Hey there! Glad to have you back again. Wondering why Indian start-ups require corporate governance? If yes, then this blog is a must-read for you. In this blog, we will also discuss what are the effects of poor governance, and what steps founders can take to improve the governance system. Let us quickly find out.
Did you know that India has become the third largest environment in the world of start-ups? India today has more than 70,000 start-ups, wherein more than a hundred have become unicorns. This term unicorn refers to any start-up that reaches the valuation of $1 billion or more (Rs 8000 Crores or more).
Be it the chaos unfolding BharatPe or at Zilingo. It has highlighted the demand for strong corporate governance, especially in Indian start-ups.
The four important pillars of corporate governance include accountability, honesty, transparency, and responsibility. These principles also served as a foundation for the 2013 enactment of India’s new companies act. Having a healthy balance between the interests of different stakeholders including employees, customers, and shareholders is crucial which also is at the heart of corporate governance.
The thing that has come to light over the last 18–24 months is the need to have sound corporate governance. It is believed that the Indian ecosystem is now entering a new phase and for building world-class companies, it is also essential to have world-class corporate governance. First and foremost, corporate governance is all about holding management responsible to its shareholders. At its very essence, it is all about the morals, ethics, values, conduct, and behaviour of any organization.
For start-ups, corporate governance must maintain a balance between extreme rigidity and flexibility. Strong governance can supervise growth, ensure transparency, and instil organizational culture for start-ups to become lucrative and predictable places to work.
Having a shared vision between the founders, investors, and the board of directors is a must. The board should also have an active engagement with founders. It is essential to schedule meetings with a clear agenda so that everyone on the board is focused on agreed-upon plans and priorities. Setting and constantly reviewing KPIs (Key Performance Indicators) along with fruitful discussions on strategic planning, financials, etc are beneficial for start-ups.
Questions that pop up quite often are, do founders understand corporate governance? Secondly, where is the line of responsibility drawn and how can the board foster a strict corporate governance culture? What will be the effects of poor governance and lastly, what steps founders may take to improve the governance system?
Almost all the start-ups have similar aspirations which are to innovate on offerings, onboarding and retain quality customers, achieve robust financials, and run operations smoothly from conception to implementation.
So, how can one strengthen governance?
It is the duty of the founders for creating and implementing a proper organizational structure. Correct metrics need to be followed. Personal matters are to be kept at a distance. A reliable CFO is always needed as business governance concerns can be disastrous as evidenced by an audio clip of the co-founder of BharatPe that reflected on the corporate profile of BharatPe as well, the company which became a unicorn at a breath-taking speed in just about three and a half years is now making it to the headlines for all the wrong reasons. It is a critical issue that needs to be addressed and requires as much attention as monitoring business growth.
One thing to be kept in mind is that as the company grows, so does the scrutiny. On the other hand, companies will additionally need to pass a considerably tougher test if they have any plans to conduct an IPO (Initial Public Offering). Good governance is crucial, and not a matter of choice.
Thus, to conclude, at a fundamental level, corporate governance is all about doing things the correct way in every single transaction, strategy, process, and practice that is implemented by the company. With recent stories of corporate misgovernance spilling over to the mainstream, there is a genuine outcry that corporate governance needs to be strengthened in start-ups. It is a serious issue that needs to be addressed not just by the founders alone but by everyone so that the reputation of the Indian start-up ecosystem, so painstakingly built, is not hampered in any way.
It would be great if founders had a few role models to look up to and to read more about their practices and philosophies deployed by them. However, they may have to look beyond the start-up ecosystem because good governance is a sustained phenomenon. Companies that are since decades can only qualify for the same. For example, the Tata group in general under the leadership of JRD Tata has been the epitome of good governance. Other leading IT companies such as Infosys can also be studied.
Corporate governance and accounting walk hand in hand and cannot function without each other as good corporate governance has now become the deciding factor which enables companies to maintain a strong financial position.Accountantsassist in setting up proper controls, effective audit systems, proper fraud risk management solutions and accurate disclosures that comply with the international standards and best practices.
Accountants play an important role in helping organizations conduct both financial and management reporting. Financial reporting helps the investors by offering valuable insights into the company’s financials, whereas management reporting offers detailed inputs about the state of affairs in the company.
With great pay, plenty of growth opportunities, and the chance to help businesses grow into the next decade and beyond, accounting is the career path to pursue.
You can get started by pursuing the ACCA course. The ACCA course syllabus requires the candidates to understand the meaning of corporate governance and the role of the board of directors in establishing and maintaining good standards of governance.
CPAs are also needed to fill the roles of diligent watchdogs on corporate boards and audit committees. To know more, feel free to check out the US CPA course or get in touch with our counsellors who would be more than happy to assist you. All the best and happy learning!