The Importance of Business Governance for Start-Ups

Business governance is a set of tools that can help a company’s management to be better able to handle problems and create value over time. This requires establishing a system for decision-making, decreasing the risk of fraud and malpractices while ensuring the interests of minority shareholders are protected, aligning the compensation of key executives and board members with the longer-term return of shareholders, and ensuring that board members have the opportunity to share their experiences and opinions with the rest of the board.

Many entrepreneurs know they need good governance, but do not know where to start or think it’s only a requirement for large corporations with boards of directors. The earlier a startup can implement good governance the more likely it will grow faster and be more resilient in crisis.

McLarty: Whenever a startup gets the attention of outside investors or starts getting venture capital, it is an important signal to begin thinking about governance. This is due to the fact that it brings on qualified and certified directors who take governance seriously. Experts can also offer valuable suggestions when needed.

It’s also essential to be open with the public about the way a startup operates. This means being transparent about company policies and control mechanisms and supply chain processes as well as media liaisons, vendors and staff. It’s about creating a reliable and trusted brand that can increase the value of its reputation and improve brand recognition. It could also open up more opportunities for premium investments and reduce the cost of borrowing from financial institutions.

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