New Delhi | Bengaluru: Late-stage tech companies in India are increasingly inducting prominent independent directors, as they look to strengthen their boards to address compliance and governance issues, as well as align the interests of multiple investors before going public. Oyo, Ola, Freshworks, Flipkart and Paytm are among leading home-grown technology ventures that have brought in known industry veterans over the course of the year.

“Governance and compliance are becoming key worldwide…when companies start crossing $1 billion in valuation…and if you want to go public, you need to have a strong independent representation, financial auditing processes, and compliances… so that business becomes protected and scale well,” said Shekhar Kirani, partner at VC fund Accel, and board member of Freshworks.

In the run-up to Freshwork’s anticipated IPO, the Software as a Service firm is also looking at several other strategic elements, like onboarding more women on to its board, and an auditor from the Big Four, he added.

The San Mateo and Chennaibased company, whichw as valued at over $3 billion recently, has appointed former AppDynamics top executive Randy Gottfried as an independent board member.

The Walmart-owned Flipkart counts Chee Kheong Mah, director of the Monetary Authority of Singapore, and Rohit Bhagat, former executive at BlackRock, as board members.

The ecommerce leader wants to tap the capital markets in the next few years, ET reported on June 24

SoftBank-backed hospitality chain Oyo, too, named venture capital veteran Betsy Atkins as an independent director last month, while Aditya Ghosh, its erstwhile India and South Asia chief executive has stepped down from his current role to join the Ritesh Agarwal-founded hospitality chain’s board. “Independent directors are most helpful with conflict resolutions between entrepreneurs and investors or between board members, and bringing in specific expertise in areas tied to scaling, going public,” according to Kartik Hosanagar, professor of technology and digital business at The Wharton School, University of Pennsylvania.

Ola, which plans to create three independent businesses – Ola Financial Services, Ola Electric, and its core ride-hailing business ANI Technologies – has also been beefing up its board across the three entities, with top executives from sector-specific industries.

For instance, the company inducted industry veteran Hemant Kaul to the Board of Directors of its financial services arm.

One97 Communications, Paytm’s parent entity, appointed Pallavi Shardul Shroff, from law firm Shardul Amarchand Mangaldas to its own board. “Overall, the changes are a sign of a maturing industry,” Hosanagar added.

The role of independent directors has become increasingly important to protect the interest of employees, large investors and the company at large, given the scrutiny the likes of WeWork and Uber have gone through for poor work culture, governance and aggressive conduct by founders.

“The best interests of the business are like a three-legged stool – what is in the best interest of an investor, of the consumer and of the employee? How do you find a way to create the right balance between these three on-the-surface three different ends of the triangle, and try to bring them together?” Ghosh told ET.

The appointments have begun to assume significance, given that a number of these startups have either been publicly speaking about potential IPOs, or have been reported to be considering them.

There are, however, sceptics as well. Shriram Subramanian, founder of InGovern Research Services, has, however, been sharply critical of Indian startups, terming the recent moves as mere “posturing”.

“Companies, in their mad rush for valuations, are ignoring values…I think it’s still premature to say that startups are doing anything for (better) governance. The role of an independent director is to act as a trustee for the company and the minority shareholders or guide the promoter. This hasn’t happened yet,” Subramanian said.

According to the Ministry of Corporate Affairs, the presence of independent directors improves corporate governance.

“This is particularly important for public companies or companies with a significant public interest. In general… a minimum of one third of the total number of directors as independent directors should be adequate for a company having significant public interest,” the regulator indicates.

The ground realities in India have been far different, though. Kunal Arora, joint partner at law firm Lakshmikumaran and Sridharan, said in certain cases, the investor directors do act as watchdog, but more often than not, they are seen as backing the decisions of the promoters with a view to not interfering with their operational freedom and to also not prejudice their relations with the promoter group.

“As a consequence, the decisions at the board level of startup companies are usually controlled by the promoters and since their primary focus is creation of value, the matters relating to corporate governance and regulatory compliances tend to get overlooked,” Arora said.


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