Meritocracy Is the Model

By Simon Robinson/Bangalore

So many big indian companies remain family-run that their board meetings might as well be held at the dinner table. Not so at Infosys. Founded in 1981 by seven engineers--none of them related--the Bangalore-based company has become not only a $3 billion-plus technology-services giant but also the epitome of the modern, professionally managed Indian firm, with a culture of meritocracy based on the idea that anyone could be boss.

S. Gopalakrishnan, one of the founders and the current CEO, says Infosys built that culture from the ground up. "We said, If we're going to make it a success, there have to be some rules, some common values, some structure to the whole thing." That included a strict ban on nepotism and a compulsory retirement age of 60. Founding CEO N.R. Narayana Murthy, who still flies coach despite a net worth estimated at $1 billion, says the break with the past was deliberate: "We had to aspire to global standards, especially if we wanted to attract investors from abroad." When he turned 60 in 2002, Murthy stood down as CEO and moved back to his first, more modest office. His successor, co-founder Nandan Nilekani, retired as CEO in June, although he remains chairman.

But while its goals may have been global, the company was--and is--run in an unusually communal fashion. In the U.S., says Murthy, "the CEO is the emperor." At Infosys the CEO is more like a chief justice, presiding over arguments and casting a vote only when necessary. "Ultimately, I will decide," says Gopalakrishnan. "But I usually don't need to. We try to foster a much more collegial, consensus-based environment that allows the best information to come out."

That sounds so warm and fuzzy, you could almost hug it. But how does it work? A council of the top eight executives discusses all major decisions. It's rare that the entire group is in Bangalore at the same time, so the team has mastered the art of succinct e-mail for any question that comes up. Everyone weighs in with a yes or no and a line or two of reasoning. "Why waste time?" asks H.R. director T.V. Mohandas Pai. "We all know each other." And this is a company built on information. Says Murthy: "We've always thought data and facts will have to drive the company. We used to say, 'In God we trust. Everyone else brings data.'"

Infosys is one of the Big Three IT companies (along with Wipro and Tata Consultancy Services), but success is changing it. The company has doubled its workforce in the past 18 months, to about 80,000. This year alone, it will hire more than 30,000 additional employees.

Alas, recent staff surveys suggest that morale, especially in the lower ranks, has slipped.

The company has also been buffeted by external winds. India's currency has appreciated 12% against the dollar this year, hitting profits, and the subprime-mortgage crisis is forcing U.S. banks, among Infosys' biggest customers, to tighten their belts. Infosys has handled those problems by increasing salaries, boosting currency hedging and shifting its focus slightly to Europe and developing markets like South America.

But to keep growing while retaining its founding principles, Infosys decided it needed bigger changes. In late October the company announced a restructuring that will divide Infosys into industry units (e.g., banking and energy) and horizontal units focusing on issues like infrastructure that cut across industries. Infosys hopes that the new structure will drive the spirit of consensus-based decision making deeper into the company. Each division will have its own decision-making council, with at least one employee under 30, while the team at the top may eventually double. As well as sharpening Infosys' customer focus, "the restructuring is also partly about refocusing and re-energizing our staff," says Gopalakrishnan.

Those younger employees will be the ones to keep Infosys' principles going even when the five remaining founders retire, so Infosys also asks senior managers each to take half a dozen up-and-comers under their wing. "I firmly believe that a democracy will always avoid a disaster," Murthy says. But those values have to be taught. "It may not be the quickest way to do things in the world," Murthy adds, "but you'll never see a famine in a democracy." Infosys managers hope that what holds true for nations can also apply in the corporate world.