CII launches corporate governance charter for start-ups

Corporate Governance Good Practices: Inan endeavour to promote good corporate governance in corporate India, the Confederation of Indian Industry (CII) has launched the Corporate Governance Charter for start-ups (CII Charter). As per a statement, the CII Charter enlists voluntary recommendations on corporate governance for a startup keeping in view the nuanced expertise required to govern start-ups. 

The CII charter has also prescribed guidelines meant for start-ups based on the specific stages of the life cycle of start-up, to be used by startups as a ready reckoner as they glide along the path of good governance.

This Charter is designed for entities incorporated under the Companies Act, 2013 only, and therefore the term ‘Startup’, however, entities which are in the nature of sole proprietorship, limited liability partnership, partnerships may adopt similar structures/ guidelines for corporate governance within their organisation.

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

The Charter is followed by an online self-evaluative governance scorecard which a Startup may undertake internally to understand the current level of governance and its progression. Start-ups may use it as a benchmark to measure the progress made by it in their governance journey, which will be reflected in the changing score as the governance practices are evaluated against the scorecard from time to time.

Startup Lifecycle 

The Charter has been curated to provide guidance to Startups during their life cycle segregated into four stages i.e. Inception, Progression, Growth and Going Public. During each stage, governance tenets that may additionally be focused on have been identified. In the ‘Inception’ stage, start-up 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. At the ‘Progression’ stage, startup may additionally focus on expansion of board oversight, monitoring key business metrics, maintaining internal controls, defining hierarchy of decision making, focussed 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 to build stakeholder awareness towards vision, mission, code of conduct, culture, ethics of organization, functional policies & procedures, form board committees, ensure DE&I on board, fulfil statutory requirements as per Companies Act 2013 and all other applicable laws and regulations, focus on fund utilization, monitoring and review, comply with CSR & ESG norms, monitor strategic progress and human resources related aspects. 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, minimize information asymmetry, effective stakeholder management, succession planning, board performance evaluation, review of governance policies, internal controls, social media policy, compliance program to ensure compliance with Companies Act 2013, SEBI LODR and stock exchange regulations and ensure timely statutory filings and disclosures.

Speaking on the launch, R Dinesh, President, CII & Chairman, TVS Supply Chain Solution Ltd. stated that 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. He hoped that the Governance Charter for Startups will enable early adoption of good governance practices amongst Startups and help them evolve into Leaders of Tomorrow.

 Sanjiv Bajaj, Immediate Past President, CII, Chairman, CII Corporate Governance Council and Chairman & Managing Director, Bajaj Finserv Limited stated that the Startups must leverage their resources and energies into increasing value for all stakeholders which is a macro level, far-sighted approach to sustained success rather than profitability which is an instant approach to short-term success. He emphasized on the need for Startups to complement business priorities with responsible governance and ethical conduct with accountability, fairness and integrity through self-regulation.

 Chandrajit Banerjee, Director General, Confederation of Indian Industry observed that Startups have become an integral part of Indian economy and have propelled the Indian industry in terms of innovation, technology, markets and business strategy and a Charter on Corporate Governance Practices for Startups may support Startups in their Governance journey ahead. He explained that the Charter comprises of focus areas for Startups in terms of governance and forward-looking concepts – aimed at enhancing the overall governance standards of Startups in India by encouraging voluntary adherence to the Charter, in letter and in spirit.

 Kunal Bahl, Chairman of the CII National Startup Council and Co-founder of Titan Capital & Snapdeal said, "While start-ups 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 organization's DNA, helping guide and steer the startup and all its stakeholders through various stages of its growth and evolution. The CII Charter is designed to help startups understand the governance requirements they can follow in different stages, from inception to becoming a public company."