Prof. D Mukhopadhyay
The rise of Byju’s, an Indian edtech unicorn, had been a remarkable success story in recent years. Founded in 2011 by Byju Raveendran, the company quickly gained popularity with its innovative approach to online education, attracting millions of users and securing substantial investments from prominent venture capitalists. However, beneath its glossy exterior, Byju’s journey is marred by allegations of corporate governance fiasco , which eventually led to its downfall. This write-up explores the proximate causes of the rise and fall of Byju’s, and sheds light on the recent hue and cry leading to India’s most eye-catching valuable startup with a valuation of $22 billion i.e about INR 1,8 lakh crore defaulted in servicing a debt of $1.2 billion i.e about INR 10,000 crore. Byju’s began as a modest startup, offering video-based educational content to students across India. The company’s early success could be attributed to its adaptive learning technology and engaging teaching methods, which resonated with a growing market of tech-savvy students. Byju’s managed to secure significant investments from prominent investors, such as Chan Zuckerberg Initiative and Sequoia Capital, enabling its expansion and aggressive marketing campaigns. As a result, the company quickly became a household name in the Indian education sector, boasting millions of users and a valuation of billions of dollars.Despite its soaring success, Byju’s journey was marred by various instances of corporate governance failures stymied by opaque accountability and transparency in the company’s financial reporting.. Multiple reports and investigations revealed that Byju’s indulged in unethical accounting practices, such as , inflating its operational revenue to attract more investments and such fraudulent activities eroded the trust of investors and raised serious concerns about the company’s integrity. Byju’s faced allegations of mishandling sensitive users’ information, breaching privacy regulations and engaging in aggressive data mining practices. These revelations not only damaged the company’s reputation but also triggered legal action and regulatory scrutiny. The lack of data protection measures and transparency further exposed the weak corporate governance framework within the organization.
Delioitte , Byju’s Auditor, resigned on the ground that startup had not provided its financials over a year. Besides, three independent directors representing investors and lenders also resigned . The firm has been subject to lawsuits by the investors. It failed to honour the financial covenants and interestingly, Byju’s filed counter lawsuits against the creditors and lenders. There has been a considerable number of layoffs and the prevalence of utter-chaos in the corporate governance mechanism which rocked the corporate world. The fiasco reminded the importance of robust corporate governance and the role of independent corporate governance professionals – Chartered Accountants (CAs), Cost and Management Accountants(CMAs) and Company Secretaries(CSs) besides the auditors who are crucial in guiding the corporate governance and strategic management of the firm by signaling appropriate warnings for potential derailment and guiding the strategic management in earning investors’ confidence and trust. As far as auditors are concerned, they assess the accuracy and reliability of financial statements and ensure compliance with the applicable accounting standards, provide an independent and objective evaluation of a company’s financial records, internal controls, and financial reporting system. In the case of Byju’s, auditors are responsible for conducting thorough audits, including examining the company’s financial statements, verifying revenue recognition practices and assessing the authenticity of financial data and confidence of investors in the financial transparency and accuracy of the company’s disclosures.
Chartered Accountants (CAs) specialize in various aspects of financial accounting, corporate finance, and taxation and they could play a significant role in corporate governance affairs by providing expert advice on financial management, compliance with accounting standards, risk assessment and adherence to ethical accounting practices.Similarly, Cost & Management Accountants(CMAs) have a critical role in keeping the company on track and maintaining the momentum in securing strategic performance , monitoring, evaluating and reporting the periodic results . CMAs specialize in strategic management accounting, analyses and interpretations of financial information for management decision-making. Their expertise lies in cost management, beyond-budgeting, strategic performance evaluation, and financial planning. In the case of Byju’s, CMAs could contribute to effective corporate governance by providing insights into cost efficiency, profitability analysis, enterprise risk management, assisting investors gauge the company’s financial health and its ability to generate sustainable returns. Finally, Company Secretaries (CSs) play a significant role in ensuring compliance with legal and regulatory requirements, as well as facilitating effective corporate governance practices.
They are responsible for maintaining statutory records, facilitating board meetings, ensuring compliance with company laws, and advising on corporate governance matters periodically. In the case of Byju’s, CSs would ensure the company’s compliance with relevant laws and regulations, facilitate transparency, maintain a strong corporate governance framework and contribute to building investors’ confidence in the company’s operations. Further, many researchers examined the relationship between corporate governance practices and stock market returns of publicly traded firms and their findings revealed a negative correlation between weak corporate governance and stock performance, indicating that investors tend to lose confidence in companies with governance issues, which has exactly happened in Byju’s.
To overcome the challenges and regain stakeholders’ trust, Byju’s should consider implementing the recommendations for strengthening corporate governance practices to ensure transparency, accountability, and adherence to ethical standards. This can be achieved by appointing independent directors with expertise in corporate governance. These directors can provide unbiased oversight and ensure that the company operates in the best interests of its stakeholders. Stringent internal controls, robust financial reporting mechanisms, and regular audits can restore confidence in its financial operations, regain trust of the investors. Byju’s should prioritize transparency and disclosure of accurate and reliable information to investors, regulators, and the public. Byju’s must adhere to accounting standards and present financial statements reflecting manipulated financial performance. Transparent reporting and disclosure practices would help rebuild credibility and foster trust among stakeholders, besides , strengthening data protection measures. The company should strictly comply with relevant data protection regulations and standards, such as the General Data Protection Regulation (GDPR) and the Personal Data Protection system in order to assure users that their personal information is safe and secure, which will not only help rebuild trust but also mitigate legal and regulatory risks besides, fostering a culture of ethical conduct within strong ethical framework in the organization.
Byju’s should create an environment that encourages employees to act ethically and report any violations and non-compliance they witness.To actively engage with the stakeholders, including investors, customers, employees, and regulators, establishing open lines of communication, providing updates on corrective measures, and gathering feedback to improve its operations are urgently called for.
The company should develop a robust risk management framework to identify and mitigate potential risks, including conducting regular risk assessments, implementing risk mitigation strategies, and monitoring risk exposure. Byju’s should proactively collaborate with regulatory authorities such as the Securities Exchange Board of India(SEBI), the Ministry of Corporate Affairs(MCA), and other relevant bodies and demonstrate its willingness to cooperate and adhere to regulatory requirements in order to rebuild credibility and foster a positive relationship with the authorities overseeing corporate governance practices.
As far as investors are concerned, in the wake of Byju’s fiasco and to seek justice and mitigate credit risk, they are recommended to protect their interests by consulting with legal experts specializing in corporate law, securities law, and consumer protection laws in securing their rights and the available legal remedies which may include filing lawsuits against Byju’s for fraud, misrepresentation, or breach of fiduciary duties. Investors and creditors should actively engage with regulatory authorities such as SEBI , MCA and other appropriate authorities to ensure appropriate action against Byju’s. Besides, creditors should individually consider a robust credit risk management practice involving due diligence on potential borrowers, assessing their financial health, and monitoring their performance regularly by professionals, besides diversifying their portfolios and avoiding excessive exposure to a single borrower or company in order to reduce the impact of any individual default or credit unworthiness.Investors and creditors can also explore options for obtaining compensation through negotiations with Byju’s. The company’s management, board and legal representatives should seek restitution or settlement. By presenting a strong case backed by evidence and highlighting the impact of Byju’s fraudulent activities, investors and creditors may have a chance to recover some of their losses through negotiated settlements or financial restitution. Moreover, investors and creditors should stay informed about the ongoing developments related to Byju’s and its legal proceedings. The rise and fall of Byju’s serve as a cautionary tale, highlighting the dire consequences of corporate governance failures over again and again starting,,, with M/s Satyam Computers or dates back Harshad Mehta’s fraudulent activities and financial scams once severely rocked the Indian Capital Markets which have all circumstantially been evidencing inefficient and ineffectiveness of the existing regulatory mechasim reactive in nature and many a time fail to maintain their proactive role as the watch dog of the corporate sector. Despite its initial success, Byju’s unethical practices, lack of transparencyand disregard for data privacy ultimately led to its downfall. It may not necessitate any special attestation to the corporate governance failure at Byju’s, underscoring the importance of a robust governance framework in any organization . This serves as a reminder for both investors and companies to prioritize integrity, transparency, and accountability to foster sustainable growth and maintain public confidence and trust. Overcoming the challenges faced by Byju’s requires a comprehensive approach that prioritizes integrity, transparency, and accountability and the investors and lenders are advised to have constant vigilance over the commercial operation and flow of authentic and reliable information . It may not be too much to say that critical success factors, including risks, need to be identified and investors should do their homework before deciding to park their investments in any portfolio, keeping in view the spirit of the maxim- ‘Caveat Emptor’ .
(The author is a Bangalore-based Educationist and Management Scientist)
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