Three Reasons Why Your Startup Needs A Corporate Governance Playbook
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We often use terms that draw parallels to sports when discussing startups- expressions like MVP and key man risk are commonplace in startup spaces, for instance. With this being the case, here’s a new sporting term we at AQ&P advocate should feature more often in entrepreneurial discourse: the corporate governance playbook.
Corporate governance is often misunderstood. It is not, as most entrepreneurs believe, a practice reserved for large multinationals and publicly listed firms. It is not a science, nor is it something that is complex to implement.
When working with entrepreneurs, we describe their corporate governance playbook as a document that identifies the roles, authority, and timing in key business decisions between shareholders, directors and the CEO. It is an important aspect of your enterprise, and here’s why you should focus on corporate governance at the outset of any venture:
1. It manages complex decision-making Startups are just as complex as large multinational firms, albeit in a different fashion. Founders are often the CEOs of their venture, they also hold shares, and sit on the Board of Directors. Many angel investors will also require a board seat to oversee their investment. If you have raised funding from venture capital firms, then you will need to manage their interests in the shareholding structure, the composition of your board, and the role of the CEO. As your startup grows, the interplay between these three levels requires active management. The responsibilities, authority levels, and timing of decision-making need detailing. Your playbook should outline when meetings occur, what decisions require board approval, and the structure of your board of directors.
2. It saves you time Anyone that has been involved in a startup knows that decisions need to be made quickly. Your ability to maneuver and take swift decisions can make or break your strategy. One of the hardest things to hear from a board member or shareholder is: “Why was I not told about it?” Or: “Let’s discuss this at the next board meeting.” Clearly laying out the authority matrix of your business, and the timing and subjects of your board meetings in advance can shape a corporate culture that not only empowers CEOs, but delineates accountability when the tough decisions need to made. Sketching your playbook and agreeing on it in advance can save you time in the long run.
3. It promotes investor confidence As an investor, a corporate governance playbook is one of the first things I ask to see at a startup requesting funding. Seeing a well laid out approach to accountability, responsibility, and timing of decisions between shareholders, boards of directors and the CEO gives an investor clarity and confidence on the structure of your venture. Understanding how the board is composed, the process of appointment, and how votes are dealt with answers a lot of unknowns before shareholder agreements are negotiated. A clear way to differentiate yourselves from other startups and impress investors is to be proactive and share your playbook with them.
Getting started with your playbook is not a difficult task. Think about the major decisions that your startup may face in the long run, and highlight the way in which the three levels will engage to overcome challenges. Corporate governance playbooks are not static documents, and they will continue to evolve as your startup grows. Liken yourself to a coach of a sports team, and the effort that he puts into making his playbook. I personally often use sailing to draw parallels to corporate governance: if your sailboat is your startup, then your corporate governance playbook clearly lays out the relationship between your stakeholders before race day. When you go out onto the racecourse for your fiscal year, you can concentrate on what CEOs need to focus on, which is, steering the ship.