Friends, please join me in welcoming on the stage Mr. Aditya Puri and Mr. N. R. Narayana Murthy. And to moderate the session, our very own Mr. MD Ranganathan. Thank you.
Thank you, Deepak. I am truly honored to be here for this session. Let me first thank Professor D. J. and IIM Bangalore for kindly agreeing to host this function on this wonderful campus. Thank you for visiting. A very warm welcome to Mr. Puri and Mr. Murthy. Thank you for being here. Probably I'm one of the few lucky persons who had an opportunity to work with both the leaders very closely over the years. What I've observed is both the leaders have many things in common. Both are very persistent, passionate institution builders. Both are very tough taskmasters. I can see some of the heads already nodding here. At the same time, very generous leaders. They are very persuasive and charming. They don't take no for an answer. And most importantly, both have very strong spouses whose name starts with the letter S.
So before we jump into the discussion, let me first provide you some kind of a backdrop of what was India like when these two companies were born. India was nowhere near what you see India today. When Infosys was born in 1981, India was deeply socialistic. It was at least 10 years before the economic reforms hit India. And forget about computers. There were no even landlines accessibility. Personal computers was almost unheard of. No ESOP, no IPO market. That was really the condition under which Infosys was born and it was not very different from HDFC Bank when it was formed in 1994, just three years after the economic reforms. Indian financial system was still recovering from the scars of Harshad Mehta scandal and the industry was dominated by public sector banks, 95% market share, no computerization, no personal loans, nothing. So this was the backdrop. Let's hear from both the leaders how did they navigate, how did they kind of make these two great companies. I know I already feel the weight of this stage, there are already $250 billion sitting on this stage.
Now let me do an icebreaker question. Mr. Puri and Mr. Murthy. Mr. Puri, when did you read about a person called Mr. Narayana Murthy for the first time and what were your first impressions?
When I first heard him, two things struck me and I honestly believe that I would not have come back to try and form something. When I heard him stand up and say we will not bribe, we will create a culture that is customer-centric, takes care of its stakeholders and we will be world-class. So sitting there I said if we can do this, let's watch for a little while and I can also drive because I don't know how to print. So he was partly instrumental. I said if he has identified an area and I can identify the same, it's worth a try and if I can get a band just like he got of qualified professionals because at that time the startup business etc was not heard of but in reality it was the start and honestly I wouldn't have had the guts to come back because we worked in a foreign bank, it's completely different. But then when you saw him and you had the ambition to create something, that's what came.
Great. Mr. Murthy, I'll ask the same question to you.
Sure. Well, he told me that they would like me to start a bank and that he was going to get this guy from Kuala Lumpur. He was heading Citibank in Malaysia. And then from a distance I watched Aditya with tremendous admiration. You know I call him the finest entrepreneur post-independence for a very important reason. He focused for 99% of its revenue on outside India where there were no bureaucratic hurdles, there was no rivalry required, where technology was appreciated etc. etc. But what is impressive about this number one entrepreneur of India, Aditya, is that he succeeded in the Indian environment and he succeeded very well to take a company from zero revenue to a market capitalization of $180 billion. That's not easy. Infosys has not reached that. That is the reality. Infosys is today somewhere at $70 billion. But to do it in the banking institution which is highly regulated by the government, where there is tremendous interest from the politicians and the bureaucrats on various kinds of loans etc., requires a level of resilience, a level of steadfastness and adherence to truth and conviction that have rarely been seen. So therefore I have been an admirer from a distance. Of course in the last few years we have got to know each other better and the more I have got to know him, the more of an admirer that I have become. I think he has demonstrated to India truly that you can become a great bank dealing with Indian bureaucracy, dealing with Indian political leaders, helping India, adding values to both urban and rural India and I think that in my opinion frankly is a much greater contribution than exporting software outside India. That's my view.
If you pick up from there, Mr. Puri, when Mr. Deepak, another visionary leader, invited you to start the bank in Malaysia, what made you accept that invitation and what was your purpose and ambition for the bank?
Firstly I have to thank Murthy, one of the reasons I accepted coming here because I respected him and I knew he would say good things about me. And that's an honest answer. Now when Deepak talked to me, I was sitting in my mansion in Malaysia where you had Jalan, they call road Jalan, they had Jalan Utama on one side and the Jalan Golf on the other side, the bungalow was... So he started talking and then I said okay that's very good, all that you say is very exciting, what do I get? We were sitting next to the pool when he mentioned what I would get, I almost fell into the pool. I said you know you enjoy, I would risk... Hey what enough? I said but this is not going to do it so I don't mind taking the risk but as you know, in fact if you say it is also the same, everybody, all stakeholders must be taken care of. So if I take the risk I will also have to get... I'm not someone who thinks he can do it all, I'll have to get very competent people who will also ask me the same question. So if there is what I would call the passion and understanding, if we succeed we should be compensated. If we don't, tough luck. And India at that stage, I think my friend also sitting here, we were having a ball in the foreign banks because there was no competition. We had the products, we had the service, but we didn't have the distribution, we didn't have brand recognition across. So I talked to a few of the guys that I knew in the banking system and said what if we could bring the strengths of both together, if we create a bank in India which had the product and service orientation of the Citibank and the relationship, brand and distribution of the nationalized banks, then that'd be great. It won't be easy, but it'd be great. Second is when you're working for a multinational you really don't know whether you're a cog in the wheel and what you're doing, whether it's yours or theirs. All of us wanted to test out. We all thought we were kings. Test out whether we actually could deliver on the ground because you know someone last night asked me what's the difference between business school and on the ground. One is everybody can read the GA but how many can make it effective in their daily life. So when the rubber hits the ground, that is business conditions. When professor tells you what all you can do and what AI can do, that is blue science and business school. So we said this is an opportunity and then it came back to a lot of things that he had said for Infosys, that if you can identify and that applies one-on-one to an entrepreneur or anybody, if you know your market, you know your product, you know how you're going to produce it, what the margin is and you have the domain knowledge and the passion, then you should succeed and you should be able to get scale. So it was a tough one. A lot of the fellows in the banking system laughed at us. I had one of my colleague's wife tell me what are you doing to my peaceful life, she was living in that Malabar Hill house, I said you come and live in Lower Parel. So I said look if he retired he would have made more money here and he would have done something good for the country and I talked to you then. So a combination of that brought the bank. And I also said one thing, I said the guys that I'm going to get are very passionate, but they're very independent. So I need to be clear who's going to run the bank, right? And if I come back, I'm making a hell of a lot of money here. I've got stock options. I'm in the top 50. I don't want to go back to aggravation. And he said, 'Do you run it?' And I must say, he kept his word. If you want, you can come and the rest is history.
Great. So Mr. Murthy, you always said earn respect from all stakeholders, the most important goal for Infosys. And you know right from the beginning, from the time you all decided together, what should be the vision for the company, why did you set such an aspiration for the company rather than highest in revenue, highest in profit, largest value?
Well, first of all, I came from a low middle class family or a poor family. Father was a high school teacher. Eight children, parents and grandmother. So 11 mouths to feed plus a 12th one because my mother practiced what is called 'anna dana'. That means once a week she would invite a child from a poorer family to eat dinner with us. So there used to be seven children eating dinner with us from a poor family. So we never imagined too much about money. We never talked about money. We were taught by our parents about earning respect from the peers, about contentment, about doing the right thing, about generosity. As I often say, Karna is my favorite character in Mahabharata. And therefore when I assembled my younger colleagues, they were all about 10 to 11 years younger than me, five to six levels below me at Patni where I was the group manager. Some of them were trainees, at least a couple of them. And I asked them what is it that you want to achieve if I invite you people to join me in this venture. One said we have to have the highest revenue. Second fellow said we must be the most profitable. Third one said we must have the highest market capitalization. All that. My style was always to listen to my younger colleagues and then say what I wanted because they're all very kind people, very good people, they would generally accept what I said so I always said whatever I wanted to say last. So when it came to me I said I want Infosys to be the most respected company in the eyes of its stakeholders. Then they asked the same question that you asked and that is why is respect very important. I said it's very simple. If you receive respect from customers, then it is only possible if you delivered whatever you promised to them on time, within budget, exceeding the quality and in that case they would want to do more business with you. They want to refer you to their friends and their peers in the industry. Thereby you will get more and more customers, more and more business. If you get respect from employees, to do that you have to be fair to them. You have to be transparent with them. You have to treat them like part of your family. And if you did all of that then they would want friends of theirs who are good and qualified to come and join. If you aim to get respect from investors, they would realize that these are honest people. These people are not going to run away with your money. Therefore, let us keep our investment as long as possible because it's going to multiply. Therefore, you get long-term investors. And if you want respect from vendor partners, you have to be fair to them. You have to be transparent with them and you have to pay them on time. You have to treat them with respect and dignity. And in that case they will understand when you have a difficult time to extend extra credit or extra time for you to pay because they understand that you are a reasonably good person. And if you want respect from the government of the land then you cannot violate any law of the land. And once you do that, they will create more and more regulations that will help you grow. And I said society contributes customers, society contributes employees, society contributes investors, society contributes vendor partners, society contributes bureaucrats, and society contributes politicians. Therefore, earning respect from the society is the most important objective of any corporation anywhere in the world.
Mr. Puri, as you said, today everybody talks about product-market fit. I mean that has become a buzzword. Now how did you think about product-market fit when you started HDFC Bank?
It sounds very technical. The reality is there is no other option. What is your purpose? Your purpose is you're taking a product to the market. Somebody has to buy it. If he doesn't buy it, you finish. So you must have product-market fit. Second what Murthy was saying is then you need to know how you're going to... you can have the fit but you have to deliver the product. So what will it take for you to deliver the product, the basic one-on-one, this is the market, this is the product that I'm going to deliver, this is the price, this is the margin and this is where we're going to go. And coming to a very important point that he said which I also observed which he was going to say, is if you don't set the culture right day one, if you don't set the systems and your purpose day one, you will never build a sustainable organization. If you say I want top line, I want more profit, you don't get the whole picture. That's not your purpose of your existence. The purpose of your existence is to be there. Be clear about your purpose. Make sure you're a valuable member of society. Make sure that the people understand and respect. And that respect can only be given to you, you have to earn it. The right product, the right fit at the right price delivered with integrity and ease to you and thereafter whatever you get is fairly distributed otherwise you will... if you don't want to give the employees options and you want to keep it all, why should you do it? The most positive thing is self-interest. Only when you get all this together will it happen and it has to be a composite whole. And this product fit keeps changing. So you have to change. You can't be a static organization.
Right. I think we've described the vision and the strategy, the market fit. Moving to the other important component of an organization's success, the early team. Mr. Murthy, early on you attracted a star team for Infosys. What were the qualities that you were seeking in the team and most importantly how did you convince them to join a revenueless, profitless startup?
Well, you know, as I told you, I was the head of the group and all these guys were five, six levels below me and they had observed how I operated. And when we founded Infosys, I took one-third the salary I was getting at Patni before we founded Infosys. So they realized that I was not in it purely to make money for myself, I was in it for something more noble. Second what I did was I gave each of them 20% higher salary than what they were getting at Patni. Third I did, I distributed equity like never before in this world. I just kept 23%. I must thank my wife because she was extremely kind and generous. She didn't raise any objections and I gave 15% equity to Nandan and Chris. Nandan had recruited as a software engineer trainee and then I gave 19% to Mr. Raghavan and then I gave 10% to the other three. This had never happened in the history of the world that somebody who starts a company, somebody who is five, six levels above others and somebody 11 years older saying that I will be fair to them in terms of equity. That made them realize that I was in it for something more noble than just money. And the way I selected them was by the byline of Infosys at that time, I don't know what it is today but anyway it was 'powered by intellect, driven by values'. I wanted people who are bright but at the same time who are value-based because at the end of the day when you are a small team, when you have to work very very hard, each of us has to have 100% faith in the other members of the team. None of them should ever doubt that somebody else is putting his hand in the till. They have to realize, their families will have to realize that that person alone is the person who is working very hard and rest of them are freeloading on him. So in other words, once you lead by example, once you demonstrate that you have sacrificed a lot more than all those guys, then the faith will be immense. You know they will then follow you, follow your words, do what you say because they realize that whatever I was doing was for the good of the team in the beginning and then good for all the employee group and then it was good for the entire investor community. So I think that I was very lucky that I could get six such people to join me who were both bright and who had values.
Thank you, Mr. Murthy. This is a common question to both of you. Having built that strong team with the right vision and strategy, something again very unique to both the companies is both of you focused on profit execution from day one. In fact both Infosys and HDFC Bank delivered positive profits in the very first year of their existence. Today of course a lot of companies and many of us in the IT industry also say hey collecting revenues and building the market share is more important than profitability. Profitability will follow in due course. I mean that has been some of the approaches currently. Do you think is there really a trade-off between growth and profit? How did you approach it in the early days?
Frankly, first thing you must know if you're going to get top line, you better know that there is unit profitability in that top line. The mistake most people, when I talk to an entrepreneur now, they say they will get top line. If you get top line and there's no unit profitability in your product, you're really lighting a fire under your bicep which you'll not be able to extinguish. So there is no discussion on this topic. You went into it with the purpose of delivering a better product at a cheaper price to the customer but making more money yourself through your efficiency. Now both come together but you can't say I would build top line and not have revenue that would go to fund you indefinitely. I think that happy-go-lucky market is gone. If you can't show a path to profitability which is based on unit cost which has to be reflected in numbers, it ain't going to work my friend. Sooner or later you will have a problem.
Yeah. Well, you know right from the beginning when I selected all the Indians, or rather one of them was older than me, my focus was on austerity. The reason is when you are in any business you have to make money and profit legally and ethically, absolutely, otherwise it's not worth running any business. And that will only happen if you accept deferred gratification. That is make sacrifices today and in the medium and long term you will obtain results that are multiples of whatever sacrifice you ever made. And that's something that I articulated very very clearly because I have found one thing that leaders have to be unequivocal in talking about values. There should not be any confusion in the message that they are giving. Everybody agreed till we reach a revenue of $1 billion and a bottom line of 20% after tax profit of $280 million in 2004, every one of us traveled economy on international flights. We ate at McDonald's for dinner. We took baths at airports. Why did we do that? Because there was a passion amongst everybody that we are onto something noble. And what was that noble star that we wanted to demonstrate? That the only way to solve the problem of poverty in this country is entrepreneurship and creation of jobs with good income. And that was the motivator. Therefore, when you have a noble objective like that, these sacrifices don't come to the front burner at all. They become part of your life. And we all learned to convince our partners. I did not have to because she has always been much more of a generous person than I have been. But others convinced their spouses because we just did not have any vehicle for about 12 years, for the first 12 years of the company. So all this is possible if you have a grand vision, if you have a noble objective, if you have an objective that brings peace of mind, that brings happiness, that brings pride and in some way that makes you worthy of the respect from the society. So I would say that's how we did that. But therefore I told them, I said look right from day one whatever revenue we get we will spend less than that because we have to make profit number one and in some way there was a very valuable benefit from that profit. And I tell you why. After paying the tax, we declare dividend. Remember our equity was just 10,000 rupees. Only 10,000 rupees. And in order to go public at that point of time, we needed to have an after-IPO equity of 30 million rupees or 3 crores and even if we had 60% of that we had to bring our equity to 1.8 crores from 10,000 rupees. So what I did was I said look every year right from 1981 to March 1993 we will control our cost, we will declare dividend, we will have profit, we will declare dividend but all that money you have to put back in the company, not one paisa will be allowed to be retained by you because 20 years from now you will all realize the value of that. So therefore we had a rationale, we had a reason and everybody bought into it.
Thank you. I think no wonder that both the companies are a big delight for investors. You know just to share this statistic, since Infosys went public in 1993 till the end of Mr. Murthy's tenure, the stock price compounded at 47% CAGR and similarly during Mr. Puri's tenure since listing from 1995 it compounded at 26%. So no wonder Mr. Murthy, you know delivering such consistent returns over decades. At some point in time analysts said look we are not going to project the profitability or EPS of HDFC Bank because he's so predictable, so it's going to be 26% per year. What are the two or three things that are required in a company to deliver such consistent returns?
So I would say one, obviously clear values, culture and purpose. And you asked the question how did you recruit, you recruited like-minded people who had the passion to deliver, who believed that they had the competence and who had the domain knowledge. My role as a CEO I would say was first among equals, an agile CEO because if it had to be done today it better be done yesterday. Right. An agile CEO who has a clear vision which is simplistically explained to every man-jack in the organization and then executed flawlessly at speed and scale. Now what this means is that you have a vision, people believe in it and everyone marches together. Right? It also means that it defines your behavior. It also defines what you will gain and you have to embed into the company itself the benefits for the employees, the benefits for the shareholders, what you will give back to society. I remember when I went to the board, at that time it was called microfinance, that we want to make people at a certain level self-sustaining. They said why should we do it? I said we've got to give back and there was some dissent. I said but I also want to tell you if you're not giving back you may have to find a new CEO because I also need a purpose. So what happened was that every... it's not me or my team, 250,000 people believed in the organization, believed in the vision, had the trust that they would be taken care of and they had the pride to be able to deliver on our objective which was giving back to every section of society that we could. So we dealt with shopkeepers, we dealt with the small fellows who wanted motorcycles, we have our people from the larger public sector banks sitting and they would say what have you done and I said don't say we are an elite bank. No, none of them were in motorcycles, none of them were in gold finance. Gold is probably the biggest asset that we have in the lower middle class for him to upgrade himself. So we had everybody working together. And I agree with Murthy that you have to create with the stakeholders that you're dealing with, whether the customer, the shareholder, the government, the society, trust and respect which is why they will choose you. Second is you got to be what I would call a moving organization.
The world moves, you've got to move with it. We actually reinvented ourselves. We started as a corporate bank, which is the toughest, but that's where we thought we only had the capital to take a certain amount of loss. So we needed the probability of default to be the lowest. When we made the money, then we went into MSNB and we could increase our yield. We made more money and we could take a little more risk, and then we went into consumer, but we waited till we understood what we wanted. Some other people got hurt because they went down market. When demand exceeds supply, why the hell do you need to go down market? We looked at it. They should have deepened their relationship with the existing customers, broadened the product range and included geography rather than maintaining weather. So we had a rule that every two years, 25% of the revenue of the company must come from new products. And unless the leader shows the way and you walk the talk... I remember priority sector, they would say we want to buy from the market. I said if you want to be a big bank, you can't. So they didn't go. I went to SAM and I went to VR and I came back and I said we will do this. And they said no, we will have losses. I said okay, loss is mine, profits and credit yours, but we will do it. The same thing Kaporo, right? The same thing for a 10-second low. I mean, we make too much out of this. Now, AI is going to have everybody out of job, everybody out of business. So, I had these fellows coming, youngsters, you know, you are dinosaurs, we'll put you out of business. I worked very hard to get there. So, I went to Silicon Valley and saw what these guys were doing. None of them were reinventing the systems. They were working on top. Whether it was the telecom system or the bank system, they were working on top and stitching together something that provided the customer with a better product, better use of interface, less friction, and gave the company a lower cost. I said, why then? It's my product. We have the trust. We have the brand. Why the hell can't you do it? And you've got to be tough. There's a difference between kind and indulgent. Indulgent may be with your talk but that doesn't work in the bank. So it was very clear if you don't believe in this, you walk. We jointly believe in the vision, open debate, open discussion, open end result, but once it's done, and you have to have innovation. I think we were talking at lunch with some of the professors, we make so much of innovation is simple. And you do it better. Test it out. If you test it out, execute with scale and speed before the others get there. And that's what we do, right? And otherwise on the same, if you don't change the business, if you don't expand either geography or your product line without going outside of your domain expertise, you have to be a crook to grow 25% every year.
Of course. I think loud and clear. Now you know since we are on profitability, I forgot to mention to the audience another common factor between both the leaders. Both have one eight word which is called EITA. They pay EITA and of course they have one most loud word which is free cash flow. So you both have known to be very driven, intense, passionate institution leaders. How would you ensure that intensity and passion percolated down to other leaders in that time? Mr. Murthy.
You know I'm a great admirer of Aditya Puri and he taught all of us a very important instrument to inculcate values in his compatriots. And that was by example. And his belief was, and I agree with him, that actions speak louder than words. Actions are more important than words. So therefore in every situation, if the leader were to demonstrate whatever values he or she wants that his or her organization to be embraced by every employee, then they have to be the first ones to follow that value. Whether it is coming to the office, I was always in the office by 6:20 a.m. 6:00 I used to leave home and 6:20 I used to be in the office and I did not have to tell anybody to come. Never. Everybody knew. Everybody knew you were sitting at the end. Number two, you have to from time to time demonstrate your commitment to the values by your own action because people tend to forget. You know, let's say you go to the office after a year or so, people forget that, they say okay that's all right. So therefore, whenever there was an opportunity for you to lead by example in following good corporate values, you must seize that opportunity and demonstrate. I already told you that we all traveled economy on international flights till we reached a billion dollar of revenue. Similarly, we stayed in the cheapest hotels in the seediest spot of the world, Manhattan. Because we said our philosophy was to reduce our cost. Why was it? Because we said here are all these shareholders who are outside these seven of us. They have trusted us. They have put their hard-earned money and the only way we can enhance their trust in us is to provide them multiple returns. As Ranga pointed out, I'm very very proud of the fact that for 21 years, year after year after year, under my leadership, we provided 47% growth in our earnings. And that's at the end of the day, that's the work of a corporation. That's the responsibility of a corporation because a shareholder at large, a minority shareholder, he or she puts his or her hard-earned money in your company. And if you were to lead a profligate life and blow it up, then you're not a great human being. Because human beings have the ability to observe, the ability to come to conclusions, ability to act and ability to articulate. So therefore we are the most evolved beings and we have to demonstrate our commitment to our community, our society, you know the best. So in some sense I think those things work well. And as I said right from the beginning we wanted to provide employee stock option plan on a scale that had never been done in India and that's comparable to the US. And therefore, we gave at whatever about 10 years ago the value of the stock options that we provided was $19 billion on a market capitalization of about $60 billion. That's not bad. I mean that's almost 30% to the employees. This is not counting my younger colleagues with whom we founded the company but this was the peons, the best peon, the best clerk, the best accountant, the best software manager, every one of them benefited a lot. So I think in some way in order to keep the memory fresh of the values of the organization, the leader has to lead, has to demonstrate his or her commitment to the values from time to time. And finally, as I said, the most important thing that all of you who are going to become entrepreneurs must remember is leaders eat last. Please remember that leaders eat last. In other words, you should be the last person to obtain benefit from the company only after every employee has gotten the amounts may be different based on the contribution, based on the impact of work and all. I think at the end of the day the leaders must eat last. That's a good principle to follow.
You know it's time for the question for the audience but last two questions. What is one quality that you admire about dad, Mr. Puri?
