Did Walmart choose to put Flipkart deal over Binny Bansal probe?3 min read . Updated: 16 Nov 2018, 07:33 AM IST
Walmart faced its own transparency dilemma over disclosing the probe into Binny Bansal's conduct before completing the Flipkart acquisition
Bengaluru: In a statement announcing the resignation of Binny Bansal as Flipkart group chief executive on Tuesday, Flipkart’s owner Walmart Inc. said that an internal investigation found “a lack of transparency, related to how Binny responded to a charge of “personal misconduct". About two months after the US retail giant agreed to buy Flipkart, Walmart was faced with a transparency conundrum of its own: should it disclose to its shareholders that the founder of the company that was to be its biggest-ever acquisition was facing an allegation of sexual misconduct?
The subsequent chain of events shows that Walmart chose to prioritize the closing of the Flipkart deal over disclosing the probe into Binny’s conduct.
A Walmart spokesperson did not immediately respond to queries raised by Mint.
Walmart agreed to buy 77% in Flipkart for $16 billion in May. As part of the Walmart-Flipkart deal, Flipkart co-founder and executive chairman Sachin Bansal was forced out after clashing with the then board. Flipkart’s other founder and group CEO Binny Bansal took over the title of chairman after Sachin’s exit.
In July, Walmart received a complaint from a former Flipkart employee against Binny. She alleged sexual misconduct, people familiar with the matter said. This misconduct was alleged by her to have happened in 2016, by which time she had left the firm, they said.
Walmart hired an external law firm to investigate the matter.
But as important as the investigation, was the question: how does it handle the communication of the matter?
While it had agreed to buy Flipkart, Walmart was yet to get approval from the Indian anti-trust regulator. If the investigation into Bansal’s conduct found him guilty, Walmart would have inherited a mess.
After its joint venture in India with Bharti Enterprises blew up spectacularly partly because of ethics issues, the American company couldn’t afford another corporate governance disaster.
Eventually, Walmart decided against disclosing the information about the investigation into Binny’s conduct.
In August, Walmart closed the Flipkart acquisition after getting the approval of the Competition Commission of India.
“Even though the investigation (into Binny’s conduct) was started in July and Walmart did not close the deal till August, there’s a reason why the companies did not disclose that Bansal was being investigated. At that point, there was no assumption that he was guilty. So, if Walmart had disclosed that Binny was being investigated, it would have maligned his reputation unnecessarily—more so if he was found not guilty later. And, as it turns out, he was not found guilty of misconduct. So, it didn’t make sense for Walmart to disclose the investigation at that time," said a person directly familiar with the investigation.
Even so, experts are now questioning the way Walmart dealt with the investigation into Bansal’s conduct.
On Tuesday, Walmart said the probe did not find any evidence to support the allegation made by the complainant.
But it revealed “lapses in judgement" on Binny’s part and showed “particularly a lack of transparency, related to how Binny responded to the situation", Walmart said.
One consultant who had worked with Walmart said its handling of the matter was poor.
“This is really bad handling on Walmart’s part. If they were worried about Binny’s reputation, then it’s not like the statement they issued helps matters. It is clear that no one—Walmart or the Flipkart investors—would have wanted to jeopardize the deal by disclosing the complaint in July. If they had disclosed it then, it’s very much possible that some shareholder in the US would have asked them to keep the Flipkart deal on hold until the investigation was complete," the consultant said.