Business leaders of all sizes and sectors are increasingly aware that good corporate governance creates value not only for the business, but also for everyone involved, directly or indirectly.
The situation in startups should be no different; however, we've noticed that many leaders in this sector, despite knowing the importance of corporate governance, fail to implement it because they are focused on growing their operations.
What is corporate governance and why is it important?
Corporate governance is the system by which companies and other organizations are directed, monitored, and incentivized, involving the relationships between shareholders, the board of directors, management, oversight and control bodies, and other stakeholders, according to the definition of the IBGC, the Brazilian Institute of Corporate Governance.
According to Betsy Atkins, co-founder of technology companies, executive responsible for several IPOs, and expert in corporate governance, in her article published in Forbes Magazine on the subject, one of the most critical factors in building and leading a successful business is having world-class corporate governance.
“Fast-growing startups often build the plane while they fly it, but the most successful ones are those that are genuinely focused on delivering value to all their key stakeholders,” Betsy comments.
“Too often, we’ve seen business leaders focus on the wrong actions, with results that may be rewarding in the short term, but are insignificant and potentially detrimental to the sustainable success of the business in the long term. We’ve all seen this and know how these stories end, ” Betsy points out.
Benefits of startups aligning with key corporate governance principles.
Banks and financial institutions conduct various analyses before investing in companies, including how organizations manage their corporate governance principles. This item carries significant weight in this analysis, since companies that follow them have organized management and therefore convey more credibility to the market.
“There is a lot of money from foreign investors wanting to invest in Brazil, but they can't find startups prepared to receive the investment. Institutions that don't establish Corporate Governance within their scope will be left out of capital rounds,” says Ana Paula, a lawyer, C-level executive, certified advisor, and startup mentor, in an article published on Inovativa Brasil , a movement that seeks to encompass and connect communities across the entire Entrepreneurship Ecosystem.
Given this scenario, some important institutions and associations that promote good governance have begun to analyze the startup landscape and propose adaptations to traditional rules, with the aim of raising companies' awareness of the issue and consequently improving their operations.
Adapting traditional governance rules to the startup environment.
A good example of an action to promote corporate governance in startups is the Positive Governance Agenda created by the Brazilian Institute of Corporate Governance (IBGC).
The Positive Corporate Governance Agenda highlights 15 important measures that should be taken by organizational leaders, supported by 6 pillars: ethics and integrity; diversity and inclusion; environmental and social; innovation and transformation; transparency and accountability; and future boards.
15 Important Steps for Startups to Adapt to Corporate Governance
- To ensure, through measures and actions, that all direct and indirect employees of the organization make their daily decisions based on the organization's purpose, mission, vision, values, and principles, while being aware that all behaviors have a direct impact on the organization and society as a whole.
2. To have an organizational culture and business model integrated with the six pillars of the Positive Governance Agenda (ethics and integrity; diversity and inclusion; environmental and social; innovation and transformation; transparency and accountability; and future boards).
3. To nurture and promote actions with its employees, clients, suppliers, partners, and other stakeholders, aiming to guarantee relationships based on the most solid principles of integrity, while also considering the relationships between the public and private sectors.
4. To gather and disseminate to the market indicators and business cases to encourage the adoption of practices related to environmental, social, and corporate governance issues.
5. To actively participate in the market by contributing to the development of laws, regulations, public policies, and standards with the goal of encouraging other organizations to adopt best practices regarding social, environmental, and corporate governance issues.
6. Promote actions to stimulate the market and consumption of sustainable products and services by investing in innovation, research and development.
7. Encourage and adopt different decision-making models based on experimentation.
8. Establish partnerships with research centers and institutes with the goal of fostering entrepreneurship and promoting the startup ecosystem.
9. Train and empower your employees with the goal of promoting a business environment that is more ethical, transparent, sustainable, diverse, and innovative.
10. Adopt the basic principles of corporate governance in the activities that guide the organization's management and dialogue with stakeholders.
11. To clearly and objectively demonstrate how the organization generates value over time, always disclosing integrated information of an economic-financial, social, environmental, and corporate governance nature with the same level of quality and reliability.
12. Ensure clear, complete, and concise communication of all organizational actions, both to internal and external audiences, taking into account stakeholders' perceptions of the impacts caused by the organization.
13. Implement selection processes and incentive programs that recognize and develop empathetic leaders – those who demonstrate active listening skills, a willingness to serve, horizontal leadership, collaboration, and openness to dissent.
14. Create an environment of trust and psychological safety so that people can disagree with each other, report errors and irregularities, express doubts and concerns, and offer their contributions openly.
15. Promote and expand an inclusive culture within the organization by developing programs focused on diversity and inclusion, allocating financial resources and dedicated personnel for their implementation.
Conclusion
All organizations, regardless of size or market segment, including startups, need corporate governance processes to support their operations, become more competitive, and consequently achieve the best results.
The path to implementing corporate governance is to have access to all company information in a reliable, integrated, and real-time manner. To achieve this, the company needs to implement an ERP (Enterprise Resource Planning) system, which will provide access to all relevant management information in a complete and integrated way, enabling the establishment of all corporate governance processes.
There are various types of ERP systems on the market, aimed at companies of different segments and sizes. One of the factors that should be considered before choosing which ERP to implement is whether it will meet the company's current and future needs.
