Vasan, Eye Care more for Growth than Governance!

Vasan HealthCare Pvt Ltd (VHPL), once valued at over US$ 1 billion, has imploded! Last week’s LiveMint (January 23, 2016) gave details of events over a long period exceeding 2 years, that led to the grounding of the once high flying VHPL. Vasan Eye Care is the brand of VHPL. On the board of the company were representatives of large, well-established and successful investors including Sequoia and Singapore’s Sovereign Fund GIC. With such board members, it is amazing that there was allegedly no preparation of annual accounts for two years, and consequently, no legal filings. Also, the Mint report talks of debt of roughly Rs 1,200 crores. The reason for the debt was the explosive growth in centres from 14 to 200 in a matter of 3 years, with new centres taking far longer to break-even than was imagined.

What appeared to be a unicorn, was actually an ostrich – head firmly pushed into the sand! It’s almost like the Board abdicated its Governance responsibility. Per Mint, “At the board level, there was no concept of plans, budgets and approvals….. The board believed that Vasan was a growth company, a start-up, and convinced itself that adding controls would hinder growth. Their logic: after all, it is a promoter-driven company.”

The board relied probably too much on Mr A M Arun, the entrepreneur. One key responsibility of the board is to move the company from person (not an error by itself, especially when the person is energetic, visionary, successful) to process – to help the person create a second line and ensure success perpetuation – easier said than done. The second responsibility on which the board has been found wanting is to ensure Compliance with legal requirements. Had the board insisted on meeting statutory financial reporting requirements, the company would very likely have received a much needed fund injection at the right time, from one of two overseas investors who had themselves approached VHPL to invest in it – Malaysian conglomerate Sime Darby Group and South African hospital chain Netcare. Both wanted to pick up a large stake in Vasan, at a company valuation more than $1 billion – a ‘unicorn’! Netcare got pretty serious but talks ground to a halt on one key issue – there were no audited accounts.

The impact of this imbroglio is much smaller than the impact of say Satyam – primarily because it was a private limited company with a small set of very savvy shareholders who had put in the risk capital and two of whom (the entrepreneur and the first major external investor) had seen at least one liquidity event, when they brought in the second major external investor. This may have led to a degree of careless-ness(neglect?) at the Board.

What could have been a phenomenally successful enterprise, has been brought to its knees. Directors did not implement good Board Governance practices! They cared less than they should have. They preferred looking to the person, instead of asking for implementation of due process. They did not

• provide guidance and brakes, where necessary, in managing the growth of the company
• ensure legal compliance
• track adherence to board decisions and guidelines

The overarching lesson for entrepreneurs and investors alike – emphasize process and system over person, as the size of the organization grows at a pace that was never before seen!