Corporate Governance: 3 Level Recommendations by Think Tank and Why is it Needed? A 63-point self-regulatory framework for startups from the early stage to the initial public offering (IPO) was recommended as part of think tank recommendations released in June this year.
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Amitabh Kant, the G20 Sherpa from India, stated at a think tank conference held in conjunction with India's presidency of the G-20 in 2023 that good governance and financial management should be given importance by Indian startups from the beginning and should not be seen as an afterthought.
Kant highlighted the significance of creating corporate governance standards for India Inc. to go global and set standards for other G-20 nations on the fringes of the conference.
"It is imperative that startups in India create new benchmarks in corporate governance, not only for India but also for other G20 nations, as the country aspires to become a global economic powerhouse. By doing so, startups can set an example for the rest of the world and inspire other organizations to follow suit," he said.
As part of the Startup20 summit during India's G20 presidency, a 63-point self-regulatory framework for startups from early stage to IPO was recommended as part of thinktank recommendations released in June this year.
Through this initiative, Kant aims to equip startups with a framework to adhere to corporate governance and financial management best practices. "By following these practices, startups can build trust with stakeholders, attract investors, and ultimately, achieve sustainable growth," he added.
Why is it needed?
It is vital to keep in mind that every startup has distinct requirements and obstacles, and a one-size-fits-all strategy may only be effective for some businesses. Startups must, therefore, adapt this framework to their own requirements and environment. Depending on their industry, size, company model, and level of development, they should adjust their governance policies accordingly.
Focusing on how to collectively enable the startup ecosystem to develop into a world-class one and produce world-class startups is essential at this point. The purpose of this framework is to support a seamless transition from a startup to a consolidated corporate entity by ensuring that these practises are available and should be applied in accordance with the business's stage of maturity.
At every stage of a company's lifespan, governance practises are relevant and appropriate, although the definition and emphasis of governance may change. Phases of implementation may take place, and as time goes on, the process may get more complex and perfected.
A possible startup governance maturity level framework may be as under:
Level 1 (Inception to Early Stage): Appropriate documentation and dissemination of information to stakeholders. Systematic review of internal data and internal reporting/shared with investors; Broadly, complying with basic legal and governance requirements. Also understanding the need to professionalize corporate governance.
Level 2 (Early Stage to Growth Stage): Continuous improvement in governance evidenced through documentation, and internal reporting to board (stakeholders) and digitized financial management at a minimum enabling transparency and accountability; Broadly, acting on or implementing formalized governance procedures with transparency and accountability.
Level 3 (Growth Stage to IPO): Self optimising digitised internal operations in each governance category and improvements evidenced through use of digitized systems data & analytics, documented internal and external reporting / Third party reviews; Broadly, mastering the art of corporate governance practices.
How experts are reacting to it?
According to Co-founder and CMO of boAt Aman Gupta, founders of startups will be evaluated on their governance quotient in addition to their intelligence quotient and emotional quotient.
In addition to other requirements, founders require IQ, EQ, and GQ. The importance of corporate governance will increase in the future, and it's excellent for the ecosystem if it's taken seriously from the beginning, the startup founder and angel investor tweeted.
Deep Bajaj, an angel investor and the creator of the femtech startup Sirona, believes that startups need to have sound structures and procedures in place because things change much more quickly once they receive funding.
"Unlike regular young businesses, funded startups have the external accountability as well as the resources to focus on great practices. It is extremely important to lay the right foundation at the start or else it is a dangerous spiral to recover from," he added.
