BHARATPE: GOVERNANCE FAILURE IN A START-UP
CASE STUDY SOLUTION
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SYNOPSIS
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In January 2022, Ashneer Grover, the co-founder and managing director of BharatPe, an Indian financial
technology (fintech) start-up, found himself at the centre of controversy. This occurred when an audio clip,
widely circulated on X (formerly Twitter), purportedly captured Grover using offensive language and making
threats against a Kotak Mahindra Bank Limited (Kotak Mahindra Bank) employee who had allegedly failed
n
to secure financing and allocation of shares in an initial public offering (IPO) by the beauty firm Nykaa E-
Retail Limited (Nykaa).1 Following this incident, BharatPe’s whistle-blower committee received anonymous
tio
emails alleging fraud. In response, the company’s board engaged a management consulting firm to conduct
an independent audit amid growing serious governance issues and questionable transactions involving Grover
and his wife, Madhuri Jain, who held the position of head of controls at BharatPe.2
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By early February 2022, a preliminary report from the consulting firm outlined discrepancies in recruitment
So
practices and the presence of fake invoices implicating Jain and other family members. Subsequently,
BharatPe terminated Jain from her position. During the unfolding of events, scrutiny fell upon BharatPe's
board, primarily composed of multinational investors, with governance experts questioning their
responsibilities and level of accountability. Was the board responsible for allowing governance issues to
persist for an extended period?
OBJECTIVES
• Explain the governance challenges that may arise in start-ups.
• Define the role of the board of directors in the corporate governance of start-ups.
• Understand the role of institutional investors in improving the corporate governance standards for start-ups.
• Articulate the importance of risk management and building an ethically strong organization.
The Case Solution Starts From page 5
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ASSIGNMENT QUESTIONS
1. What are the governance challenges faced by start-ups?
2. Did the BharatPe board perform its role appropriately in responding to allegations of fraud and
misappropriation of funds against Grover, Jain, and other family members?
3. How can start-ups better manage risk for improved corporate governance?
4. How can BharatPe work toward building an ethically sound organization?
The Case Solution Starts From page 5
,ANALYSIS
1. What are the unique governance challenges faced by start-ups?
A critical distinction between the governance of start-ups and publicly listed companies lies in the
e
composition of their boards and their functioning. Listed companies often have independent directors
pl
responsible for addressing poor practices or misgovernance. In contrast, start-ups typically have investor
board members whose primary responsibility is safeguarding the interests of shareholders. These investor
board members usually have less independence than those in public companies.4
m
Further, start-ups lack other conventional corporate governance mechanisms that are commonly found in
Sa
listed firms. These include, in addition to an independent board of directors and committees, an external
auditor, listing and disclosure obligations, representation of stakeholders, and shareholder activists. 5 The
instructor could mention that investors in start-ups often prioritize scaling up over establishing sound
internal controls and accounting systems, and their managers often have a high-risk, high-reward appetite.6
n
In other words, these investors support the growth narrative as they stand to increase their gain and move
tio
lu
So
7
8
The Case Solution Starts From page 5
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pl
EXHIBIT -2: RISK CATEGORIES AND PREVENTION
m
Preventable risks Strategy risks External risks
Sa
Description of category Risks arising from within Risks taken for superior External, uncontrollable
the company that strategic returns risks
generate no strategic
benefits
n
Risk mitigation objective Avoid or eliminate Reduce likelihood and Reduce impact cost
occurrence cost impact cost effectively effectively should risk
tio
effectively event occur
Control model
lu
So
The Case Solution Starts From page 5
CASE STUDY SOLUTION
e
pl
m
SYNOPSIS
Sa
In January 2022, Ashneer Grover, the co-founder and managing director of BharatPe, an Indian financial
technology (fintech) start-up, found himself at the centre of controversy. This occurred when an audio clip,
widely circulated on X (formerly Twitter), purportedly captured Grover using offensive language and making
threats against a Kotak Mahindra Bank Limited (Kotak Mahindra Bank) employee who had allegedly failed
n
to secure financing and allocation of shares in an initial public offering (IPO) by the beauty firm Nykaa E-
Retail Limited (Nykaa).1 Following this incident, BharatPe’s whistle-blower committee received anonymous
tio
emails alleging fraud. In response, the company’s board engaged a management consulting firm to conduct
an independent audit amid growing serious governance issues and questionable transactions involving Grover
and his wife, Madhuri Jain, who held the position of head of controls at BharatPe.2
lu
By early February 2022, a preliminary report from the consulting firm outlined discrepancies in recruitment
So
practices and the presence of fake invoices implicating Jain and other family members. Subsequently,
BharatPe terminated Jain from her position. During the unfolding of events, scrutiny fell upon BharatPe's
board, primarily composed of multinational investors, with governance experts questioning their
responsibilities and level of accountability. Was the board responsible for allowing governance issues to
persist for an extended period?
OBJECTIVES
• Explain the governance challenges that may arise in start-ups.
• Define the role of the board of directors in the corporate governance of start-ups.
• Understand the role of institutional investors in improving the corporate governance standards for start-ups.
• Articulate the importance of risk management and building an ethically strong organization.
The Case Solution Starts From page 5
, e
pl
m
Sa
n
tio
lu
So
ASSIGNMENT QUESTIONS
1. What are the governance challenges faced by start-ups?
2. Did the BharatPe board perform its role appropriately in responding to allegations of fraud and
misappropriation of funds against Grover, Jain, and other family members?
3. How can start-ups better manage risk for improved corporate governance?
4. How can BharatPe work toward building an ethically sound organization?
The Case Solution Starts From page 5
,ANALYSIS
1. What are the unique governance challenges faced by start-ups?
A critical distinction between the governance of start-ups and publicly listed companies lies in the
e
composition of their boards and their functioning. Listed companies often have independent directors
pl
responsible for addressing poor practices or misgovernance. In contrast, start-ups typically have investor
board members whose primary responsibility is safeguarding the interests of shareholders. These investor
board members usually have less independence than those in public companies.4
m
Further, start-ups lack other conventional corporate governance mechanisms that are commonly found in
Sa
listed firms. These include, in addition to an independent board of directors and committees, an external
auditor, listing and disclosure obligations, representation of stakeholders, and shareholder activists. 5 The
instructor could mention that investors in start-ups often prioritize scaling up over establishing sound
internal controls and accounting systems, and their managers often have a high-risk, high-reward appetite.6
n
In other words, these investors support the growth narrative as they stand to increase their gain and move
tio
lu
So
7
8
The Case Solution Starts From page 5
, e
pl
EXHIBIT -2: RISK CATEGORIES AND PREVENTION
m
Preventable risks Strategy risks External risks
Sa
Description of category Risks arising from within Risks taken for superior External, uncontrollable
the company that strategic returns risks
generate no strategic
benefits
n
Risk mitigation objective Avoid or eliminate Reduce likelihood and Reduce impact cost
occurrence cost impact cost effectively effectively should risk
tio
effectively event occur
Control model
lu
So
The Case Solution Starts From page 5
