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Once famous for his ubiquitous presence in packed stadiums across cities with aspirants of Science and Math jostling to hear winning sermons from Byju Raveendran to the unfolding crisis at Byju’s losing more than 90 per cent of the market capitalisation since 2022, this has been a sordid saga of corporate (mis)governance for the fledgling Edtech sector.
For all the defences levelled by Byju Raveendran, there is little ambiguity in the wedge between the Teacher and Founder — the two hats worn by the same person with former seen as a paragon of excellence and the latter being shunned by investors who once scrambled to invest in one of the most promising ventures in India.
The dramatic turn from a modest teacher to founder is symptomatic of too many businesses going bust whenever the thin line between an individual and an institution is not only blurred but allegedly transgressed with impunity.
Byju’s troubles can be traced to both market and governance-related factors. Byju’s became a household name coming to the aid of thousands of students hit by closure of schools and colleges during the pandemic.
As the zealous management went about courting some of the biggest names in Wall Street to buy into the Byju’s story, little did they envision the fate of the company, after the world was back on its feet.
Opaque arrangements
Instead of building a resilient business model capable of weathering uncertainty, the management was allegedly fiddling with all the invested money by doubling up as a quasi-hedge fund with opaque arrangements through offshore funds away from the scrutiny of the domestic regulator.
So it came as no surprise when Deloitte walked away as an external auditor under exceptional circumstances citing lack of transparency in revealing financial statements even while imposing implacable conditions. Little wonder, Byju’s was unable to reveal its true state of affairs for at least two years.
Fast forward to the present, emerging details allegedly reveal a murkier picture.
General Atlantic — one of the reputed private equity firms — has already announced about provisioning for potential losses emerging from its exposure to Byju’s, a reflection of the country’s poor corporate governance record.
The slugfest between the founder and investors has done little to add confidence in the fundamentals of the company apart from raising serious concerns on corporate governance.
There is no justification for allegedly siphoning a portion of the money raised through rights issue in an opaque shell corporation pleading immunity from prosecution.
Even as the tussle continues in full public view, there are reports of the founder being at large, with a look-out notice against him restraining him from leaving the country.
Strict walls
The Byju’s saga offers several lessons for fledgling Edtech firms. First, it is always sensible to maintain a strict wall between the founder and the business in allegiance to the cardinal rule of accounting enshrined in the ‘separate entity’ principle.
Second, it reflects poorly from a governance perspective when close relatives assume leadership roles with strategic ownership much to the detriment of institutional and retail shareholders as concentration is inevitably deployed as a tactic to pass resolutions.
And finally, the failure of management in keeping up with the market sentiment, which invariably reads the future of the business in assigning the current market price, pushes the owners into serious trouble.
Byju’s must be used as a case study to derive valuable lessons on corporate governance if the Indian Edtech sector has to remain competitive and command unassailable confidence from domestic and foreign investors.
The writer is Assistant Professor of Finance, EBS Dubai
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