Byju Raveendran, Founder & CEO, Think and Learn Pvt Ltd (BYJU'S). Bengaluru.
Image: Nishant Ratnakar
When the largest non-founder shareholder laments in public, it reveals a lot about the biggest privately-held edtech player of India. “Despite repeated efforts from our director, executive leadership at Byju’s regularly disregarded advice and recommendations relating to strategic, operational, legal, and corporate governance matters,” underlines Prosus in an official statement released on Tuesday, July 25. The global investor, which holds about 9.6 percent stake in Byju’s, says that the edtech company grew considerably since Prosus made its maiden investment in 2018. “But, over time, its reporting and governance structures did not evolve sufficiently for a company of that scale,” underlines the media release that comes over a month after Prosus’ Russell Dreisenstock stepped down from Byju’s board in June this year.
The audited financial results of Byju’s have been delayed by more than two years. “The decision to step down from the board was taken after it became clear that he (Byju’s) was unable to fulfil his fiduciary duty to serve the long-term interests of the company and its stakeholders,” says Prosus, explaining its move. The investor, though, also adds it continues to believe in the ‘potential’ of Byju’s. “Although we no longer have a representative serving on the board, we continue to believe in the potential of Byju’s,” the release adds.
Corporate governance analysts and industry observers, though, are not impressed either by a delayed explanation by a prominent investor or an excessive delay in filing of the audit financial results by Byju’s. Here’s why.
“Rather than resigning, the investor directors could have done its stakeholders a big help by forcing Byju Raveendran to step down and replacing him with able management,” says Shriram Subramanian, founder of InGovern, a corporate governance advisory firm. The fiduciary duty of the Prosus’ director, he underlines, is to safeguard the interests of the company and other stakeholders and that would have been best served by forcing out the founders from the board. Obviously, some of these matters may be in the shareholders' agreement where the founder seems to have the upper hand over the investors, he adds. Also read: What does Byju's precarious position mean for India's edtech sector?
Subramanian reckons that cracks in Byju’s corporate governance edifice were visible from early days. “It is true that Byju’s did not have any reporting and governance structures in place for a company of its size and scale,” he says. The external manifestation of it is the lack of closing its accounts even 18 months after the year end. While the founders and management are largely to blame, Subramanian contends that the investor directors and the board should share the blame for chasing valuations at the cost of ethical business practices and standard processes. “Valuations were chased at the cost of corporate sustainability and at the cost of creating an enduring company,” he says, adding that aggressive acquisitions at mindless valuations are other ‘external indicators of connivance by investor directors.’
Another corporate lawyer wonders what makes Prosus still see ‘potential’ in Byju’s. In June this year, Prosus downsized the value if its 9.6 percent stake in Byju’s to around $493 million. This means a staggering markdown in valuation of Byju’s
from $22 billion to $5.1 billion. Last month, representatives of Prosus, along with Peak XV Partners and Chan Zuckerberg Initiative, resigned from the board of Byju’s. “Was stepping down not a clear sign of loss in confidence,” asks a senior venture capitalist with a homegrown venture fund. “If so, then how can you still back the potential,” he asks, requesting anonymity. It took Prosus, he points out, over two years to realise that accepted norms of corporate governance were missing. “Why did they keep mum for so long,” he asks.
With a lots of probing questions and absence of any convincing answer, the Byju’s saga is likely to have more twists and turns.