The Confederation of Indian Industry (CII) has launched a corporate governance charter for startups. It will provide suggestions on corporate governance tailored for startups and offer guidelines suitable for different stages of a startup that aim to enhance governance practices.

The charter includes an online self-evaluative governance scorecard that startups can use to evaluate their current governance status and its improvement over time. The tool allows startups to measure their governance progress, with score changes indicating improvements in governance practices as assessed against the scorecard from time to time.

The guidance provided to startups will be structured across four key stages: inception, progression, growth and going public. Each stage emphasises particular governance principles that may need extra focus during that phase of the startup journey.

It comes at a time when startups such as Byju’s, BharatPe, GoMechanic, Groyyo, Mojocare and Zilingo have raised concern over governance standards in the past 12-18 months.

In November last year, it was reported that corporate governance failures within well-funded startups in India had made investors hesitant to invest large amounts. Corporate governance in India is a set of rules, practices and processes by which a company is guided and controlled. It ensures that the company is run reasonably to achieve the best interests of all stakeholders.

“While startups thrive on innovation, disruption and the fast-paced pursuit of growth opportunities, robust corporate governance improves the quality of their decisions and promotes long-term strategic thinking. It is vital to embed the tenets of good corporate governance from the earliest days of a startup so that, over time, they become part of the organisation’s DNA, helping guide and steer the startup and all its stakeholders through various stages of its growth and evolution,” said Kunal Bahl, chairman, CII National Startup Council. Bahl is also the co-founder of Titan Capital and Snapdeal.

According to Chandrajit Banerjee, director general of CII, the charter includes key areas of focus for startups regarding governance and innovative concepts to improve the overall governance standards of startups in India.

Over the past year, several early and mid-stage startups have started hiring CFOs. Investors are also increasingly demanding that startups have adequate financial controls across portfolio firms.

In the ‘Inception’ stage, startup governance may be focussed on Board formation, setting the tone at the top, compliance monitoring, accounting, finance, external audit, policies for related party transactions and conflict resolution mechanism, the CII Charter has said.

At the ‘progression’ stage, the startup may additionally focus on the expansion of board oversight, monitoring key business metrics, maintaining internal controls, defining the hierarchy of decision making, a focussed overview of finance, accounts and external audit, setting up an audit committee and risk & crisis management.

When a startup reaches the ‘growth’ stage, it may also focus on building stakeholder awareness towards the vision, mission, code of conduct, culture, ethics of the organization, functional policies & procedures, form a board committee and ensures Diversity, Equity & Inclusion (DE&I) on Board.

They should fulfil statutory requirements as per the Companies Act 2013 and all other applicable laws and regulations, focus on fund utilization, monitoring and review, comply with CSR & ESG norms, and monitor strategic progress and human resources-related aspects.

At the ‘going public’ stage, startups may expand their governance in terms of monitoring of functioning of various committees, focus on fraud prevention and detection, grievance redressal mechanism, minimising information asymmetry, effective stakeholder management, succession planning and board performance evaluation.

They should also undertake a review of governance policies, internal controls, social media policy, and compliance program to ensure compliance with the Companies Act 2013, SEBI LODR and stock exchange regulations and ensure timely statutory filings and disclosures, CII Charter said.

Article Source – PTI, CII (Press release)