BYJU's Governance Gap and Key Takeaways for Indian Businesses

Recent controversies in India’s corporate world have highlighted the growing importance of strong governance practices. From the Adani Group facing allegations of ₹2,107 crore bribery scheme, to ICICI Bank’s conflict of interest scandal involving its former CEO Chanda Kochhar, lapses in governance have shaken public trust. The Nirav Modi fraud at Punjab National Bank exposed severe internal control failures, while Cafe Coffee Day’s governance issues led to financial distress and a tragic loss for the company.

Amidst these, Byju’s - once a symbol of India’s edtech success - has also come under scrutiny. Despite its meteoric rise and a valuation of nearly ₹1,81,000 crore ($22 billion) by 2022, Byju’s now finds itself in turmoil. Governance failures, financial mismanagement, and mounting legal troubles have severely impacted its credibility. With missed payments, bankruptcy filings, and ongoing investigations, Byju’s downfall serves as a stark reminder of the critical role governance plays in ensuring sustainable growth.

This article delves into Byju’s journey to uncover lessons for businesses on building resilient and transparent governance frameworks.

1. Misplaced Priorities and Governance Failures

Byju’s prioritized excessive spending on advertising, sponsorships, and high-value acquisitions such as Whitehat Junior (₹2,237 crore), Aakash (₹ 7,300 crore), Great Learning (₹4,461 crore), and EPIC (₹3,718 crore); without strengthening governance frameworks. This imbalance led to unsustainable debt levels, making the entity highly leveraged, and servicing that debt ultimately strained financial stability.

The charts above illustrate Byju’s spending patterns during the financial years 2020-21 and 2021-22, highlighting disproportionate allocations toward advertisements and promotions. To ensure effective corporate governance and sustainable growth, expenditure on regulatory compliance and financial auditing should align more proportionately with marketing and sponsorship expenses.

2. Financial Mismanagement and Non-compliance

Reliance on heavy debt, including a ₹9,840 crore term loan, coupled with weak governance, led to financial distress and disputes with creditors. Delayed financial reporting, alleged FEMA violations of ₹9,000 crore, and poor regulatory compliance undermined investor confidence.

3. Deceptive Sales Practices

Aggressive sales tactics pressured customers into costly courses, often signing them up for loans without consent. Misleading promises and opaque refund policies eroded customer trust and damaged the brand’s reputation.

1. Equal Focus on Compliance and Business Expansion

Compliance is not just a legal requirement but a strategic priority. Alongside investments in business expansion, businesses also need to invest in strong regulatory frameworks, enforce stringent internal controls, conduct regular audits, and embrace ethical practices to stay ahead of risks. Timely financial reporting not only meets regulatory obligations but also builds stakeholder trust by showcasing the company’s commitment to transparency.

2. Strategic Merger Deals

Mergers and acquisitions are often key drivers of corporate restructuring, intended to rejuvenate and create new opportunities for businesses. However, the outcome heavily depends on how these strategies are executed. In Byju’s case, instead of generating business growth, its restructuring efforts led to significant challenges. The company’s aggressive acquisition strategy, while aimed at expansion, ultimately created more operational and financial burdens, exacerbating its troubles rather than fostering long-term success.

3. Stakeholder-Centric Engagement

Governance goes beyond financial oversight—it’s about treating employees, investors, and customers fairly. A robust grievance redressal system is critical, giving stakeholders a reliable platform to raise concerns internally and resolve them effectively. This prevents issues from escalating publicly, protects the company’s reputation, and reinforces accountability and trust.

4. Align Growth with Sustainability

Growth fueled by over-leveraging or aggressive expansion often becomes unsustainable. It’s important to strike a balance between ambition and governance safeguards, ensuring a steady, sustainable path to long-term success.

5. Risk Assessment and Mitigation

Establishing a robust risk management framework is crucial for identifying vulnerabilities and preparing mitigation strategies. This approach not only ensures businesses stay prepared for potential challenges but also aligns risk management with broader operational objectives, fostering stability and long-term growth.

6. Debt Management

Companies must carefully evaluate their capacity to manage debt before committing to large acquisitions or excessive spending on marketing. Prioritizing financial discipline and timely reporting ensures transparency and strengthens investor confidence, reinforcing a solid governance structure.

Byju’s downfall serves as a stark reminder that growth without a strong governance backbone is unsustainable. The case emphasizes the need for businesses to move beyond reactive fixes and adopt proactive measures, such as integrating governance into their core strategy and aligning it with organizational values. A forward-thinking governance framework anticipates challenges, fosters resilience, and empowers leadership that prioritize long-term stability over short-term gains. By evolving governance practices to meet modern complexities, Indian businesses can not only avoid pitfalls but also position themselves as leaders in sustainable and ethical enterprise.

About the author: Sakate Khaitan is a Senior Partner at Khaitan Legal Associates.

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