An Interview with N.R. Narayana Murthy by Anand P. Raman
He may not appear to be one, but N.R. Narayana Murthy is quite the contrarian. At a time when few Indians felt they could become entrepreneurs, he founded Infosys with just $1,000 in the bank. When no one believed that India could offer the world high-tech products, he dared to develop software services for export. In an era when conducting business ethically was virtually unheard of, he created a values-based corporation. Today, as public anger against rampant corruption in India boils over, Infosys faces a turning point, with Murthy stepping down as chairman. In this edited conversation with HBR’s Anand P. Raman, Murthy reflects on his tenure and explains that for companies to be financially successful and good, leaders must demonstrate that values matter at every turn, with every employee.
Photography: Ayush Ranka
HBR: “Powered by intellect, driven by values”—that’s the Infosys credo. How could you imagine creating a values-driven company in the India of 1981, where corruption, nepotism, and profiteering were—and by all accounts still are—a way of life?
Murthy: In May 1981, seven of us crowded into the tiny bedroom of my rented apartment in Mumbai. I had decided to quit my job to create a professionally managed software company and had invited six colleagues to join me. The meeting was to develop our vision for the new company. One of us suggested that we should try to become India’s largest software company. Someone else said that our goal should be to become the country’s biggest job creator. A third opinion was that we should strive to be the software firm with the highest market capitalization. When my turn came, I pushed back on those ideas, saying, “Why don’t we aim to be India’s most respected company?”
What did you mean by that in practice?
If we sought respect from all our stakeholders, I felt, we would achieve our vision. If you seek respect from customers, that means you must deliver what you promise. If you seek respect from employees, you must treat them fairly and with dignity. If you seek respect from investors, you must operate with transparency and accountability. If you seek respect from vendor-partners, you must deal with them on merit. If you seek respect from governments, you must never violate any laws. If you seek respect from society, you must live in harmony with it and create goodwill. If we could do all that, I argued, we would attract customers, employees, vendors, and investors; revenues, profits, and market capitalization would follow.
After much discussion, we agreed to create a values-based organization. The vision statement we drafted that night was to be India’s most respected company delivering best-of-breed technology solutions and employing best-in-class professionals. The conversation also laid the foundation for Infosys’s value system: C-LIFE, which stands for Client focus; Leadership by example; Integrity and transparency; Fairness; and Excellence in everything we do. Our vision was the answer to the question, What are we trying to achieve collectively? The values answered the query, How will we achieve the vision?
Why would you wish to seek respect—not profit, as other entrepreneurs do? Didn’t your cofounders think you were being idealistic or inauthentic?
Not at all. Seeking respect was natural for us. We were all were born into Indian middle-class families and had developed a strong sense of values from childhood. Our parents taught us the importance of education, hard work, decency, courtesy, honesty, respect for others, and putting the community’s interest ahead of that of the individual. Our external role models were our teachers, both in school and university, who taught us to be inquisitive, analytical, articulate, and team-oriented. Setting up a values-based company was therefore like a reflex action for us—like breathing.
Since we came from the middle class, our financial expectations were not very high. Making money wasn’t essential; earning respect was. Business would come, we believed.
In preliberalization India, where the government regulated business extensively and paying bribes was essential to getting things done, wasn’t Infosys at a disadvantage because of your convictions?
When you say that you are committed to values, it implies that you are willing to pay a price for them. Otherwise, there is no meaning in saying you are a values-driven company.
Can you give me an example?
Let me tell you a story that I often tell our people. In February 1984, Infosys decided to import a super minicomputer so that we could start developing software for overseas clients. When the machine landed at Bangalore Airport, the local customs official refused to clear it unless we “took care of him”—the Indian euphemism for demanding a bribe. A delay could have meant the end for us before we had even started. When an Infosys manager informed me about the problem, my only question was, “What is the alternative to paying a bribe?” The manager hesitantly replied that we could pay a customs duty of 135% and then appeal for a refund. I told him: “Do that.”
We didn’t have enough money to pay the duty and had to borrow it. However, because we had decided to do business ethically, we didn’t have a choice. We would not pay bribes. We effectively paid twice for the machine and had only a slim chance of recovering our money. But a clear conscience is the softest pillow on which you can lay your head down at night.
Apart from providing a good night’s rest, did any business benefits accrue to Infosys because of your principled stand? You suffered from a competitive disadvantage, I’m sure, since not all your rivals—except TCS and Wipro—followed your example.
It takes time to benefit from putting values first. You feel the pain immediately and you reap the gains only in the long run. The customs episode immediately sent a signal that Infosys’s leaders would back employees whenever they chose to take values-based decisions. It gave our people the confidence to follow the right path, even when everyone around them was bending the rules. It also boosted their enthusiasm; they became more committed to the company and more productive. It took just a few years for corrupt officials to stop approaching us for favors. Because of Infosys’s ethical image, our clients entrusted us with increasingly bigger projects. Our values have thus become our advantage, gaining us larger revenues, top-flight talent, and great investors and earning us the respect of governments and societies.
How did you deal with senior executives in developed countries who wanted their palms greased? Adhering to values must have been tougher in those cases; outsourcing is a cutthroat business.
To our clients and their representatives, we have always offered our sincere thanks, deep commitment, hard work—and nothing else. We have had an extraordinary set of values-based customers, but there are always exceptions. In the early years, I remember, Infosys bid for a $1 million contract from a large enterprise in a developed economy. When I visited the company, the CIO invited me out for dinner. During the meal, he mentioned several times how much he desired a particular car. Each time, he followed that up by saying that it would be nice if Infosys landed the contract. I guess I was naive. I kept turning it into a joke, saying that while it would be easy for him to buy the car, bagging the contract over the competition wasn’t as simple. Finally, the CIO decided to be blunt: “Why don’t you buy me that car and I will award you the contract?” he said. That’s when I realized that he was asking for a bribe. I politely told him that Infosys didn’t do such things, and the dinner ended quickly. The CIO didn’t get his car, but Infosys got the contract, by the way. You have to learn to stand by your principles; it’s wrong to believe you have to bribe your way to success.
Surely, it isn’t as simple as that. Don’t you have to be willing to walk away from customers, segments, and even markets? Why did Infosys exit the packaged software business in India in the late 1980s?
You’re right; we had to give that up because we wanted to do business by the book. In those days, we used to import and distribute software packages. The government of India used to levy a customs duty of 135% on imported software packages, but most companies manipulated their invoices to avoid paying duties. This enabled our rivals to reduce the landed cost of software, which was good for the customer, I guess. However, my colleagues and I decided that we would not follow that practice even though it wasn’t illegal, according to many lawyers. Infosys needed the cash flow, but since we wouldn’t operate in a gray area, we couldn’t successfully pursue that opportunity. Getting out was a no-brainer for us.
Isn’t it enough for a good company to follow the laws?
A good company must always go beyond following the law. Ethical behavior transcends legal compliance: It’s about satisfying your conscience, whereas legal compliance is about satisfying the authorities. Let’s say I am walking alone on a deserted path along the Charles River in Cambridge, when I see a $100 bill lying on the ground. There is no one around and no house for miles. No one will know if I pick up the money and walk away. I can hand over that bill to the police, or I can spend the money. Spending it may not be illegal, but it would be unethical. That, to me, is a value—something that stays with you even when you are alone.
Does Infosys have a zero tolerance policy?
Whenever we receive a complaint that an employee is violating our values, we investigate it, give a fair chance to the individual to argue his or her case, come to a conclusion, and take action. We have let several extraordinarily bright and useful people go because they violated the spirit or the letter of our value system. For instance, we fired a project manager for fudging a taxi bill to the tune of $40. He was a crucial member of the team, but our zero tolerance policy would not allow us to continue to employ him.
We also applaud good behavior. As part of our annual awards function, we honor the individual who, according to his or her peers, has demonstrated the best commitment to our values that year.
Not every manager in Infosys has always adhered to its values. Take the former head of Infosys’s worldwide sales, whose executive assistant in the U.S. accused him of sexual harassment. He had to resign, and Infosys and its insurers paid over $3 million to settle the charges in 2002. How could something like that happen in a values-based company?
I would prefer not to comment on the case, which still saddens me. The person was brilliant, a star performer, brought lots of value to the company, and many considered him my favorite! Still, the moment I learned of the issue, I initiated an investigation and informed the board. The board made a considered decision, and we implemented it immediately. The individual concerned paid a price for his mistake, and the chapter is now closed.
Infosys has recently been accused of breaking U.S. visa laws by providing full-time workers with visas meant only for visitors. That doesn’t sound like something an ethical company would do.
I can’t comment on that, either; the matter is sub judice. I can say only that I am saddened that Infosys has been issued a subpoena by a U.S. grand jury.
Should CEOs be totally honest with shareholders, or are there things they are better off not knowing?
Let the good news take the stairs, but make sure the bad news takes the elevator, I always say. Companies must be honest with all stakeholders except on issues that may create asymmetry of information and lead to insider trading. Infosys has demonstrated complete transparency in dealing with our investors, which has always worked in our favor. We learned that in 1995, while waiting for approval from the Reserve Bank of India to open a sales office abroad. We decided to invest the amount allocated for the purpose in the stock market, hoping to make a quick return. Unfortunately, we incurred a significant loss on our investment. At that time, according to the Indian GAAP, Infosys need not have provided the details of its loss to shareholders. But we believed that this was a moment to demonstrate our commitment to the Infosys principle, when in doubt, disclose. We went public with the details, and to our delight, Infosys shareholders took our disclosure as a sign of our transparency and didn’t punish us in any way.
Does Infosys’s reputation as a values-based firm put pressure on you to do more in other areas?
As Infosys has grown, society’s expectations have risen. People expect us to be environmentally conscious; to lead a movement to improve the standards of corporate governance; to help the community when there are floods and other calamities. It isn’t just the man on the street who demands that—our 130,000-plus employees do, too. They’re smart, draw their own conclusions, and question us. Infosys must meet those expectations if it isn’t to lose employees’ hearts, and we do our best on all those counts.
Since you are unlikely to believe that business should be business’s only business, how broadly do you define Infosys’s social contract?
Don’t get me wrong: Maximizing shareholder value is essential. If Infosys doesn’t do that, we won’t be strong and will not be able to serve any stakeholders. However, we must maximize shareholder value legally, ethically, and fairly.
The best index of a corporation’s success is its longevity, which comes from living in harmony with society. We achieve that objective in many ways. Fifteen years ago, we set up the Infosys Foundation, to which we contribute a certain percentage of our profits every quarter, to address some of the basic needs of the poorest of the poor in India and the United States. In India, the foundation has built hospitals and homes for the destitute, given scholarships to poor children, built libraries in over 15,000 villages, and rehabilitated prostitutes. We have donated PCs to thousands of schools in India. In the United States, we support initiatives to improve science and mathematics education in inner city schools.
You said that values govern your decisions about whether or not to enter businesses and countries. Are Infosys’s values therefore part of its strategy process?
Yes. Strategy is what we have to do to create and maintain sustainable differentiation vis-à-vis competitors. One aspect of our differentiation is our emphasis on values. Our values give our customers confidence that we will deliver on our promises, stand by them in every situation, and that we will spare no efforts to make them look good in front of their customers. Still, values cannot be just part of the strategy process; they have to be second nature for everyone in the organization.
Which brings us to the key question: How do you sustain a values-driven culture when the company is growing at over 50% per annum, its operations are globalizing, and more than 30,000 young people join the firm while 10,000 leave every year?
For many years, Infosys’s values system was unwritten but well practiced. In 1998, we decided to document it. Our employees come from different nationalities, genders, religions, and political points of view, so we have to work to transform that plurality into a shared worldview of ethics and values.
Infosys has a three-step process for disseminating the C-LIFE system: Communication, engagement, and enablement. C-LIFE sessions are mandatory for new entrants and lateral hires. We use Infy TV and Infy Radio to spread Infosys’s convictions about values, and we have created points of contact for solving ethical dilemmas. A C-LIFE manual works as a ready reckoner for employees. Our 700 leaders are constantly reinforcing our values; many spend their lunch breaks with young employees, discussing our values.
What is the role you personally play in communicating Infosys’s values?
From the day I started Infosys, I made it a point to address every new batch of employees. I told them that I could guarantee them only three things. One, every Infosys transaction will enhance their respect and dignity. Two, the company will conduct itself in a fair, transparent, and ethical manner, so they will never have to hang their heads in shame. Three, they will learn three times more at Infosys than at any other company.
I then recount the Infosys story, lacing it with anecdotes about the difficulties we faced, the bold decisions and sacrifices we made, and how we resolved ethical and moral dilemmas. I describe our progress: From a 100-square-foot office (my bedroom) to 28 million square feet of space today; from $250 of capital to a market capitalization of $36 billion; from a $10,000 kitty to $3.8 billion of cash today. Yet, we didn’t lose our health, suffer psychological trauma, or break up our families because we followed a values system.
Managers often say that leaders don’t walk the talk when it comes to values. How do Infosys’s leaders avoid that trap?
The best instrument for gaining trust is leadership by example. Most leaders forget that employees and stakeholders are watching them closely and that their every action will be discussed, lauded or criticized, and, often, imitated. Leaders have to be careful not to create dissonance between what they say and do. When we set up Infosys, I took a cut in pay while my colleagues got small increases. Similarly, we awarded 70% of Infosys’s equity to people who had hardly 18 months of experience. Decisions like these gave Infosys’s employees confidence in their leaders. My younger colleagues didn’t hesitate to make sacrifices later because they had seen me do so from the start.
We also follow protocols about punishments whether the person is a CEO or a janitor. On at least three occasions, board members have had to pay heavy penalties for what could be considered minor infractions. Setting an example at the top is the best way to instill confidence throughout the company.
Before this interview is published, you will step down as Infosys’s chairman, a position you held for three decades. How confident are you that Infosys will continue to be a values-driven company?
Listening to your conscience helps you do the right thing, so every employee—or Infoscion, as we call them—must be guided by that inner voice in making every decision. As long as Infosys’s leadership continues to foster an environment in which employees feel a responsibility to their conscience, it will deliver results.
After August 20, 2011, my title will be chairman emeritus; I will no longer have a role in strategy formation or execution. However, every Infoscion will have the right to consult me, particularly on issues relating to our values. I hope to help Infosys continue to be strong and adhere to its values even in moments of great temptation.
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