In its message to Indian Startups, the Confederation of Indian Industry (CII) asked them to keep their valuation realistic and distinguish between the organization’s and its founder’s goals.
The CII stated in its Corporate Governance Charter for Start-ups, “Start-ups may strive for long-term value creation rather than short-term valuations. The valuations of businesses should be kept as realistic as possible.”
Notably, the charter emphasised the external auditing of start-ups.
Also, the charter issued guidelines based on the start-up’s life cycle, which was segregated into four stages: Inception, Progression, Growth, and Going Public.
“The needs of the business entity should be separated from the personal needs of its founder (s), but at the same time, the goals and needs of the founders, promoters, and initial investors should be aligned with the long-term goals of the business.”
It further stated that the start-up should be maintained as a separate legal entity with the organisation’s assets distinct from the founders’ assets.
“Trust-based coherent working should be promoted between the founder, executive management, and the board, and it is important to maintain adequate internal controls and accountability to third parties.”
CII explained that the charter for start-ups aimed to make them responsible corporate citizens and enable them to share it with their stakeholders to establish themselves as being well-governed.
The industry body in its charter said, “It is important to ensure the maintenance of proper books of accounts, establish transparent policies and procedures to ensure the independence and effectiveness of audit functions, and integrity of reporting.”
“An audit of annual financial statements by an external independent auditor and prevention of conflicts of interest from external auditors are crucial.”
It noted that start-ups must ensure timely disclosures by board members and key management personnel to address issues related to conflict of interest.
The CII also launched an online self-evaluative governance scorecard which a start-up may fill in to understand the current level of governance and its progression.
Highlighting the stage-wise progress of the startups, the charter said at the Inception stage, the start-ups must focus on board formation, setting the tone at the top, compliance monitoring, accounting, finance, external audit, policies for related-party transactions, and conflict resolution mechanisms.
In the next Progression stage, a start-up may additionally focus on the expansion of board oversight, monitoring key business metrics, maintaining internal controls, defining a hierarchy of decision-making, and setting up an audit committee.