By Dr. Jaijit Bhattacharya
The past few years have put the spotlight on the phenomenal wealth creation by a tribe of businesses called “startups”. Startups are essentially high-value, scalable businesses that create significant value addition and jobs in the economy, and some of them disrupt the way we live, work and entertain ourselves.
Over 80 of these startups in India have become unicorns at an accelerated rate. Unicorns in the context of startups imply businesses that are valued at over USD 1 billion. That is, Rs 7,500 crores and above. And that is, a lot of value.
However, the past few weeks have also put the spotlight on the issue of governance of startups. The issue has come to prominence due to the governance related matters of BharatPe, a phenomenal financial technology or fintech startup, that pushed the creation of unified QR codes for UPI based payment acceptance, and forced the QR code-based payment framework to make payment acceptance free for merchants.
It also brings to the fore the issue of the role of investors and the relationship with founders. There has been a flurry of accusations and counter-accusations on all types of media, between the founders, board and the investors.
It has indeed invited further discussions on what is going on with our famed startup ecosystem that has blossomed to be one of the largest in the world, with active support and promotion by the government.
Is this the beginning of the end of the Indian startup fairy tale or is this the coming of age of the Indian startups?
We have also seen governance intervention in large Indian companies such as the Tatas, where there was change in leadership based on the perception of the board.
Companies, as an institutional structure, have evolved robust institutional frameworks, that are able to put in the checks and balances that are necessary for the company to grow and to protect the interests of investors and the society.
One such mechanism is the board of the company, which acts as a counterbalance to what the executives of the company do on a day-to-day basis. This is pretty much akin to the parliament keeping a check on the government, the government being the executive arm.
Also, another important aspect one must keep in mind is that BharatPe has in recent times, been given the mandate (along with another corporate body) to take over the ailing PMC bank that had its funds frozen and the account holders struggling for years to recover their money.
One must ensure that the customers of this bank do not suffer any more and that BharatPe is able to provide credible and stable oversight to the bank.
In such a context, the board and the governance of the company have an added burden of ensuring the safety of critical financial institutions and the company itself.
In all fast-growing companies, growth brings in significant challenges of culture, processes, systems and people. If the board does not keep a hawk eye on these issues, it is quite easily possible for a company to drift into oblivion, rather than maintain the high speed of growth.
Clearly, what brings a company to a certain stage, will not take them to the next milestones. Changes are required. Change does bring in friction. And great companies require great culture to continue on the growth path.
The observation of the board of BharatPe was that it seems to be on a path which may affect shareholder value and negatively impact the stakeholders of BharatPe.
Companies are built on strong values and great culture. An absence of values and positive culture, destroy companies eventually. It is indeed imperative to make sure that employees, vendors, customers and all other stakeholders in a company feel that they have conducive atmosphere to work in, without which, a company will eventually fall.
Thus, what has clearly happened in case of BharatPe, is a mature corporate governance intervention to bring in a course correction. It is exactly what has happened in older corporate bodies such as the Tatas, where the executives were changed in the larger interest of the body.
This is clearly a coming-of-age event of the Indian startup ecosystem. Such healthy interventions would see seasoned professionals coming into the fast growing Indian startups, and propel them to greater heights.
There may be acrimony in the short-term, just as it happens in any large corporation that is undergoing change and is readying itself for the next phase of growth. But that settles down quickly and benefits everyone in the long run.
Investors should continue to discover startups that are needed by India as a country, and to fund them and hand-hold them to a scale where they can make a difference to our lives.
They also need to continue to ensure that the right values and culture are imbibed to keep the companies on a long-term growth path and be positive agents of change in our society.
And when required, the investors and board need to act decisively in the interest of the large number of stakeholders of the company, be it a startup or a well-established company.
This article first appeared in India Today, https://www.indiatoday.in/opinion-columns/story/bharatpe-coming-of-age-story-indian-startups-1920315-2022-03-04