Opinion | Binny Bansal’s exit shows why start-ups must pay attention to governance early3 min read . Updated: 14 Nov 2018, 04:21 PM IST
It would've been great if the separations had been dignified and non-controversial
Walmart’s press release was crisp and did not leave much to imagination: “While the investigation did not find evidence to corroborate the complainant’s assertions against Binny, it did reveal other lapses in judgement, particularly a lack of transparency, related to how Binny responded to the situation. Because of this, we have accepted his decision to resignation."
Under similar circumstances, a press release would have been far more ambiguous, and left sufficient room for imagination and speculation. The tone and wording, along with the immediacy of the exit, points to breach of a non-negotiable company value or governance standard expected of executives of a public company.
Binny Bansal and Sachin Bansal were heroes for hundreds of Indian entrepreneurs. I’ve maintained that the year 2007, when Flipkart was founded, was a major turning point in the brief history of venture capital-backed entrepreneurship in India. In a short span of 11 years, the Bansals were able to build one of India’s most iconic companies in recent times. Flipkart’s runaway success was a result of several factors: amazing entrepreneurial fortitude of the Bansals, the “all in" poker style betting by Lee Fixel of Tiger Global, Amazon.com’s delayed entry, and simply being the first off the blocks in an industry where the “network effect" was strong.
The magnitude of Flipkart’s success is bound to create a lot of speculation in the weeks to come on the real reason for Binny Bansal’s exit. There is already a school of thought which believes that the charges may have been trumped up and the investigation prejudiced, which in other words mean this is Walmart’s way of seizing complete control. This is unlikely. There are other ways of gaining complete control without resorting to actions that can be challenged both legally and morally. And no MNC worth its salt is likely to issue this kind of an unambiguous press release without having it vetted by the best legal advice.
There is another school of thought which believes that entrepreneurs do not often pay sufficient importance to governance as a start-up scales up. Ignoring governance issues may start in a small way, but gradually build up to a point where they can no longer be ignored in a more methodical and unsparing governance regime that large public companies are held accountable to. This school of thought also argues that “founder" arrogance in some of the successful start-ups is likely to result in some of these incidents. Founders may have been able to escape scrutiny in the past, but it is harder to get away with violations in a regime where policies are allowed to run their course.
Some of the TV channels have already triggered a debate by quoting unnamed sources as to the nature of the allegation. However, there is no point speculating as to the real reason for the exit because it serves no purpose. It’s unlikely that an official clarification would ever be provided as to the exact nature of the allegation or the errors in judgement involved.
The lesson in this for start-ups that are scaling up rapidly is clear. Governance issues cannot be ignored as the start-up scales up, and the management needs to be far more sensitive, alert and prepared. Growth and other business issues often take a precedence over governance at several start-ups that do not understand the implications of treating governance as optional. It is like insurance. You don’t miss taking insurance until the event you hoped wouldn’t occur actually occurs. Paying attention to governance issues, and investing in the right reporting and investigative mechanisms and policies is very similar. When something untoward happens, it can put the whole business at risk by creating irreparable damage to the reputation, which eventually can hurt the company’s financials fatally.
It is sad that it had to end like this. Both the Bansals benefited financially from the transaction, and everyone was happy for them. Yet, both left Flipkart under duress, albeit of different kinds. It would have been great if the separations had been more dignified and non-controversial. This would have generated much more positive energy for the Indian start-up ecosystem and left it with enduring heroes who could not only create businesses but had it in them to transform their businesses into lasting institutions.
T.N. Hari is head (HR) at Bigbasket.com and adviser to several venture capital firms and start-ups.