News »Browse Articles »
Why Narayana Murthy didn`t want to be on Satyam board
+2
Why Narayana Murthy didn`t want to be on Satyam board
Almost a week after the Satyam scam broke — after a lot of damage control — NR Narayana Murthy, chief mentor of Indian IT bellwether Infosys sits down and gives his take on the situation.
Murthy said it will not be fair on either Satyam or Infosys for him to be a part of the new Satyam team as it could have potentially led to a conflict of interest. He added that the new members on the Satyam board are very impressive.
Murthy added that clients abroad haven`t got in panic mode post the Satyam scandal and they understood that such things could happen everywhere — US, Europe or India.
Here is a verbatim transcript of the exclusive interview with Narayana Murthy on CNBC-TV18. Also watch the accompanying video.
Q: The first question which a lot of people ask after the episode is can we get Mr Murthy involved in some capacity to solve the mess. Newspaper articles were written about it. Did you consider, at any point, involving yourself since you are no longer involved in an executive capacity with Infosys?
A: I did tell the Prime Minister that I am a conflicted body even though I am the Non-Executive Chairman, I am in charge of making sure that the governance mechanism at Infosys is alright, making sure that its strategy is well in making sure that things are alright. We are the largest shareholders of Infosys so we are already conflicted. So I said I would not be the right person.
Q: But you did get a request to involve yourself in some way or the other?
A: There were lot of discussion and that’s what I told both the Prime Minister and Mr. PC Gupta.
Q: Do you think it could be conflictual even to involve yourself in an advisory capacity since Deepak Parekh, who is now in the board, is a close friend of yours for many years?
A: I have lot of respect for Deepak. He is a wonderful friend. I have lot of respect for Kiran Karnik, I do not know Mr. Achuthan. It’s just that even though I am the Non-Executive Chairman, my colleagues have been so kind to me that I am part of discussion on all major decisions. In other words, I know the innards of this company even today. So it will not be fair to Infosys, it will not be fair to Satyam.
Q: Even in the capacity of an advisor to Deepak Parekh if he sought such advice from you?
A: As long as it doesn’t get down to the level of specific customers and as long as there is no conflict of interest between Infosys and Satyam, definitely. We are all members of Nasscom. There are lots of issues that we discuss at Nasscom, so certainly that is exactly what I told Deepak yesterday.
Q: Do you think it’s been a perfect constitution of the board with Deepak, Kiran Karnik, etc? Do you think it could have been better or they are the people to do this job?
A: I think they are excellent choices. Obviously, they will expand the board, so they will bring in a few more skills, experience and expertise but at this point in time. I am very impressed with the choices the government has made.
Q: Seven days have passed now and you spoke on day one, what is your assessment on day seven, day eight of this situation and what kind of collateral damage, if any, it can have on the sector or the impression of Indian IT because now you would have got direct feedback from some of your large clients as well?
A: I don’t deal with our clients directly but Gopal Krishnan deals with them and I have had discussions with him. The feeling that we get is that the clients understand that these things have happened in the US, in Europe, they have happened now in India so they just want to get on with life, they just want to make sure they are de-risked. They just want to make sure that things are alright with them.
So, in some cases they will sit down with Satyam and make sure that there is higher level of governance mechanism, higher level of customer focus. In some cases, they may want to go to an alternate vendor, it all depends on individuals. However, I do think there is no panic; there is no feeling that the entire Indian industry is bad; there is no such thing.
Q: You said you would not involve yourself directly in the matters of Satyam now because the board is there in place but do you think you could do something to address the concerns which global clients or outsourcers have on the IT sector if any because on day one or day two you did a conference call with a large number of investors which was hosted by CLSA. Do you think you could do similar things with NASSCOM and you fronting it so that the image of Indian IT or vendors do not get dented even to the slightest extent?
A: Certainly whatever little value I can add to ensure that the Indian software industry continues its march towards higher and higher revenues, towards greater and greater glory – absolutely.
Q: It is a difficult environment right now as Kris was just detailing today. Do you think this puts more pressure on Indian outsourcing or do you think it will work the other way and some of the other clients might actually benefit because of Satyam’s failure?
A: We have all sat down and discussed and we said, we should nothing that will damage Satyam. After all there are 53,000 innocent employees. They are smart. They are competent. They have satisfied clients, so other companies should not take a vulture like attitude. So we said we will not proactively go to any client. However if a client decides to do that then we will go through our due diligence and we will ensure that we will do whatever is required by the client in the most ethical manner. But we will not approach any client proactively – that is for certain.
Q: It is competitive industry and if you don’t do it then the other top two vendors might actually solicit business and wean it away at a difficult time. Would that weigh on your mind?
A: No. Value system is all about you’re ability to pay a certain price. Pay a certain cost for your beliefs and convictions. If I see a Rs 500 note on the road and I pick it and put it in my pocket – on the other hand if you see a Rs 500 note and you go and give it to the policeman – you’re value system is better in my book. So I think there is inherently a cost you have to pay for your value system and we at Infosys will pay – definitely.
Q: Having watched this industry for so many years, I know you don’t talk to clients directly anymore, but you did for several years and decades before that – what do you think would be their reaction? Would their first impulse be let me run to the Infosys and TCS of the world because I know them from longer and I think their clean companies therefore my business is better served by them? Would that be the natural reaction of a CTO today whether you solicit that business or not?
A: Let us remember one thing that nobody expected in their wildest dreams that what has happened would happen. So in that sense they must all be very confused. The need of the day is to ensure that their comfort level is enhanced, to ensure that their projects have continuity, to ensure that the business continuity of Satyam is strong and to ensure that the Indian software industry does not suffer. All of us certainly will make an effort – certainly within Infosys, Nandan, Gopalakrishnan, Shibulal, me, Mohan etc – we will all take up this effort. We will make sure that the Indian software story remains intact and at the same time obviously we will enhance their comfort level with Infosys. We will provide them with whatever extra data they want – all of that we will do.
Continued on page 2…
Continued from page 1…
Q: Let me ask you about the Infosys board engagement with its independent directors, because the role of independent directors generally has come under scrutiny after this episode. What is your level of engagement? Do they really concern themselves very closely, ask tough questions of you or is it more of a social gathering at the board meeting?
A: We have been very lucky that we have an extraordinary set of people. People who are extremely tough, people for whom there are no heroes, people who are courteous but firm, people who will not mind asking any unpleasant questions.
Q: But do they?
A: Of course. You have Deepak Satwalekar, an extraordinary individual by any standard. You have Omkar Goswami a very tough fellow. Then we have Jeff Lehman, a wonderful lawyer, President of Cornell, he was a Dean of law school at University of Michigan, then you have Claude Smadja who used to be the Managing Director of the World Economic Forum, you have got Rama (Bijapurkar), you have David Boyles who used to be the Chief Operating Officer at ANZ. You’ve got Sridar Iyengar who was a senior partner with KPMG and was head of India. You’ve got Marti Subrahmanyam, the Merrill Lynch professor of economics.
These are people who are concerned about their respect, about their standing in the society. We have so many arguments and discussions.
Q: But with all due respect, even Vinod Dham and Krishna Palepu have impeccable credentials. It didn’t come in the way of Satyam?
A: I cannot comment on them because I don’t know the details. I know Krishna very well, he is a remarkable person, one of the great academics and all of that. But what happened in those board meetings, we don’t have data. So, it is very difficult for me to come to any conclusion.
Q: But are you saying that if you or Nandan or Kris put out a set of data, your independent directors – credible that they are – would they ever question it saying, show me the money or I don’t think what you are doing is right. Will they take it to that extent?
A: Of course. Forget about independent directors, my youngsters in Infosys will question me. When we sit down and finalise the next quarter guidance, when we sit down and look at the past quarter’s data, there are about 20 fellows in that meeting. It is completely transparent. Of course all of these people will have signed the non-disclosure stuff that they are debarred from trading in shares, all of that. So, these people are very tough.
In fact the beauty of Infosys is, in every project they know the net income margin. That is the beauty. I am a great believer in democracy. Infosys is an enlightened democracy. As Amartya Sen once pointed out, any democracy will not have any disaster, no famine. You know why? There is always an opposition, there is always discussion, debates, there is pluralism with the result that you a disaster.
So the lesson that we can all learn is create an informed and enlightened democracy in your company, make sure that there are discussions and debates, make sure that there is transparency on a need to know basis obviously, make sure that all of them have signed the required documentation in terms of not trading in shares, in terms of not disclosing, all of that. And once you create such an environment, I can assure you that you will be safe because somebody will stand up and say, where did this million dollar revenue come from, who is that customer?
Q: So only two people in the company should not know what is going on, but everybody at each level should have more precise knowledge of the kind of numbers that they are working on?
A: That is the way we run it.
Q: Do you think more disclosures are required to investors in the light of what happened last week in terms of what companies own in terms of cash, where they own it so that everybody knows. Nobody knew what bank Satyam was keeping its money in. Do you disclose such things that our accounts are now with X, Y, Z banks and you are free to go and check it out?
A: Yes, in fact in all our statements it is there, what balances we have in what banks. But that is at the end of the quarter. Then what happens is you produce the quarterly statements, probably it takes about seven-eight days. So, subject to that caveat of course it is there, absolutely.
Q: What is the biggest takeaway from this episode for you? If you were to list two things which companies may not be doing correctly today which they can do after this episode – what would those two things be?
A: First is very clearly a belief that honestly is the best policy and following the adage – when in doubt, disclose. Second I would say is that create an environment of openness, pluralism, discussion and debate. Involve as many youngsters as possible. Involve as many intelligent people as possible and then you’re safe, the company is safe and in the long run, you will be a winner. In the long run you will accumulate lot more wealth than any shortcut.
Q: There has been some talk though that the Sebi as a regulator might want to wet the audited books of the top companies in India. Do you think it is practical and do you support such a move?
A: I support any move that enhances the confidence of investors in these companies. After all what Sebi is saying is that whether it’s the Sensex or the Nifty 50, these are important companies. These contribute to the index. So the trust of investors in these companies is extremely important for the country. So I support that – definitely.
Q: You would not have any apprehensions in opening up all your books and sensitive information to a third party regulator?
A: No questions absolutely. After all why are they doing it? They are doing it because they want to make sure that the investor community in India is more comfortable and let’s remember we are a listed company. We have 300,000 plus investors. Our responsibility is to this community of investors. If they are not happy then there is no point in running this company.
Q: The other thing which happened is that all Hyderabad stocks got punished after this Satyam episode. They were painted with the same brush and there has been an unspoken rivalry between Bangalore and Hyderabad as IT destinations. Do you think the unfortunate thing of Hyderabad being labeled as not such a clean, honest place to work might gain currency?
A: That is absolutely unfair. I don’t think honesty is a prerogative of one city, one set of people, one state or one country – no. There are good people in every state, every city and every country. There are a few misguided people in every population, every city, every state and every country. This whole thing of saying that Hyderabad companies are not good – I think that’s not correct.
Q: Sometimes the working culture in a particular city though assumes a certain hue because of political legacy, the environment that you work in and such instances have happened in places like Kolkata. Do you think it might work against the city of Hyderabad?
A: I don’t think so because there are good companies. There are decent people everywhere. I don’t subscribe to that at all.
Q: You don’t think this is trump card for Bangalore against Hyderabad?
A: No, not at all.
Q: Would you describe the current environment that you are seeing today as your famous fog on the windscreen statement or not such a lot of fog from what you hear from Kris and the executive board members?
A: No, I would say there is a lot more fog today than what I saw in 2001.
Q: Even frost on the screen?
A: I think so. You are right. You put it even better, absolutely.
Q: What is different between then and now?
A: At that time it affected only the tech industry. It was really the tech bubble bursting. Today that has spread to mainstream, all sectors of the economy, spread to most countries in the world. So, this is a much bigger problem than what we saw in 2001-2002. So, this is really frost on the windscreen.
Q: How long could it take to mend in your eyes from the feedback that you get? Do you think it is a long-term problem from what you understand?
A: Given that we are going to have a new President in the US, given that he is committed to making sure that the economy improves, given that President Bush has also said that in whatever remaining number of days that he will fully cooperate with the incoming President, I do think that we will see some solution to this in the next probably eight to nine months.
Q: Do you think Indian IT will survive this rough phase globally?
A: It will definitely survive. There is no doubt at all. I do think that it will flourish and prosper.
Source:
http://www.moneycontrol.com/india/newsarticle/news_print.php?autono=377421&sr_no
Murthy said it will not be fair on either Satyam or Infosys for him to be a part of the new Satyam team as it could have potentially led to a conflict of interest. He added that the new members on the Satyam board are very impressive.
Murthy added that clients abroad haven`t got in panic mode post the Satyam scandal and they understood that such things could happen everywhere — US, Europe or India.
Here is a verbatim transcript of the exclusive interview with Narayana Murthy on CNBC-TV18. Also watch the accompanying video.
Q: The first question which a lot of people ask after the episode is can we get Mr Murthy involved in some capacity to solve the mess. Newspaper articles were written about it. Did you consider, at any point, involving yourself since you are no longer involved in an executive capacity with Infosys?
A: I did tell the Prime Minister that I am a conflicted body even though I am the Non-Executive Chairman, I am in charge of making sure that the governance mechanism at Infosys is alright, making sure that its strategy is well in making sure that things are alright. We are the largest shareholders of Infosys so we are already conflicted. So I said I would not be the right person.
Q: But you did get a request to involve yourself in some way or the other?
A: There were lot of discussion and that’s what I told both the Prime Minister and Mr. PC Gupta.
Q: Do you think it could be conflictual even to involve yourself in an advisory capacity since Deepak Parekh, who is now in the board, is a close friend of yours for many years?
A: I have lot of respect for Deepak. He is a wonderful friend. I have lot of respect for Kiran Karnik, I do not know Mr. Achuthan. It’s just that even though I am the Non-Executive Chairman, my colleagues have been so kind to me that I am part of discussion on all major decisions. In other words, I know the innards of this company even today. So it will not be fair to Infosys, it will not be fair to Satyam.
Q: Even in the capacity of an advisor to Deepak Parekh if he sought such advice from you?
A: As long as it doesn’t get down to the level of specific customers and as long as there is no conflict of interest between Infosys and Satyam, definitely. We are all members of Nasscom. There are lots of issues that we discuss at Nasscom, so certainly that is exactly what I told Deepak yesterday.
Q: Do you think it’s been a perfect constitution of the board with Deepak, Kiran Karnik, etc? Do you think it could have been better or they are the people to do this job?
A: I think they are excellent choices. Obviously, they will expand the board, so they will bring in a few more skills, experience and expertise but at this point in time. I am very impressed with the choices the government has made.
Q: Seven days have passed now and you spoke on day one, what is your assessment on day seven, day eight of this situation and what kind of collateral damage, if any, it can have on the sector or the impression of Indian IT because now you would have got direct feedback from some of your large clients as well?
A: I don’t deal with our clients directly but Gopal Krishnan deals with them and I have had discussions with him. The feeling that we get is that the clients understand that these things have happened in the US, in Europe, they have happened now in India so they just want to get on with life, they just want to make sure they are de-risked. They just want to make sure that things are alright with them.
So, in some cases they will sit down with Satyam and make sure that there is higher level of governance mechanism, higher level of customer focus. In some cases, they may want to go to an alternate vendor, it all depends on individuals. However, I do think there is no panic; there is no feeling that the entire Indian industry is bad; there is no such thing.
Q: You said you would not involve yourself directly in the matters of Satyam now because the board is there in place but do you think you could do something to address the concerns which global clients or outsourcers have on the IT sector if any because on day one or day two you did a conference call with a large number of investors which was hosted by CLSA. Do you think you could do similar things with NASSCOM and you fronting it so that the image of Indian IT or vendors do not get dented even to the slightest extent?
A: Certainly whatever little value I can add to ensure that the Indian software industry continues its march towards higher and higher revenues, towards greater and greater glory – absolutely.
Q: It is a difficult environment right now as Kris was just detailing today. Do you think this puts more pressure on Indian outsourcing or do you think it will work the other way and some of the other clients might actually benefit because of Satyam’s failure?
A: We have all sat down and discussed and we said, we should nothing that will damage Satyam. After all there are 53,000 innocent employees. They are smart. They are competent. They have satisfied clients, so other companies should not take a vulture like attitude. So we said we will not proactively go to any client. However if a client decides to do that then we will go through our due diligence and we will ensure that we will do whatever is required by the client in the most ethical manner. But we will not approach any client proactively – that is for certain.
Q: It is competitive industry and if you don’t do it then the other top two vendors might actually solicit business and wean it away at a difficult time. Would that weigh on your mind?
A: No. Value system is all about you’re ability to pay a certain price. Pay a certain cost for your beliefs and convictions. If I see a Rs 500 note on the road and I pick it and put it in my pocket – on the other hand if you see a Rs 500 note and you go and give it to the policeman – you’re value system is better in my book. So I think there is inherently a cost you have to pay for your value system and we at Infosys will pay – definitely.
Q: Having watched this industry for so many years, I know you don’t talk to clients directly anymore, but you did for several years and decades before that – what do you think would be their reaction? Would their first impulse be let me run to the Infosys and TCS of the world because I know them from longer and I think their clean companies therefore my business is better served by them? Would that be the natural reaction of a CTO today whether you solicit that business or not?
A: Let us remember one thing that nobody expected in their wildest dreams that what has happened would happen. So in that sense they must all be very confused. The need of the day is to ensure that their comfort level is enhanced, to ensure that their projects have continuity, to ensure that the business continuity of Satyam is strong and to ensure that the Indian software industry does not suffer. All of us certainly will make an effort – certainly within Infosys, Nandan, Gopalakrishnan, Shibulal, me, Mohan etc – we will all take up this effort. We will make sure that the Indian software story remains intact and at the same time obviously we will enhance their comfort level with Infosys. We will provide them with whatever extra data they want – all of that we will do.
Continued on page 2…
Continued from page 1…
Q: Let me ask you about the Infosys board engagement with its independent directors, because the role of independent directors generally has come under scrutiny after this episode. What is your level of engagement? Do they really concern themselves very closely, ask tough questions of you or is it more of a social gathering at the board meeting?
A: We have been very lucky that we have an extraordinary set of people. People who are extremely tough, people for whom there are no heroes, people who are courteous but firm, people who will not mind asking any unpleasant questions.
Q: But do they?
A: Of course. You have Deepak Satwalekar, an extraordinary individual by any standard. You have Omkar Goswami a very tough fellow. Then we have Jeff Lehman, a wonderful lawyer, President of Cornell, he was a Dean of law school at University of Michigan, then you have Claude Smadja who used to be the Managing Director of the World Economic Forum, you have got Rama (Bijapurkar), you have David Boyles who used to be the Chief Operating Officer at ANZ. You’ve got Sridar Iyengar who was a senior partner with KPMG and was head of India. You’ve got Marti Subrahmanyam, the Merrill Lynch professor of economics.
These are people who are concerned about their respect, about their standing in the society. We have so many arguments and discussions.
Q: But with all due respect, even Vinod Dham and Krishna Palepu have impeccable credentials. It didn’t come in the way of Satyam?
A: I cannot comment on them because I don’t know the details. I know Krishna very well, he is a remarkable person, one of the great academics and all of that. But what happened in those board meetings, we don’t have data. So, it is very difficult for me to come to any conclusion.
Q: But are you saying that if you or Nandan or Kris put out a set of data, your independent directors – credible that they are – would they ever question it saying, show me the money or I don’t think what you are doing is right. Will they take it to that extent?
A: Of course. Forget about independent directors, my youngsters in Infosys will question me. When we sit down and finalise the next quarter guidance, when we sit down and look at the past quarter’s data, there are about 20 fellows in that meeting. It is completely transparent. Of course all of these people will have signed the non-disclosure stuff that they are debarred from trading in shares, all of that. So, these people are very tough.
In fact the beauty of Infosys is, in every project they know the net income margin. That is the beauty. I am a great believer in democracy. Infosys is an enlightened democracy. As Amartya Sen once pointed out, any democracy will not have any disaster, no famine. You know why? There is always an opposition, there is always discussion, debates, there is pluralism with the result that you a disaster.
So the lesson that we can all learn is create an informed and enlightened democracy in your company, make sure that there are discussions and debates, make sure that there is transparency on a need to know basis obviously, make sure that all of them have signed the required documentation in terms of not trading in shares, in terms of not disclosing, all of that. And once you create such an environment, I can assure you that you will be safe because somebody will stand up and say, where did this million dollar revenue come from, who is that customer?
Q: So only two people in the company should not know what is going on, but everybody at each level should have more precise knowledge of the kind of numbers that they are working on?
A: That is the way we run it.
Q: Do you think more disclosures are required to investors in the light of what happened last week in terms of what companies own in terms of cash, where they own it so that everybody knows. Nobody knew what bank Satyam was keeping its money in. Do you disclose such things that our accounts are now with X, Y, Z banks and you are free to go and check it out?
A: Yes, in fact in all our statements it is there, what balances we have in what banks. But that is at the end of the quarter. Then what happens is you produce the quarterly statements, probably it takes about seven-eight days. So, subject to that caveat of course it is there, absolutely.
Q: What is the biggest takeaway from this episode for you? If you were to list two things which companies may not be doing correctly today which they can do after this episode – what would those two things be?
A: First is very clearly a belief that honestly is the best policy and following the adage – when in doubt, disclose. Second I would say is that create an environment of openness, pluralism, discussion and debate. Involve as many youngsters as possible. Involve as many intelligent people as possible and then you’re safe, the company is safe and in the long run, you will be a winner. In the long run you will accumulate lot more wealth than any shortcut.
Q: There has been some talk though that the Sebi as a regulator might want to wet the audited books of the top companies in India. Do you think it is practical and do you support such a move?
A: I support any move that enhances the confidence of investors in these companies. After all what Sebi is saying is that whether it’s the Sensex or the Nifty 50, these are important companies. These contribute to the index. So the trust of investors in these companies is extremely important for the country. So I support that – definitely.
Q: You would not have any apprehensions in opening up all your books and sensitive information to a third party regulator?
A: No questions absolutely. After all why are they doing it? They are doing it because they want to make sure that the investor community in India is more comfortable and let’s remember we are a listed company. We have 300,000 plus investors. Our responsibility is to this community of investors. If they are not happy then there is no point in running this company.
Q: The other thing which happened is that all Hyderabad stocks got punished after this Satyam episode. They were painted with the same brush and there has been an unspoken rivalry between Bangalore and Hyderabad as IT destinations. Do you think the unfortunate thing of Hyderabad being labeled as not such a clean, honest place to work might gain currency?
A: That is absolutely unfair. I don’t think honesty is a prerogative of one city, one set of people, one state or one country – no. There are good people in every state, every city and every country. There are a few misguided people in every population, every city, every state and every country. This whole thing of saying that Hyderabad companies are not good – I think that’s not correct.
Q: Sometimes the working culture in a particular city though assumes a certain hue because of political legacy, the environment that you work in and such instances have happened in places like Kolkata. Do you think it might work against the city of Hyderabad?
A: I don’t think so because there are good companies. There are decent people everywhere. I don’t subscribe to that at all.
Q: You don’t think this is trump card for Bangalore against Hyderabad?
A: No, not at all.
Q: Would you describe the current environment that you are seeing today as your famous fog on the windscreen statement or not such a lot of fog from what you hear from Kris and the executive board members?
A: No, I would say there is a lot more fog today than what I saw in 2001.
Q: Even frost on the screen?
A: I think so. You are right. You put it even better, absolutely.
Q: What is different between then and now?
A: At that time it affected only the tech industry. It was really the tech bubble bursting. Today that has spread to mainstream, all sectors of the economy, spread to most countries in the world. So, this is a much bigger problem than what we saw in 2001-2002. So, this is really frost on the windscreen.
Q: How long could it take to mend in your eyes from the feedback that you get? Do you think it is a long-term problem from what you understand?
A: Given that we are going to have a new President in the US, given that he is committed to making sure that the economy improves, given that President Bush has also said that in whatever remaining number of days that he will fully cooperate with the incoming President, I do think that we will see some solution to this in the next probably eight to nine months.
Q: Do you think Indian IT will survive this rough phase globally?
A: It will definitely survive. There is no doubt at all. I do think that it will flourish and prosper.
Source:
http://www.moneycontrol.com/india/newsarticle/news_print.php?autono=377421&sr_no