With the increase in the number of start-ups in India in the past few years, there is also a need to have enough checks and balances to ensure that these entities are run properly. With voluntary implementation of sound Corporate Governance practices, the doors to sustainable growth and economic prosperity for such companies will open as they become bigger in size.

In their rapid growth years, start-ups often prioritize growth over governance. They should realise that having their investors’ trust is the most important element to gain credibility and reputation in the market. Some of the ways in which Indian start-ups can secure their investors’ trust are:

• They should ensure that there is a separation of the post of promoter, who is often head of management, and the Chairperson of the Board of the company. Though a number of companies have the promoter as the Chair and the CEO, it is a good practice to have a separation. This will help the Board in keeping the promoter under check, should there be a need to do so. In fact, this often serves to protect the promoter from his/her excesses. While choosing a Chairperson, care should be taken to see that the promoter is comfortable with the Chairperson, and that the Chairperson also understands the vision and drive of the promoter. Having a Chairperson who does not understand this could impede the growth of the company.
• It is necessary to have a proper Board. In start-ups, often the Board comprises the promoter(s), his/her close confidants, and investor representatives. It is a good idea to have 1-2 independent directors so that diverse views are expressed on current and future plans of the company.
• There must be engagement with all stakeholders. While there would be ongoing communication with the investors, who are the shareholders of the company, it is important to also have continuing communication with other stakeholders of the company. This would include consumers, vendors, government, media and society. Continuous engagement with stakeholders will help the company in gaining their confidence, and will ensure transparency.
• It must be ensured that regular Board Meetings are held and required committees are formed. The company should not have paper meetings. With a properly composed Board, such meetings can add value.
• Risk management practices must be put in place, and updated by addressing new and emerging risks. Given how companies woke up to the need for proper risk management measures during and after COVID-19, it is important for every company to have its risk management strategy in place, and to review and update the risk register continuously.
• It must be ensured that the company has policies. These could be a mix of policies that would add value, as also those for the well-being of their employees. Some important policies that should exist are whistleblower policy, POSH policy, and the like.
• There must be an adequate system of checks and balances. For a company to be run efficiently, its important that a single individual should not have absolute powers. Adequate system of checks and balances will ensure that no one can enjoy limitless powers.
• A system of proper audit must be ensured. Statutory Auditors should ensure that the financial statement of the company reflect a true and fair view of the company. Internal auditors should ensure that the company’s risk management, governance and internal control processes are operating effectively. It is important for both the auditors to have access to the Audit Committee, if that is formed, or to the Board, to report any concerns that they might have.
• Compliance with all applicable laws must be ensured. This is non-negotiable.

Adopting these measures will ensure that the company is sustainable in the long-run. Good Corporate Governance will help create a brand value for the company, which would positively impact on its reputation.

Once a start-up focuses on good governance, long term value creation will follow.

Ushma Patel Jain