual test cases.

Fly Economy? Drive a Corolla? Or drive a (whatever, let's say Merc), get a higher salary instead of taking a low salary and owning shares worth a percentage of the company so wealth comes in that way, live in the Bay Area - closer to the clients but that's a minor detail to be sure. Interesting set of perspectives.

However where Sikka really earned his salary was in moving Infy away from the tired and by now on its last legs bargain basement IT piecework model, with a huge analytics play and an AI platform. And the year on year returns he delivered - well, they make flying coach and driving a Corolla mere penny pinching by comparison.

As for a private jet instead of flying economy - what IS a multi million dollar company CEO's time worth? Long hours in the air with no connectivity, four or five hour layovers till the next flight if there is no commercial airline that flies direct, arrive at the destination tired and jet lagged so he can't hit his destination ready to head to a meeting or whatever other task might cost the company revenues and its share price far more than flying him in first, or flying him in a private jet with internet connectivity, that can pick short routes and not halt for more than refuelling stops will ever cost.

There are sensible financial controls, and there is being penny wise and pound foolish.

My previous job (with another slowly dying MNC IT company) saw all such attempts at frugality - make people fly economy even on long trips, so that they have to take a day off to rest up, remove free coffee from the offices and switch off aircon after office hours (so guess just how many employees choose to work late after that?), restrict conference travel for senior tech people though their entire job depends on working efficiently with their peers in industry and academia .. saved tons of money. All for a commitment to keep increasing earnings per share, so that they periodically resorted to using a massive cash pile to buy back shares from the market to boost share prices.

So I will be a contrarian here and say that the founder team (and many of their generation) in Infy need to keep their hands well off the reins and hire another professional CEO.

The Infosys board already messed up in that the time for them to repudiate NRN's statements and show public support for Sikka was when all these attacks started, rather than after Sikka had quit. So they need to bring another professional CEO on board rather than the founders or any of their nominees. And ASAP so that continuity is maintained.
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Old 23rd August 2017, 07:25   #20
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

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Fly Economy? Drive a Corolla? Or drive a (whatever, let's say Merc), get a higher salary instead of taking a low salary and owning shares worth a percentage of the company so wealth comes in that way, live in the Bay Area - closer to the clients but that's a minor detail to be sure. Interesting set of perspectives.

However where Sikka really earned his salary was in moving Infy away from the tired and by now on its last legs bargain basement IT piecework model, with a huge analytics play and an AI platform. And the year on year returns he delivered - well, they make flying coach and driving a Corolla mere penny pinching by comparison.

As for a private jet instead of flying economy - what IS a multi million dollar company CEO's time worth? Long hours in the air with no connectivity, four or five hour layovers till the next flight if there is no commercial airline that flies direct, arrive at the destination tired and jet lagged so he can't hit his destination ready to head to a meeting or whatever other task might cost the company revenues and its share price far more than flying him in first, or flying him in a private jet with internet connectivity, that can pick short routes and not halt for more than refuelling stops will ever cost.
There is no correlation to CEO performance and the highflying. It is more of an entitlement issue coming from the US CEO culture. The CEOs of GM, Ford, and Chrysler flew private jets to a congress hearing on bailout funds.

Why are people assuming that Sikka already moved Infosys into AI and Analytics play? This is another pattern with professional CEOs - they have a great gift for creating perception and PR. I am not criticising Sikka, he is obviously a good CEO with a good plan, but he hasn't yet delivered on the plan and because of all the hate towards founder interference, everyone is trying hard to make Sikka an accomplished hero. Btw, he is living in the Bay Area to be with his family, not to be close to customer

US is a school that produces a lot of CEOs who talk big and waste other's hard earned money. Softbank/Google Nikesh Arora did irreparable damage to Indian startup scene.

I have nothing against Sikka and I don't think he needed to go. Sikka was merely the fall guy because of the battle between the board and the founders.

The main issue is Panaya acquisition that was done in haste, the CXO level people who had serious reservations quit the company right after acquisition and were paid crazy severance pay. To make things worse, the board hired a law firm to issue them a clean chit instead of making any genuine attempts to clear things up. Why should the founders look the other way?

It is not a question of competence or strategy but ethics/governance. I don't think there is any criticism about the strategy, high flying or choice of M&A, etc.

Last edited by androdev : 23rd August 2017 at 07:43.
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Old 23rd August 2017, 09:12   #21
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

Nikesh was promoted CEO well before he was ready. Didn’t end well. The case is different here.

Please read this - I agree wholeheartedly with it.

http://m.economictimes.com/tech/ites...w/60169401.cms
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Old 23rd August 2017, 09:49   #22
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

So you want the chairman of the board one Mr Sheshasayee who has domestic truck manufacturing experience with zero IT or global exposure to be there but NRN should not care about Infosys anymore?

If you are following the story, the issue is with the board and not with the CEO. Understandably, the CEO quit to avoid getting caught up in the board vs founders tussle.

In the post you linked above, did you find anything frivolous that NRN complained about?

They could have easily kept Sikka if the board was honest to recognise they need change at the top. Instead they took comfort in enjoying the sympathy generated by Sikka resignation.

I hope the utter uselessness and incompetency of boards of Indian companies will get highlighted as events unfold and things start moving in the right direction.
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Old 23rd August 2017, 09:49   #23
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

Just read an article on this topic @ The Economic Times.

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For Dabur, though, the timing to professionalise the family business way back in 1998 was bang on, some initial teething troubles notwithstanding. In early 2002, its first professional CEO quit, reportedly over differences with family members. It was also during the same period—fiscal 2002—that Dabur reported a dip in profit after tax (PAT) as virtually stagnant sales of Rs 1,200 crore. Outsiders felt the audacious gambit of bringing in professionals had backfired. “There were hiccups initially,” recalls Anand C Burman, chairman, Dabur India.

The family, however, went for a course correction and things have been smooth since then. Dabur, he lets on, was among the first families in India to separate ownership from management. Though it was a difficult decision, rapid growth over past two decades under a professional management validates it, he adds. From Rs 1,200 crore turnover in 2001-02 to Rs 7,680 crore five years later, Dabur has reaped rich dividends by the transformation. “It is very important to know when to bite the bullet and and take a back seat,” says the chairman. The family’s role, by now, had changed from hands-on intervention to being confined to ideation.
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Old 23rd August 2017, 10:14   #24
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

GTO is right. The “it’s my turn to bat because I brought the the SP bat my dad got me from the UK” attitude won’t do Infy much good.

I do hope teething pains won’t render Infy a toothless penny stock before the board changes over and the old coterie leaves.
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Old 23rd August 2017, 10:35   #25
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

I am being informed that Narayana Murthy is holding a conference call today at 6.30pm India time to talk with investor community. In case anyone wants to listen to it, here are the numbers:

Primary Number: +912239600646
Toll Free numbers:
USA: 18667462133
UK: 08081011573
HK: 800964448
Singapore: 8001012045

I got this message on whatsapp and I hope it is genuine. Let us see what NRN says in the evening.
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Old 23rd August 2017, 10:43   #26
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

Dabur is an excellent case study of how a family run business can be completely "professionalized". The Burman Family gradually ceded their stake in the business. Today it is an extremely well run organization with a considerable share of the FMCG market.

I think eventually it comes down to promoter/family running the business. It will be extremely hard for a founder to let go of her/his "baby". But in the long run, the shareholders' interests must overrule any other personal considerations. Head over Heart.
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Old 23rd August 2017, 10:43   #27
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

It's great to say that AI, analytics, and maybe even bitcoins are the way to go - the problem happens only when you don't go anywhere.

It's also a no brainer to say that the board must hire a CEO ASAP to maintain continuity. turn Infosys around, take it into the future, multiply its profits many times around and bring back its brand equity.

Just that some no brainer tasks are lot more difficult to implement than they appear. What's the guarantee that the new CEO hire won't be a repeat of what's happened or a lot worse? How do we know that he isn't going to walk away with hundreds of crores in remuneration without adding any tangible value to the top line or bottom line? What's the guarantee that there aren't going to be any "Panaya" deals before he leaves? That's a business risk you say? Well, maybe the people taking that risk don't want to take it. And maybe the people qualified to actually decide to take a risk are those that have relatively large financial stakes?

A CEO's time is worth only what it is perceived to be worth by stakeholders not what's it worth in theory. And if he was bringing in crores by the day or hour this thread wouldn't have been around.

And although we may, yet again in management concept mode, say that it is the Board who decides these facts - the reality is the Board in this as well as in many other "professionally" run companies do not have any personal financial stake (a factor that has a huge impact on the decisions being taken) and they have also been appointed like the CEO. So if a decision turns out to be wrong - well they will just say sorry mate it's wrong. In the worst case, the Board member(s) may be removed - they do not lose financially. And in this situation , it certainly looks like the board and the CEO were scratching each other's backs.

Maybe the earlier promoters aren't the best people to run the company, but they're going to be putting their money where their mouth is and that brings in a different dimension to everything.

If the CEO had actually built up the profitability in multiples of what the promoters had done earlier maybe no one would have found fault with anything he did.

But now that it hasn't happened you'll find fact that the CEO has been hiring private jets, increasing his salary manifold and a lot of other things being mentioned not just on this thread but everywhere else.

Just goes to show that as of now, a lot of folks couldn't care less what his time was worth.

And that's the way the cookie crumbles.

Last edited by AMG Power : 23rd August 2017 at 10:54.
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Old 23rd August 2017, 10:53   #28
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

Of course. Right now the 13% fall in Infy shares because of this ugly infighting is merely a sign of things to come. As another whatsapp forward - but not about a conference call by nrn- informs me, Narad muni was asked what the problem was with Infosys. He replied “Narayan, Narayan”.
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Old 23rd August 2017, 11:08   #29
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

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Of course. Right now the 13% fall in Infy shares because of this ugly infighting is merely a sign of things to come. As another whatsapp forward - but not about a conference call by nrn- informs me, Narad muni was asked what the problem was with Infosys. He replied “Narayan, Narayan”.
But what is narad muni was right and read the writing on the wall perfectly and instead is being projected as the villain? Wouldn't you give at least an ounce of benefit of doubt?
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Old 23rd August 2017, 12:20   #30
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

My post is not entirely related to the OP's main point, but only concerned with the issue with Infosys, so a bit off topic.

I believe the current problem in Infosys is more about governance than the strategy or direction of business. I have seen a few interviews of NRN in the past where he has said that he is happy with what Sikka was doing and the direction of the company.

The current issue stemmed from the acquisition of Panaya for $200 million. The acquisition itself was not of any issue till some whistle-blower revealed that the then CFO, Mr. Bansal had reservations about the value of the deal and as such resigned later in the wake of the deal. It is a fact that the Board paid him well and above normal severance package citing that Mr. Bansal is privy to some competitive secrets which could harm the business. It is also alleged that the Legal cousel, Mr. David Kennedy wrote a mail to CEO, that he can no longer hide the agreement made with Bansal during his exit from the Board. Incidentally Mr. David Kennedy also resigned later and he was also given a severance package of 12 months instead of normal 3 months.

Leave alone a founder, as a shareholder I would also be intrigued by the fact that the company has to resort to bribing (that is what I would call it) it's ex-top level executives from revealing secrets of the company. Isn't it normal for an ex-employee who is in the know of the business secrets to abide by the moral code. What is the guarantee that the said employee would abide by the agreement and not reveal the secrets even after getting the additional pay, if the company didn't find them trustworthy in the first place.? Also as a shareholder one would like to know what were the objections of the then CFO with regards to that particular deal.

Mr. Mohandas Pai, quite correctly, pointed out that the founding members along with the core team that they worked with knew far more secrets about the business and yet didn't receive any abnormal severance packages. Also when someone is accused of a wrong doing, the majority of the Board in this case, it is important to have an independent body overlooked by people who aren't connected with the accusations to investigate the accusations. Which wasn't the case. The Board appointed some lawyers and overlooked the investigation and declared that no wrong was done. The report itself wasn't made known to the shareholders. The accused cannot be the adjudicator of their innocence.
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