The 36th Annual General Meeting of troubled software major Infosys Ltd on Saturday is likely to be stormy, as retail investors brace for a showdown with its board on corporate governance and performance issues….writes Fakir Balaji
“The board and top management will face the heat of shareholders, unhappy with the way the company is being run, especially on governance and its performance in 2016-17,” a retail investor said ahead of the AGM.
Coming as it does amid board-room battles between promoters and the board, especially Executive Chairman R. Seshasayee and CEO Vishal Sikka on governance and wages, the meet is important in light of the lower revenue outlook for this fiscal (2017-18), tech disruptions and slowdown in the IT industry due to global headwinds.
“You can expect fireworks at the meeting from retail and some institutional investors as the company’s image or brand equity took a beating after co-founder N.R. Narayana Murthy voiced concerns over governance and other issues, which are affecting its operations and business prospects,” said the investor, who did not want to be identified.
Declaring financial results for the last fiscal on April 13, the company gave a lower revenue outlook of 6.1-8.1 per cent in dollar terms for 2017-18 from 7.4 per cent ($10.2 billion) annual growth last year.
In rupee terms, the revenue growth is projected to be 2.5-4.5 per cent as against 9.7 per cent (Rs.68,484 crore) annual growth in last fiscal.
The lower guidance stemmed from flat (0.2 per cent) net profit growth and 0.9 per cent revenue growth in the fourth quarter in rupee terms over last year.
“The bitter fight between the promoters and the board over the last four months has been a major distraction for the company and its stakeholders. There is a trust deficit between the board and promoters and between the top management and employees. The friction will have a bearing on its services and growth prospects,” said another long-term investor, who was also on the board as a director till 2013.
Admitting that Infosys was facing challenges due to uncertainties, slowdown and disruptive technologies, Head Hunters India Managing Director K. Lakshmikanth said though promoters may not confront the board at the AGM to avoid embarrassment, activist shareholders would certainly seek explanations on issues like governance and higher wages for top executives Murthy had raised.
“With a combined 12 per cent share-holding, the promoters are entitled to have one of them on the board as a director. It appears neither the board offered nor the co-founders asked for it to safeguard their interests. Other shareholders and institutional investors may ask the board to appoint any of them for the sake of the company’s welfare,” Lakshmikanth said.
Though the notice for the AGM has four ordinary resolutions, including re-appointment of whole-time Director U.B. Pravin Rao and appointment of auditors, some investors are likely to seek revamp of the board, especially the ouster of Seshasayee as its Chairman for being unable to rein in Sikka.
“There is a perception that Seshasayee is unable to guide the company as he lacks expertise in the IT industry and is not able to control Sikka from profligacy and hiring top executives from other firms at fancy salaries,” said Lakshmkinath, adding that Director Ravi Venkatesan, a former Microsoft India head, was made co-chairman recently to provide leadership to the management team.
While the board has paid a total dividend of 495 per cent or Rs 25.75 per share of Rs 5 face value for 2016-17 and hinted at buyback of the company’s shares during this fiscal up to Rs 13,000 crore ($2 billion), investors are unhappy with its stock price (Rs 943.35 on Friday) at a three-year low.