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As the process for finding the Bangalore-based company's first non-founding chief executive officer gathers pace, analysts fear there may be more senior-level resignations in the coming weeks.
The sentiment reflected in Infosys' shares on Thursday as they fell nearly eight per cent dragging the S&P BSE IT index down by over three per cent.
“BG’s departure raises Infosys’ risk profile even further. It is a big blow to (co-founder) N R Narayana Murthy’s credibility. Clients are concerned, however, in the IT services sector relationships are sticky and cannot be switched quickly. Clients are leveraging their bargaining power and insisting on pricing discounts as a condition for renewal. This undermines Infosys’ image of a premium provider,” said Peter Schumacher, founder of Germany-based Value Leadership Group.
According to a note by brokerage house Kotak Institutional Equities, “Infosys’ inability to retain core talent or attract new talent is worrying. The leadership vacuum due to recent exits could impact business and undermine investor confidence. Turnaround efforts need stability to succeed. Business and stock performance could suffer, despite undemanding valuations, due to uncertainties at the top.”
A top-level exodus at Infosys was triggered after Murthy returned to the company as its executive chairman in June 2013, to revive a company facing shrinking market share and declining profitability.
“I think Vemuri moving out of Infosys had a bigger impact than BG. But this signals not all is well at the top. We have not seen such exoduses before. It seems the environment at that level is extremely uncomfortable. The other issue is at the client side. Clients have been a bit concerned, with many not wanting to grow with them. If such uncertainty continues, it will increase attrition (which is high) and finally hit delivery capability,” said Sudin Apte, research director and chief executive officer, Offshore Insights.
He added clients were not bothered by who came and went. What matters to them are service delivery and quality. “If senior exits mean higher attrition then clients will get jittery,” he said.
Murthy’s emphasis on meritocracy is seen as a reason for the exits. In an interaction with analysts a few months ago, Murthy had said “barring some rare exceptions, let me assure you that nobody who was adding value to the company, had to leave.” While some of Murthy's efforts, such as cost rationalisation, are showing results, several analysts believe his presence has led to more damage than repair at Infosys.
Analysts believe the recent exits have had an impact on revenue growth in key markets like North America. “Business performance will depend on Infosys’ ability to control senior-level attrition, attract new leadership talent and ensure business continuity,” said the Kotak report.
Srinivas, whose resignation is effective June 10, 2014, is the 10th top-level exit from Infosys in the past year. Among others, Infosys saw the exits of two of its board members Ashok Vemuri and V Balakrishnan, who were both seen in the race to become the company's CEO post the retirement of incumbent SD Shibulal, along with Srinivas.
In view of the same, analysts believe that Infosys may be faced with some "tough questions" from clients and this may even take a toll on the company's relationships with some customers.
Additionally, employee sentiment at Infosys, which is already low and reflects in the attrition level that is at an all-time high of 18.1 per cent, might further drop.
"The relentless flux in the system is bound to have an impact on the performance, even for an organisation with a leadership pool as deep as Infosys," analysts Ashish Chopra and Siddhartha Vora of brokerage firm Motilal Oswal said in a note.
