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Pai urges investors to question Infy’s cap allocation policy

Monday, February 13, 2017

Infosys' former CFO, T V Mohandas Pai yesterday exhorted institutional investors to raise questions about the huge cash pile on the company's books and governance issues, as investors have an obligation to protect their investment.

"Capital allocation is very important. Institutional investors should raise those questions. They have a duty...Institutional investors should raise questions on governance because it concerns the company's reputation," Pai told PTI in an interview. Infosys had liquid assets, including cash and cash equivalents and investments worth Rs 35,697 crore (about USD 5.25 billion) on its books at the end of December 2016.

He asserted that founders, who hold 13% stake in the Bengaluru-based company, had raised these questions like any other investor would. "The founders are investors like anybody else. They hold 13% stake. They have every right to question the Board... Since the largest shareholder has sought clarification, they must also seek detailed clarification," he said.

Pai, along with former colleague V Balakrishnan, had sought a USD 1.8 billion buyback in 2014 just as CEO Vishal Sikka was taking over. "We had raised the issue. We hope that other institutional investors will also raise their voice because the institutional investors have an obligation to protect their investment," he said. Pai explained that shareholders all over the world ask questions about capital allocation when growth slows down for listed companies, that have too much cash on books. "All over the world, for listed companies when growth slows down and there is too much cash, shareholders will ask what are they doing with the cash...About capital allocations. Most Boards around the world will respond with a buyback to show confidence in the company and stabilise the stock price," he said. Pai expressed hope that institutional investors who have a "fiduciary responsibility" to their unit holders, will also ask the same questions, as has been in the case of Cognizant.

Infy CEO Vishal Sikka to address investors in Mumbai today
Amid the ongoing conflict between Infosys' Board and its founders, its CEO Vishal Sikka is scheduled to meet institutional investors today at an event in Mumbai. The event may see Sikka briefing participating fund managers on issues that have prompted some of Infosys' co-founders, including N R Narayana Murthy, to publicly air their discontent against the Board. Sikka will deliver a keynote address at Kotak's Chasing Growth Conference today in Mumbai at 1000 hours. Sikka's participation was confirmed by a company spokesperson saying the event was scheduled much before these developments. Such events usually see investors and industry analysts asking questions about the macro environment, business prospects and challenges, but given the developments seen in the past few days, clarifications relating to the feud between founders and the Board is likely to dominate the proceedings today.

Sikka, along with some of the Board members, is also scheduled to interact with the media later in the day to clear the air over various issues flagged by the founders. Last week, Sikka called members of the senior management to assuage concerns and has advised them not to get "distracted" by the ongoing tussle and instead focus on company's business and strategy.

Sebi keeping close watch on Infosys developments
As IT giant Infosys remains embroiled in differences between its founders and the top management, markets regulator Sebi is keeping a "close watch" on all the developments with a "special focus" to ensure that minority investors' interest is safeguarded. Infosys has become the latest major corporate to attract regulatory attention for alleged corporate governance lapses being played out in public after Tatas, United Spirits and Ricoh India, among others.

"Sebi is keeping a close watch on the developments at Infosys and has asked stock exchanges to seek clarifications on various media reports relating to the company, its founders and top management team," a senior official said. "It is a worrying trend that issues relating to corporate governance and intra-corporate disputes and differences are being played out in the open and through unconfirmed media reports at a number of corporates that have enjoyed bellwether -like status in their sectors.

"We have been keeping a close watch on developments relating to all such companies with a primary focus to ensure that the minority shareholders' interest is not hurt, while we are also conscious about the interest of institutional investors," he said. The official further said: "These are among the companies that have always been considered to be professionally run and have always attracted significant interest from foreign investors as well and there are concerns that such negative developments may impact India's position as a favoured investment destination."

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