Can CEOs of technology services companies be more direct in their letters to investors?

Easy. To update current and potential investors on how the company has fared and how it is going.

You don’t expect CEOs to be gifted writers like Gabriel García Márquez or Ernest Hemingway. But a good letter can be a promising indication of realistic management. Understandably, some investors, like Warren Buffett, use a CEO’s letter as a guide to knowing whether to invest in a company.

“Many times over the years, reading the annual letter has been a factor in my decisions about what to do and what not to do,” Buffett has said in the past.

Twich+ read the CEO letter from each of the top 10 IT services companies to understand if investors are getting smarter.

Unfortunately it was disappointing. The CEO’s address to shareholders is not groundbreaking, and little comes out of management’s strategy.

Apart from Rajesh Gopinathan, chief executive officer of Tata Consultancy Services Ltd, few technology services executives talk about how a company is preparing for the future. Gopinathan, who writes one of the most in-depth letters of any of his peers, shares some insights into how India’s largest IT services company is gearing up to become a $50 billion company (although Twich+ isn’t a fan of companies like TCS a set an ambitious target and has not set a timetable by which it plans to achieve that target).

But it still falls short. Try this.

In last year’s annual report, Gopinathan writes: “Over the course of the year, companies shifted from viewing technology-enabled innovation as a means to address pandemic challenges and more specifically to viewing it as a means to fuel their growth and transformation (G&T). for customers who had already moved their most critical workloads to the cloud. While G&T initiatives are typically business-focused and technology-agnostic, once organizations move a portion of their workloads to the hyperscaler cloud, the opportunities for enterprise transformation are immense.”

“The pandemic has shown us that corporate spending on technology is far more resilient than most people realize. It’s central to the ability of companies to innovate and differentiate in good times and survive and adapt in tough times,” says Gopinathan.

It’s not clear if Gopinathan is suggesting that TCS’s growth will remain robust during a slowdown (a forthcoming recession?).

We know from two previous recessions (after the dot-com crash and during the 2008 global financial crisis) that technology services company growth was hampered as Fortune 500 companies held back on technology spending.

Has anything changed to make investors confident?

Too bad none of the CEOs have spoken out on this issue, which is becoming a top concern for shareholders.

Second, CEOs seem inclined to congratulate their companies (and therefore themselves) on a record performance over the past year, but are reluctant to discuss the bigger picture.

Take the comment on Digital, the fuzzy buzzword, for example.

Both Brian Humphries of Cognizant Technology Solutions Corp. as well as Infosys Ltd’s Salil Parekh make a point of underlining the growth of the digital business: Cognizant claimed that the digital business grew by 19% and accounted for 44% of its revenue at the end of 2021, while Infosys said that the digital business grew by 40 % and accounted for 60% of sales of $16.31 billion in the year ended March 2022.

Parekh’s testimony implies that its digital business totaled $9.8 billion as Infosys’ revenue grew 20.3%. But the chief executive doesn’t mention what happened to its remaining business: Infosys’ legacy business declined 12.3% to $6.53 billion.

Should investors continue to expect this legacy business to continue to decline? At what point does Infosys expect its entire business to go digital? And if the entire business is digital, will Infosys make more dollars for each service unit it has historically offered in the legacy business?

Even Humphries doesn’t talk about this transition, which is affecting the entire IT services industry.

Third, corporate chatter must be avoided and it’s time to speak up.

“We are fully committed to making Cognizant the best place in the industry to build a fulfilling career,” Cognizant CEO Humphries assures shareholders.

Cognizant has had an industry-leading turnover rate over the past two years. But there’s no comment on what steps, if any, management is taking to retain talent.

“The future is digital, and Infosys is at the forefront of digital,” Parekh underlines his one-page letter with what your author believes is another smug remark.

There is no denying that cloud computing and data analysis tools are in demand. But unlike Accenture Plc CEO Julie Sweet, who shares revenue from some of digital’s individual pillars, bosses at homegrown IT services firms are still unwilling to discuss what’s driving digital business.

Finally, a nuisance is why would a CEO not share this with shareholders when news of his departure is already public?

On May 6th, Larsen and Toubro Infotech Ltd and Mindtree Ltd agreed to a merger. On the same day, LTI boss Sanjay Jalona resigned. Jalona finally left the company on June 3rd. Upon completion of the merger, Mindtree Chief Executive Debashis Chatterjee will lead the combined company, according to press releases issued by the two companies in May.

Curiously, the merger is not mentioned in either company’s annual report.

Now, it could be argued that the annual report is a performance update for a year, and since the developments have only taken place in the current fiscal year, both companies will make these disclosures in this year’s annual report. It’s also possible that news of the merger and Jalona’s departure came after LTI had already started work on its annual report.

LTI’s annual report was published on June 17th. But the company manages to mention, albeit in two footnotes in the annual report, that Jalona was the boss until June 3.

Your author therefore wonders whether the CEO could have accommodated his journey with LTI over the past seven years and even shared it with shareholders. At the very least, Jalona could have shared that detail with shareholders when he writes his letter as the outgoing boss.

The bosses of domestic companies in all industries are no better than the CEOs of IT companies when it comes to their letters to shareholders.

But when it comes to corporate governance and disclosure standards, the IT services sector has always been at the forefront: Wipro is a stand-in for Independent India, while Infosys has become a stand-in for post-liberalized India, says Shankar Jaganathan, founder of CimplyFive Corporate Secretarial Services .

For this reason, CEOs of domestic technology services companies should probably set themselves apart from the world’s best-run companies and start being more open about their successes and failures and much less self-adulation in their letters.

This will hopefully lead to CEOs in other industries becoming more accommodating in their approach to shareholders.

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