Excerpts from Interview with Mr. N.R Narayana Murthy , Infosys Ltd

Excerpts from Interview with Mr. N.R Narayana Murthy , Infosys Ltd


Question: How important is financial reporting to a technology companylike Infosys? 
Answer: First of all, the raison d’être of a corporation is to maximize the shareholder value on a sustainable basis, while ensuring fairness, transparency and accountability to every one of the stakeholders: customers, investors, employees, vendor-partners, the government of the land, and the society. The annual report and the quarterly   report that Infosys produces are definitive instruments for the investor community to understand our strategy, performance, compliance with the generally accepted accounting principles, revenue recognition policies, risk mitigation procedures, systems and controls, human resources policies, and segmentation of revenue. In other words, it is a single window for our investors to look into our operations and our aspirations. It is our view and not the view of the analysts. It is a statutory document. Obviously, companies will have to ensure that it is truthful and it does not communicate any false hope. Also, when you deal with customers, they want to know your strategy, your position in the market, financial strength; who your directors are; your stock movement; and your segmentation of revenue. In other words, even though prospective customers do not buy your shares, they want to ensure that they have good understanding of    your financial strength because they are hinging their future on you to some extent.   So, the financial reporting document is very  important.
Question: What is the disclosure philosophy of  Infosys?
Answer: Well, our philosophy has been When in doubt, disclose and Under-promise and over-deliver, throughout the 20 years of our listed existence. However, we missed our targets during 2011–2013. In other words, in the last 80 quarters, we have taken the view that we will get market data on what the future is likely to be, we will assess our strengths, weaknesses and our readiness to take advantage of market opportunities, and then we will come out with a view of the future that every member of the board has agreed with. We want to make sure that we can deliver whatever we have agreed upon. We do not make our decisions based on what the analysts say or the public expects.
Question: How can financial reportingbecome a part of a company’s businessstrategy?
Answer: The annual report covers the major aspects of our business operations. Our prospects and our customers use this document as the definitive instrument to assess our viability in the future because of our strategy, our operation and our financial strength. Quite often, our success in selling to our customers and prospects depends on their perception of our strength. This document is very helpful in our investors’ and customers’ understanding of our strategy. I have seen many of our customers refer to specific pages of the document and ask us to detail out what we have said about the company’s  plans.
Question:Does the practice of earnings guidance result in excessive pressure on managers performance?

Answer: Yes and no. My view has been that management is all about our ability to make considered judgments under a situation of competing pressures, and competing priorities. So, we, managers, must accept that there will be pressures. There are different opinions on whether the earnings guidance should be quarterly, six-monthly  or yearly, and whether it should be only for the top line or both the top and the bottom line. I am not sure whether the quarterly guidance for both top line and bottom line is any worse than other guidance schemes. My one belief is that it is all about the mindset of the management. Because of globalization,  there  is  tremendous  growth and competition in the marketplace. Companies are growing much faster today than they were growing 15 years ago. So, I am not a great believer in the perception that quarterly guidance leads to any extra pressure on the management. What kind of a CEO are you if you do not have a plan to achieve a certain revenue and a certain profit in the next three months? But, if you know what your future is likely to be in the next three months and if you do not share it with your investors at large, then you are creating asymmetry of information, particularly in a company where there are several owner-managers. That is not fair to the investors at large. I will give an example. In 2001, we announced that we would grow by 30 per cent. The previous    year, we had grown by 100 per cent. So, I stood up and said, “There is considerable fog on the windshield and we can only promise 30 per cent.” Our stock price came down from `5,000 + to `1,500 or `1,600. I did not lose my sleep. Our view was that we had a fairly good system of collection of data, and we had people in the trenches with a very good view of what was likely to happen. Our forecasting, analytics and   tools confirmed that the only sales growth figure we could give our investors was 30per cent. We told our investors that Infosys was not the company to invest in if they were looking for higher than 30 per cent sales growth. Many of them left. Our share price came down to `1,500 or `1,600. So, the problem does not lie in giving quarterly guidance. The challenge lies in dealingwith the short-term mindset of investors.



To check out details of the book by Mr. N.R Narayana Swamy – Financial Accounting:A Managerial  Perspective,  5th ed. – https://www.phindia.com/Books/BookDetail/9789354437656/financial-accounting-narayanaswamy

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