Startups should keep business valuation realistic: CII

New Delhi: Startups should keep their valuation “realistic” and the needs of the business entity must be separated from the personal needs of its founder, the Confederation of Indian Industry (CII) said in voluntary recommendations on corporate governance released on Sunday. 

In its ‘corporate governance charter for startups’ the industry body noted, “the perception that good corporate governance involves excessive cost and makes the startups less agile may be misplaced.” It is important that corporate governance measures are not viewed as a cost-centre for business since cost of non-compliance and misgovernance can be fatal to the business, it added. 

Startups may strive for long-term value creation rather than short-term valuations. “…the goals and needs of the founders/ promoters/ initial investors may be aligned with the long-term goals of the business,” CII added. 

The CII charter enlists voluntary recommendations on corporate governance for a startup keeping in view unique nuances to govern startups and prescribes guidelines appropriate for startups based on the specific stages of their lifecycle. 

“Early adoption of good governance practices helps startups gain tangible and intangible benefits including long-term value creation, stakeholders’ trust, better access to finance from investors and banks, reduced reliance on promoters, effective organisational structures and improved chances of long-term survival of the business,” said CII President R Dinesh. 

Dinesh, who is also the chairman of TVS Supply Chain Solution, added that the ‘governance charter’ would enable early adoption of good governance practices amongst startups. 

According to CII, the charter may serve as a self-governing code for startups in their compliance journey which they may follow on a best endeavour basis. “The purpose of this charter is to help startups become responsible corporate citizens and also enable them to share it with their stakeholders to establish themselves as being well-governed,” CII said in a statement. 

CII Director General Chandrajit Banerjee said the charter comprises focus areas for startups in terms of governance and forward-looking concepts. 

The charter provides guidance to startups during their life cycle segregated into four stages – inception, progression, growth and going public. 

In the ‘inception’ stage, startup governance may be focused on board formation, setting the tone at the top, compliance monitoring, accounting, finance, external audit, policies for related party transactions and conflict resolution mechanism. At the ‘progression’ stage, a startup may additionally focus on expansion of board oversight, monitoring key business metrics, maintaining internal controls, defining hierarchy of decision making, focused overview of finance, accounts and external audit, setting up audit committee and risk & crisis management.

When a startup reaches ‘growth’ stage, it may also focus on building stakeholder awareness towards vision, mission, code of conduct, culture, ethics of organisation, functional policies, form board committees, ensure diversity, equity and inclusion and comply with CSR and environmental norms. 

At the ‘going public’ stage, startup may expand its governance in terms of monitoring of functioning of various committees, focus on fraud prevention & detection, grievance redressal mechanism, minimise information asymmetry, effective stakeholder management, succession planning, board performance evaluation, review of governance policies, internal controls and SEBI & stock exchange regulations and ensure timely statutory filings and disclosures.