How Startups can Embrace Governance as an Enabler Startups must embrace the importance of complying with the statutes. Law does not provide leeway between intentional or inadvertent slips.
By Sumit Keshan •
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Time and again, we come across fraud, intentional misreporting, mismanagement of funds, and other such offenses that shake our belief in the ecosystem. It should be a wake-up call for all stakeholders. A study by Redseer Strategy consultants cited the "absence of governance" as one of the reasons that have led to many startups being even shut down.
The Indian startup ecosystem is snowballing, being the third largest in the world, and managing to draw large domestic and overseas capital. It is important to note that any instance of fraud or misreporting – unintentional or otherwise – is liable to penal action from various authorities. There are numerous instances in the past, e.g., an internet company in 2008 forged bank certificates in the hope of regularizing them as performance improves; Enron is another classic case study; more recent ones involve a financial services company, and FTX/ bitcoin issue – the list unfortunately is long.
Governance is a comprehensive concept that entails statutory compliance, to determine the right decisions, and going beyond the letter and embracing the spirit. Startups must embrace the importance of complying with the statutes. Law does not provide leeway between intentional or inadvertent slips.
WHY GOVERNANCE MATTERS?
Governance stands for accountability and transparency in every action in an organization; it is the systems and processes which entities need to follow to meet their objectives. It is a comprehensive concept that entails statutory compliance, to determine the right decisions, and going beyond the letter and embracing the spirit. Startups must embrace the importance of complying with the statutes. Law does not provide leeway between intentional or inadvertent slips.
STEPS TO ENSURE "GOOD GOVERNANCE"
The interests of different stakeholders are at the heart of corporate governance, making it imperative and not a matter of choice. Good governance is a journey, and start-ups & smaller organizations need not get spooked by the "ghost" of governance.
1. Acknowledge and appreciate the need for proper governance practices: One can start by taking small steps:
Ensure that there is a right culture of compliance, and know that it always starts with you at the top
All reporting adheres to the laid down accounting standards
Ensure basic disciplines of board meetings– all these can be done with minimal costs and effort
2. Transparency: Transparency is an essential element to ensure good corporate governance. Sharing accurate, precise, and easy-to-understand information with every stakeholder instills trust and cements a business's credibility. This means that organizations must accurately report the correct news whether bad or good.
3. Proactive Risk Management: The goal should be to adopt a pre-emptive approach to mitigate that risk before you face it. Rather than attempting to weather the storm, the organization should avoid the storm altogether where possible.
4. Follow sustainability best practices: Sustainability and strategic management are getting increasingly intertwined, as investors and stakeholders make their preferences heard. Consumers have also started to prefer dealing with businesses that boast sustainable practices.
All players and stakeholders need to take charge and address the matter of governance to avoid shocks in the startup ecosystem, as the outcome can be simultaneously disastrous and controlled.
