View: Good governance starts in the minds of the founders

Last Sunday, Sequoia India published a timely blog on governance issues. Good governance is essential if you want to build a business that lasts. The problem, however, is that governance is generally not seen as urgent other than simply meeting statutory compliances within the timelines stipulated by regulators. And most founders see them as inconveniences for accountants to deal with, not them. Of course, if there is a governance crisis that comes under public scrutiny, it could become an unmanageable situation for the founders and the company. By then it is often too late. So what is good governance?

Good governance starts in the minds of the founders. No amount of oversight by investors, boards, audit committees, or auditors can guarantee good corporate governance if the founders don’t commit to that goal. There are a few very simple principles of good governance that companies and founders should follow: tell the truth, obey the law, listen to your board and auditors, treat minority shareholders well, be transparent and disclose all important information to all concerned. stakeholders, give bad news early and good news only after it is confirmed, ensure that your significant accounting policies (revenue recognition, expense recognition, inventory, etc.) are within the limits of prudent accounting principles , reasonable, truthful and fair, etc.

Do all of this even if it means that in the short term you are not able to maximize your valuation for your next round of funding.

Excellent advice and guidance from investors and auditors has been followed. Remember that your independent administrators and auditors are there to save you from yourselves. So listen to them. Create situations of convergence of interest rather than conflict of interest. Remember that your only asset is your reputation. Investors decide your salary, not you. Once invested, it is no longer your business alone. Investors are also owners. We must be extremely attentive to the interests of minority shareholders.

Your first job is to make sure that if something happens to you, the investors’ money is safe. So hire enough quality leaders that the institution will survive even if you don’t. In case of bad news, inform investors immediately because they do not like unpleasant surprises. You must appoint auditors, internal auditors, independent directors, an audit committee and a chief financial officer to the satisfaction of investors.

Although the last point may seem too much for a young company to comply with, the truth is that if you have raised a large sum of money, it comes with certain conditions. Your investors have a fiduciary responsibility to be responsible custodians of the capital they have raised from their limited partners (LP).

It is very difficult to have good independent directors for boards of directors, given the fiduciary responsibility and the potential liabilities. There is very little upside to getting the right people to accept board positions. They will only do so if they are completely confident that the company is impeccably governed. And, you can’t build a great company if, among other things, you don’t have a good board of directors. And, ultimately, if you are better governed, you will sleep more peacefully at night.

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