Corporate governance is something that is often not known about or understood. As most entrepreneurs (wrongly) believe, it is not something that only large, multinational corporations need with a large public image need to think about—it applies to companies of all shape and size across all industries.
It is not a science, a mathematical formula, or a legal obligation; rather, corporate governance is something that identifies the authority, roles, timing, and ethics behind key business decision making by CEOs, stakeholders, directors, and people with a position of authority.
It is a very important aspect of your company.
3 Reasons You Need Corporate Governance
Whether you are an established and growing business or a new start-up enterprise, you need corporate governance and it is something you ideally want to focus on from day one. Here’s why:
1. It helps to manage difficult decision making
Being a start-up does not exclude you from having to make difficult decisions. In fact, start-up enterprises are just as complex as larger international firms, albeit the difficulties and complexities are a lot different.
With start-ups, it is you, the founder, who is often the CEO—you sit on the board of directors, have your own shares, and must oversee any investors who will also be sitting on your board. Furthermore, if you have acquired funding from venture capital firms then you will also need to look after their interests, too.
As your start-up begins to grow, the interplay between all these roles—CEO, shareholders, the board—needs proper, active management that knows what it is doing. The responsibility, timing of decision-making, authority levels, and a whole host of other things need to be set out in detail, and it is in your corporate governance strategy where it should be found.
Whenever a decision requires board approval, it is to corporate governance as defined in your company where you should turn.
2. Corporate governance saves you lots of time
Anybody who has ever worked as part of a start-up knows full well that decisions need to be made quickly and efficiently. The ability of you to maneuver, persevere and make swift decisions can make or break your company’s overall strategy.
One of the worst things you could ever hear from a member on your board or a company stakeholder is: “Why wasn’t I told about X?”.
By having corporate governance in place manifested as a sound, thought-out strategy, therefore, can save you time. In it, you will clearly define your company’s authority matrix, and by timing and setting the subjects of your board meetings far in advance will help shape a positive corporate culture that will not just save you time, but empower you and sets out accountability surrounding key decision making.
3. It makes your investors more confident
Investors have taken a huge risk by plowing their money into your start-up.
As an investor, corporate governance is often one of the first things that they will ask about when a start-up approaches them asking for capital. By seeing a well thought-out, sound corporate governance strategy that approaches accountability, decision timing, and responsibilities between shareholders, the board of directors, and the CEO, an investor will immediately feel more confident in your start-up and will, therefore, be more likely to invest.
By understanding how your board of directors is composed, how people are appointed, and how votes and decisions are handled, a lot of an investor’s “unknowns” are given a clear answer.
One clear way to get ahead of your competitors and acquire funding that they won’t get is by having a corporate governance document or “playbook” that instills investor confidence and differentiates you from everybody else.
Corporate Governance is a Serious Matter
Every single company, whether you are a start-up or established industry player, needs some form of a corporate governance strategy, document, or so-called “playbook”. It outlines the way your company handles decision-making, votes, timings, and who has what responsibilities between you—the CEO—your stakeholders, and your board of directors.
Without a sufficient corporate governance document, you will likely find it hard to get that all-important funding from investors and venture capital firms—these people need answers, and a corporate governance document can provide plenty of them.