Corporate Governance - Should Startups Care?
Welcome Founders!
Quick article today on Corporate Governance! In particular we’re going to look at it from a Startup perspective and ask - “Why should Startups care?”.
esThe papers often report on high profile failures of corporate governance and when corporate governance is referred to it often conjures up thoughts of massive bureaucracy, expensive systems and lots of people. Hence, not something that a Startup needs to think about - right?
Well, no.
Before we get into why corporate governance does matter to Startups, let’s just clarify exactly what we’re talking about.
What is “Corporate Governance”?
Let’s turn to one of the organisations that are often in the news - ASIC. On their site, they say:
“Corporate governance is a driver of the operations and performance of a company. The term 'corporate governance' is broad and has many components including relationships between stakeholders, frameworks, decision making and responsibility.”
Honestly, that’s not particularly helpful, so instead lets go to the Australian Institute of Company Directors (AICD), who say:
“Corporate governance is the system that directs and controls an organisation. It is the framework that ensures an organisation can meet its mission effectively.”
The AICD Governance site (here) is a good starting point if you’re interested (and you should be 😉).
To simplify things, Corporate Governance is the system which outlines how a company is run, who’s accountable and has authorities for decisions and how it manages relationships with key stakeholders (like employees, shareholders, lenders etc). It’s about ensuring good decision making, definitely something Startups are keen to have.
Key points about a Startup suitable corporate governance system:
It doesn’t have to be monolithic. Simple, one page documents which set out key principles, policies or authorities will do.
It doesn’t need an electronic system - a simple folder will do.
Why should Startups care?
If you have a company (and you should) you’re probably a Director. So all those ASIC rules that apply to Directors apply to you. If you’re not sure what they are, find out - they aren’t overly onerous for small business directors so make sure you’re complying with the key ones!
Your corporate governance documentation generally is what authorities/insurance companies refer to in the case of say, safety incidents or claims.
Documenting your processes, even in overview and quickly, helps you significantly when you need to bring on additional people - whether employees or contractors. This makes expansions of activity easier and less prone to stuff ups.
Investors like businesses with corporate governance systems.
From our perspective, you definitely SHOULD have a corporate governance system that sets out the key principles of how your Startup runs, who’s accountable for what and how you relate to key stakeholders.
Basically, think of Corporate Governance as your “This is how my business runs” manual. The more you have in the manual (and therefore the less people are waiting for what’s in your head to come out) the more robust and resilient your business will be.
One final benefit - your Corporate Governance system is also going to be required for any ISO accreditations, so if you need one of those, you definitely aren’t wasting your time!
That’s it for today, as always we’re keen to hear what you think!