Pass on the baton

Arvind Singhal | Updated on November 29, 2018 Published on November 29, 2018

At times, it’s better for founders to cede control

Recent developments at (now) Walmart-controlled Flipkart have expectedly led to a frenzy in the national media. Whatever the reasons may be that led to the precipitous situation at Flipkart, a few facts should be kept in mind.

Firstly, the fact that Walmart paid a king’s ransom, so to say, to acquire the 77 per cent stake in Flipkart demonstrated its optimism about the future of India’s e-commerce in general and Flipkart’s in particular. To justify its faith and its mega investment, it is only to be expected that Walmart will take whatever actions it deems appropriate for the future of Flipkart.

Unlike the various marquee (but purely) financial investors who helped the two founders take Flipkart from a start-up in 2007 to the leadership position it is in today, Walmart was always expected to be fully involved in the operations of the business.

Hence, an active involvement from Walmart in the affairs and operations of its single-largest international investment so far was always expected and should not be seen as mere flexing of muscle or arm-twisting of local leadership, including one of the two founders.

Secondly, the current development at Flipkart does not seem to be merely a boardroom battle to force the remaining founder out. Indeed, at the time of acquisition discussions between Walmart and the various key investors in Flipkart, should Walmart have wished both the founders to be out of the company, they could have made their acquisition decision contingent on this condition.

The fact that one of the founders chose to exit while the other remained implies that Walmart did respect this other founder’s contribution and capability and would have perhaps wished to have him continue to play some role in the future, had the yet unclear external conditions not forced its hand. Hence, those who believe that it is an East India company redux seem to be erring in their judgment of the actual situation.

Will this development have any negative impact on other Indian entrepreneurs and start-ups? The answer should be a resounding “no”. The fact that within 11 years, two bright, young, and ambitious entrepreneurs could build a business such as Flipkart and then walk away with over $1 billion (over ₹7,000 crores) each should inspire a whole generation of current and future entrepreneurs who could aspire to reap both financial and reputational riches if they succeed. Do all founders eventually have to cede control of the businesses they have painstaking built? The answer again is a resounding “no”. There are several international and Indian examples of founders continuing to run their businesses even with reduced shareholding. However, for many businesses (and founders), there comes a time when it may actually be in their own and in the best interest of their own founded businesses to pass on the baton to another set of leaders and managers.

Walmart, with its global multichannel expertise, and the solid experience of running a successful cash-and-carry business in India, should be able to provide the requisite operational support to Flipkart in competing with the likes of Amazon and Alibaba.

Lastly, “good governance” is no longer a “good to have” attribute. Indeed, with some of the biggest and best global businesses and marquee global investors investing in India-based companies, the governance standards have to fully match those in place developed countries like the US, the EU, and Japan.

The writer is Chairman, Technopak Advisors

Published on November 29, 2018
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