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Infosys Co-Founder Shares Thoughts on Growing Complexity of Corporate Governance

On November 17, The HBS Globalization Club hosted a talk by S.D. Shibulal, co-founder and board member of Infosys (NASDAQ: INFY), a global provider of IT and consulting services. Along with his role on the Infosys board, Shibulal serves as Worldwide Head of Customer Sales & Delivery. He is also responsible for fostering innovation, leadership, teamwork and work values within the organization.

Mr. Shibulal has been with Infosys since it’s founding in 1981, except for a brief hiatus between 1991 and 1996, when he joined Sun Microsystems to help the U.S. company launch it’s first e-commerce application, SunPlaza. Mr. Shibulal received a master’s degree in physics from the University of Kerala and a B.S. in Computer Science from the University of Boston.

After a brief introduction by Globalization Club President Abhi Shah, Mr. Shibulal initiated an engaging discussion focused on the evolving role of boards of public companies and the growing complexity of corporate governance. Mr. Shibulal discussed what he observes as a fast-changing business environment driven by high growth, globalization, and greater scrutiny since recent corporate scandals such as WorldCom and Enron, which have all contributed to changing the role and influence of boards.
Because of increased scrutiny from shareholders, media and employees, the job of board members has become much more difficult according to Mr. Shibulal.

“The days of the all-powerful CEO are coming to an end; the shift is toward a more active and powerful board,” he said, adding, “The divide between the board and management is also becoming blurred. Because of new regulations, leadership is bound to bring the board in on more decisions.”

In this current climate, demand on the board’s time has increased significantly. In the past, most board’s have served mainly as a rubber stamp and did not hold management responsibility, but this has changed. Mr. Shibulal specifically touched on the evolving prominence of audit committees within boards and the increasing power they yield in today’s corporations. Shibulal noted the Infosys Audit Committee now meets for fifteen hours, where in the past most meetings only lasted two hours.

According to Mr. Shibulal, another driver in the evolution of corporate boards is globalization. He stated that the old model of local employees in a few key geographic locations is giving way to a truly global approach. Infosys, for example, makes 65 percent of its revenues in the United States and only 1.5 percent in India. As its global footprint continues to grow, Infosys will hire 300 new employees in the U.S. and 1,200 new employees in China this year. Infosys shareholders are also global; 45% of Infosys shares are held by foreigners.

The global nature of business introduces its own set of unique challenges. For example, Mr. Shibulal noted that Infosys is often caught between American, European and Indian norms, protocols, and laws.

In reaction to its global business, the Infosys Board has also become global. Currently the United States, Asia and Europe all have representation on the company’s board. Mr. Shibulal believes the trend for tomorrow is an increasingly global board. In this realm, Infosys is the pilot for the organization in the future. Shibulal said that currently 80 to 90 percent of boards around the world are local in nature. Globalization will change the future structure of the board as divergent views are now introduced into what was previously a homogenous group.

Shibulal said boards are now held to a much higher standard and will continue to have a greater global impact on corporate leadership. In his view, this transition will be difficult and costly for many firms to complete. He proudly proclaims Infosys is a global leader in corporate governance and believes the company is at the leading edge of a struggle all corporations eventually must address. He stated that many of the new Sarbanes-Oxley regulations were already in place at Infosys before the law even passed. However, the company still had to spend over $1 million to become fully compliant. Even for a company with historical diligence to comply, this expenditure underscores the tremendous costs associated with meeting these governmental standards.

Mr. Shibulal closed by stating that strong corporate governance is a mindset. “When in doubt, disclose,” he said, assuring the audience that Infosys will continue to be at the forefront of corporate governance.

Following Mr. Shibulal’s presentation, three Infosys employees presented an overview of the Infosys MBA internship program. Pankaj K. Dugar, a 2001 HBS graduate and current client partner; Vangelis Mavridoglou, a solutions partner; and Bhavna Mehra, an Infosys recruiter were joined by Pablo Jenkins, a second year HBS student who interned with Infosys this past summer. Pablo shared his experience working on several tangible projects and gaining exposure to high-level executives both within Infosys and among the company’s clients.

December 5, 2005
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