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Corporate May 24, 2013

Phaneesh Murthy saga: Why do smart people do stupid things?

By Mitu Jayashankar and NS Ramnath

"Mr Bond, they have a saying in Chicago: "Once is happenstance. Twice is coincidence. The third time it's enemy action." -- Goldfinger

Phaneesh Murthy was able to invite the enemy action in the second occurrence itself.

Two cases of sexual misdemeanour in 11 years beg this question. How could a man as intelligent as Phaneesh Murthy end up making the same mistake twice? This question has been ringing out in the corporate corridors ever since the news of his indiscretion broke.

These were the same questions that were asked when Phaneesh was asked to go from Infosys. Educated at India's premier institutes like IIT and IIM, Phaneesh had a wonderful career at Infosys and iGate. "He was a star, an outperformer, and sure shot CEO material" says Mohandas Pai, a former colleague at Infosys and now Chairman, Manipal Universal Learning.

His Infosys colleagues remember him as an extremely driven and ambitious man who had a natural knack for selling. In the early days of the IT industry, it was extremely difficult to sell offshoring as a service. Phaneesh would routinely pitch high prices for contracts and would often win these deals. He loved to win, and colleagues say that even in friendly matches of basketball or football in campus, he would put up a fierce fight for every point. But when the game was over, he would not carry any grudges.

When he joined Infosys it was a $2 million company. When he left revenues had risen to $750 million. He wasn't shy of taking credit for that growth. He would often repeat to journalists that he was responsible for a lot of Infosys' success. But an ex-colleague at Infosys says that Phaneesh followed no processes. "The numbers were in his head", he says. When he suddenly left Infosys, it took the company a long time to put in place stringent processes and reporting structures to reduce dependence on any one employee.

Phaneesh worked hard, colleagues described him as a workaholic, the first one in office and the last one to leave. Although he is wealthy (thanks to stock options in Infosys and iGate) he wasn't flashy. "He is frugal, doesn't smoke or drink (except an occasional glass of wine), is a vegetarian and wasn't fond of splurging money on clothes or shoes" is how one associate describes him. People who have visited his home in Fremont, California, say that the Murthys lived a very simple lifestyle. "You could not tell it's a CEOs house", says one visitor.

Phaneesh Murthy led a simple life but was known to cross boundaries. Reuters

Phaneesh Murthy led a simple life but was known to cross boundaries. Reuters

But he had a tendency to push boundaries. An old colleague at Infosys remembered an incident about a sales offsite meet in New Orleans in the late '90s. At one point walking through the streets of New Orleans, the group ended up in a topless bar. Some of the sales managers had also brought along their spouses for the meet, and the women felt uncomfortable. "Phaneesh hadn't led us to that place, but he didn't stop us from going there either", says the colleague. When the corporate HQs in Bangalore heard of it, they issued a warning to Phaneesh. As the group's leader he had a moral responsibility to avert this situation they said.

Phaneesh is invariably described by those who have worked with him as very intelligent, even brilliant. "He is seen as aggressive, but it's not physical aggression - I haven't seen him abuse anyone or throw things around - it's intellectually aggressive", one of them said. Another person who has worked with him said "he might even start a discussion saying, truthfully, he doesn't know much about a subject but five minutes into listening he would have connected the dots, and in no time he would be talking as if he has been working on that problem all his life. He was supremely confident. And he would be right 95% of the time."

"Phaneesh was also very comfortable working in grey areas. He was comfortable using one criteria, one standard on one day, and a completely different standard another day," he said.

These two helped him well to thrive in the world of business. In business, being right 95% of the time, is in fact an achievement. But, in the world of ethics, the remaining 5% will pull one down. It's easier to be ethical 100% of the time than 98% of the time, as Clayton Christensen points out in his book How will you measure your life. Similarly, his comfort with grey areas might have helped him to thrive in a sector where technological disruptions were common and their impact on businesses were huge. But, ethical standards - especially those expected of a CEO of a large listed company - are seen as either black or white, and seldom grey.

The impact of sexual indiscretion of one individual - which sometimes gets dismissed as private and personal, and therefore ought not come under extensive media scrutiny - often extends to other very public areas. One, companies - in effect shareholders - end up paying for such mistakes. (Infosys had to cough up $3 million to settle the earlier case against Murthy). Two, colleagues get drawn into complicity, feeling obliged not to report on these to authorities even when they have to. (Infosys board came to know about Reka Maximovitch case too late, because initial indicators never reached Bangalore from the US office) And, finally, information asymmetry could tempt insider trading. (iGate stock was hit after Murthy's termination, raising questions about whether anyone gained from knowing the eventual fall out.)

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