Case 9.1 Infosys: Leadership Crisis with Top ManagementBy

Arun Chandran

Vatsal Gupta

E P Harish

Parthapratim Sarma

Prateek Giria

Raja Ratna Reddy

Timeline of the Case and Case Update

FY15FY14FY13FY12FY11

Profit/Revenue as %age 21.26 23.2023.3624.9024.85

N.R.Narayana Murthy

• Stepped down as executive chairman in June 2014 after placing Sikka as the new CEO

• Declined the title of Chairman Emeritus as he wanted to evade any possible conflict of interest

Rohan Murty

• Was Narayana Murthy’s executive assistant

• There is a talk of him opening a startup in Boston

Vishal Sikka

• Sikka continued as a whole-time director of the Board, and Chief Executive Officer & Managing Director of Infosys

• Freedom to Vishal who could now rebuilt the organization according to his vision.

Infosys

• Infosys performed better in FY15 than in FY14 as its PAT rose from Rs.10,656 crore to Rs.12,372

• Its Profit/Revenue in percentage increased from 21.26% to 23.20%.

AOL-4The Theory of Ethical and Moral Leadership

Hollander 1978: While the leader is the central and the most

important part of the leadership phenomenon, followers are

important and necessary factors in the equation

Peter Senge 1990: The leader is a teacher but leadership is not just

about teaching people how to achieve their vision; rather, it is

about fostering learning, offering choices, and building consensus

among followers

In Infosys the power was concentrated with the co-founders

for almost 30 years, without consideration for employee who have given their life working for

Infosys. This lead to high attrition rates and underperformance.

The Leadership in Infosys failed to give a proper vision for the followers

about what they would hope to achieve in future. There were little

choices for people in top management due to which they

defected to other firms

Moral Impact of Leadership

Transactional and Transformational

leadership

Aristotle: The actions and strategies of ethical and moral leadership should be good and noble in themselves, and not

only in their outcomes

Transactional approach: Infosys went wrong in it as they did not reward the

employees with promotions when it was essential.

Transformational approach: The top management was selected not on the

merits but if he was a co-founder or not. Equality is void here

Infosys failed in both as the actions were not noble and even the outcomes failed.

Peter Senge 1990: Steward Leadership

• The top management did not recognize that according to Steward Leadership the ultimate purpose of one’s work is others and not self. Here the CEO position was limited to few co-founders.

Robert Greenleaf 1997: Servant

Leadership• The CEO was not

chosen not because they are proven and trusted as servants (employees) but because they were the co-founder of the Company.

Messick 2004: Three barriers to sound ethical judgment in situations

• Ethical fading: Ethical fading was taking place in Infosys as the seat of CEO was reserved for a small group of people for 30 years, and favoritism on part of Narayan Murthy shown to his son Rohan to take up on the top position.

• Contextualizing ethics: Here it arose as Vishal Sikka was brought in from outside when Infosys had a Leadership Institute. The choice was between two choices neither of which can be described as right or wrong.

• The need for moral courage: Here the situation was of whistle-blowing where people like V. Balakrishnan resigned and raised his voice against the unethical practices that was going on inside Infosys.

AOL 5: Based on the Moral Reasoning Process of Executive Judgments and Justifications

Ethical theories: Deontology and Distributive Justice

Subjects: Infosys top management and Board

Objects: Employees, shareholders, Government

Properties: Appointment of CEO within the circle of founding members; top management positions were closed to others.

Events: Narayana Murthy, the former CEO was brought back to turn around the fortunes of the company. He appointed his son as an executive assistant which was approved by the Board of Infosys. This event highlighted brazen nepotism while scores of senior managers were not given their due opportunities to grow and occupy positions in top management.

Moral principles of social justice demands impartiality

Moral Standards: Virtue based ethics focuses on the person who acts

Moral Rules: The concrete application of moral principles and standards that are violated by the top management is “Opportunism”

Moral judgments

Opportunism is placing one’s own or the groups’ interest as against the rest.

Top management acted in its own vested interest. When Rohan Murthy was appointed as executive assistant, there was not dissonance at the Board and was ratified very easily. Top management and Board colluded to have a control over Infosys.

High attrition was noticed among employees and senior managers due to lack of opportunities for growth.

Shareholders’ interests were compromised by the top management and Board.

Loss to Government due to inefficiency of Board and top management.

Synthesis of findings It is clear that consensus , collaboration and consideration for the followers was missing in

Infosys

The leader Narayan Murthy and the followers (the managers who left) clearly had different commitments and means to fulfil them, the reason for high attrition

The worthy employees were not rewarded (Transactional leadership missing) and selection of leaders were based on founder criteria (Transformational leadership missing)

The morality of Mr. Murthy comes into question when he explicitly promotes his son over other capable managers.

Steward and servant leadership was violated too

Ethical fading was taking place, became difficult to predict whether contextually ethics are not being observed, V . Balakrishnan demonstrated moral courage.

The subjects (Infosys Top Management ) have ignored the consideration of the objects (Shareholders, employees, govt. etc.) in the process of making appointments highlighted by events like favoring of son by Narayana Murthy and ignoring worthy employees

Social justice demands impartiality which has been ignored

Moral rules violated by means of “Opportunism”.

Moral Judgment points towards violation of distributive justice as shareholders, government, employees suffer the outcome for the actions of top management.

Q & A – Infosys : Leadership Crisis with Top Management1.       How was Infosys a failure in corporate leadership, and why? 

The failure was clearly reflected in the fact that many senior leaders left in 2012-13 for other organizations and Infosys performance was lagging behind its competitors. It is the job of the leaders (in this case Narayan Murthy) to retain worthy people, promote the merit and punish the worthless. There was a clear ignorance of all of the above.

2.       To what extent are the founder fraternity and the Board at Infosys to be blamed?

As per the facts stated in the case, the founder fraternity and the Board failed to change the founder-driven model which was clearly not working as small group of people cannot handle the whole company. Plus Murthy unduly always seem to promote his own son as the next CEO , and the board failed to communicate its mandate on merit (if at all it had any)

3.       Was it also a failure in ethical and moral leadership, and why?

Moral failure, yes Murthy was upholding his own wants and needs of promoting his son than the wants and needs of the whole organization. Ethical failure too on many accounts, no consensus for many decisions, no collaboration with employees and other management personnel on issue of selection of different positions.

4.       There was a time when Infosys was regarded as one of the best companies to work for.  That halo has gone.  Explore what happened at Infosys to account for this mishap.

The failure of leadership of taking Employees welfare and inputs in major decisions led to this. This was apart from Nepotism followed by Murthy in crediting his son’s work and not recognizing other employee’s efforts which was clear indication that he wanted the family to stay at the top of the affairs rather than merit.

5.       Why, and what do you suggest that can be done to reverse this trend?

Promotions should be made completely transparent, in such decisions more of the employee inputs should be taken, work recognition should also be made unbiased, and failure should be punished without any bias by having it assessed across the board and management.

6.       How ethical and moral are your suggestions, and why?

Suggestions are as ethical and moral as possible as it would led to collaboration, transparency and accountability across the organization.

Thank You