Mint Explainer: Why good corporate-governance practices are crucial for startups
Mint takes a closer look at the importance of good governance practices at startups. Over the past few years, mainly after the pandemic, the startup world has been rocked by several scandals, many of which involved inappropriate behaviour by founders. Given that India has the world’s third-largest startup ecosystem with more than 1.10 lakh such companies, without proper regulation there could be many more such scandals in future.
The CII said in its recent charter that governance failure at many high-profile startups sparked concerns about significant erosion in the value of shareholders’ stakes. An example that stands out is that of Paytm’s parent firm One97 Communications Ltd. Its public shares, issued at ₹2,150 apiece in November 2021, are currently trading below ₹375, or more than 80% lower.
The stock listed at a discount to its issue price before plummeting below ₹600 over the next few months following regulatory action by the Reserve Bank of India (RBI). Another notable example is that of Byju’s. Once India’s highest-valued startup with a $22 billion valuation in 2022, it is now valued at less than $1 billion and struggling to stay afloat amid a string of controversies.
In April 2023, the Enforcement Directorate (ED) conducted raids on three offices of Byju's in Bengaluru, alleging violations under the Foreign Exchange Management Act (FEMA), and issued a ₹9,362.35-crore FEMA violation notice to the company. A communique from the Startup20 Engagement Group at the G20 summit in July 2023 had also noted the crucial role of corporate governance in startups. The startup governance framework designed at the meeting suggested that the key guiding principles should be: enhanced transparency and accountability, improved
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