Conversations Mint had with some shareholders point to the dissent likely being a reaction to the Infosys chairman’s absence from some board meetings, his profile of a non-independent director, and the absence of a tenure as director.
According to an exchange filing by Infosys, 35% of retail shareholders and 15% of public institutions opposed Nilekani’s reappointment at the Bengaluru-based company’s 43rd annual general meeting (AGM) on 26 June.
In contrast, his earlier reappointments in 2019 and 2022 faced less than 1% opposition from public institutions and non-institutions.
“The opposition to his re-appointment is surprising,” said Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research Services.
However, Nilekani’s candidature sailed through despite the dissent as he secured 86% of the overall votes. The co-founder of Infosys does not have a fixed tenure at the company, and seeks reappointment every two-odd years.
“The reason he still secured a majority is because his attendance in board meetings has been more than 75% in the last three years, which is what all proxy advisory firms and investors demand,” added Subramanian. “However, we have made a note of his absence.”
Retail shareholders and non-institutions own almost a fourth of Infosys’s total shares; public institutions own 62%, while promoters own 13%.
An email sent to Infosys seeking responses went unanswered.
Why the opposition?
The resistance to Nilekani’s candidature at Infosys comes after 40% of large shareholders of Reliance Industries Ltd rejected the appointment of Saudi Arabian businessman Yasir Al-Rumayyan as an independent director as he skipped about 25% of the company’s board meetings.
Nilekani, too, missed one-third of the company’s board meetings in the 12 months through March 2024. The company’s board met six times (excluding the AGM) and Nilekani attended four of them.
“We are voting against this director for missing more than 25 per cent of scheduled meetings without a satisfactory reason,” a spokesperson of British Columbia Investment Management Corp. (BCI), a large Canadian pension fund that manages $200 billion in assets, said when contacted. “We are voting against the non-independent Chair as we support the separation of board and management with an independent Chair.”
Royal London Asset Management, which has $210 billion in assets, also said the chairman is not independent and “we would prefer to see the appointment of a fully independent chairman to the board”.
The California Public Employees’ Retirement System (CalPERS), which has about $500 billion in assets under management (AUM and Canada Pension Plan Investment Board, which manages $640 billion of assets, were the two other large investors that opposed Nilekani’s reappointment.
Further, an analysis by Mint reveals that his attendance at board meetings had decreased over the past two years.
Nilekani regularly attended the company’s board meetings until March 2022 but attended only four out of six last year, despite the company having had the fewest annual board meetings since he took over as chairman in 2017.
While Infosys’s governing body met eight times as part of board meetings in the past four years, save the year ended March 2021, it met only six times last year.
What’s the tenure?
One retail shareholder of Infosys told Mint that he voted against the resolution as Nilekani does not have a stated tenure.
“Good corporate governance demands board members to disclose their tenure,” said the Bengaluru-based shareholder, who claims to have owned Infosys shares for the past two decades.
“For Infosys, only about two directors are non-independent,” said Subramanian of InGovern. “Every year, at least one-third of non-independent directors need to stand for re-elections, which can probably explain why Nilekani stands for re-election to the board every two years or so.”
Nilekani is the only director among all large listed companies who has not disclosed how long he will continue at Infosys.
“I plan to be here as long as necessary, and I will not be here as soon as I am not necessary,” Nilekani told analysts in his first interaction on 25 August 2017 when asked how long he planned to stay.
The background
Nilekani is one of the seven co-founders of Infosys and served as its CEO from 31 March 2022 to 21 June 2007. He left Infosys in 2009 to build the now-ubiquitous universal ID, Aadhaar.
Nilekani returned reluctantly in August 2017 to rescue the company he and his six friends co-founded in 1981.
Seven years ago, Infosys was in chaos after the then-CEO Vishal Sikka resigned after a long-running stream of criticism from another co-founder, N.R. Narayana Murthy.
Infosys’s share price plunged 10% even as employee morale was close to its lowest ebb. Nilekani’s return—l, which coincided with then-chair R. Seshasayee and two other board members stepping aside, marked a gradual recovery in the company’s fortunes.
In less than 100 days, Nilekani and the board got Salil Parekh, a former executive at Capgemini S.E., as the new CEO.
With Parekh focused on running the business and winning back clients’ trust, Nilekani got to work on restructuring the board.
Simply put, Parekh and Nilekani’s jugalbandi has helped Infosys regain its mojo and retain the tag of I.T. bellwether.
From the time Nilekani was appointed on the Infosys board till today, the stocks of Infosys, TCS, and HCL Technologies, the country’s top three IT services companies, jumped more than three-fold, with Infosys’s stock growing the most. The benchmark BSE30 index gained more than two-fold in this span.
In terms of revenue growth, Infosys grew the fastest among its peers in two of the past five years. However, the company’s performance slipped last year, when it recorded 1.9% growth to end with $18.6 billion in revenue.
TCS’s revenues grew 4.1% to end with $29.1 billion in FY24, while HCL Technologies grew 5.4% to end with $13.3 billion.