Why Corporate Governance in

India stands tall in the global startup arena with more than 100 unicorns under its belt. Yet, recent cases of financial irregularities involving companies like Byjus and Mojocare have shed light on a crucial aspect often overlooked - corporate governance. It’s high time businesses prioritize this vital aspect to ensure transparency, accountability, and long-term success.

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What is Corporate Governance and Why Businesses Ignore It?

Corporate Governance is a system of defined rules, practices, and processes to run a business keeping in mind the interests of all the involved parties including the promoters, investors, customers, suppliers, government, and the community. Corporate governance ensures that a business is running in a responsible and ethical manner.

The ambition to grow fast is the primary reason for a startup to ignore corporate governance and conduct financial irregularities. This, however, has made investors wary with many of them considering an audit of even early-stage businesses. Consequently, ventures that are financially disciplined and have corporate governance norms in place are the ones getting funding.

And as Boat cofounder and CMO Aman Gupta’s said, “Apart from other things, Founders need IQ, EQ and GQ. Governance quotient now will become more important than ever and it’s good for the ecosystem that Corporate Governance is taken seriously from Day Zero.”

Benefits of Corporate Governance

Corporate governance is an essential element of any business irrespective of its size. Adherence to it not only paves the way for growth over the long run but also builds the creditability and reputation of a business. It may even entitle the business to advantages in the form of additional benefits from the government and other investors. Some major benefits of corporate governance are:

¡ Builds Trust and CredibilityAdherence to the set rules and laws builds the credibility of a business not only among the customers but also associates.

¡ No Penalties and Legal

Hassles- Adherence to the applicable laws ensures that a business does not face any legal issues or attracts penalties.

¡ Identify Risks and Deal with Them- Corporate governance allows a business to identify risks and take preventive action in the form of the establishment of internal controls and checks.

¡ Improve Chances

of Getting

Funds- Investors prefer to put their money in companies following ethical business practices and have in place sound accountability and transparency framework.

¡ Positive Work Environment-

By implementing corporate governance practices, any organization can create a seamless decision-making process. This creates a positive work environment and attracts talented people to the company.

Tips to Strengthen Corporate Governance

Here are some tips for founders to create a proper environment and ensure corporate governance.

¡ Establish a clear governance framework

¡ Give equal attention to governance issues and business growth

¡ Ensure transparency

¡ Outline responsibility for all the people involved in running the business.

¡ Take into consideration possible risks and take steps to deal with them.

¡ Keep personal matters separate from business decisions.

The creation, implementation, and regular monitoring of governance practices at every stage of operations will result in improved decisionmaking, reduced conflict of interest, and enhanced efficiency levels.

Startup Governance Playbook

The Indian Venture and Alternate Capital Association, or IVCA has outlined a framework for corporate governance in startups. The ‘Startup Governance Playbook,” prepared in collaboration with professional services firm Deloitte includes broad guidelines for early-stage startups and Pre-IPO startups.