Managing a startup requires extra care and specific directors

The founders and triggers of startups usually have little understanding of the finer points of good governance processes. Because they are (should be) fully occupied with their product or service, their network, their market, their technology, their funding and their deadlines, they usually care bitterly little.

Yet every company must be managed and controlled according to the rules of the Companies Act and the recommendations of corporate governance codes and the professional literature.

Fortunately, this so-called corporate governance offers benefits to all types of legal entities, regardless of their size, age or type.

So also to startups. (And let's define a startup here as a young but ambitious company with less than 10 employees, a balance sheet total under 700k euros and an annual turnover under 350k euros.)

Because of the uncertainties and intrinsic fragility of a startup, an experienced board of directors can provide a solid incentive to do essential things right from the first time!

1. Decide how the company should be governed. But know that good corporate governance also starts at the startup with a competent and active board of directors.
2. This need not be too large: find a few independent directors, consider (gender) diversity, and strive to ensure that they are all inclined to the same ethics and values.
3. Since management has little business and governance experience, the chairman and all other directors should bring much-needed business and governance experience. Surround yourself with (outside) specialists in corporate law, accounting and financial reporting... Or better yet, appoint directors based on the competencies and knowledge you need
4. For the sake of learning effect and continuity, it is best to appoint directors immediately for several years. GUBERNA can help you with this.
5. Ideally, the chairman should be an independent director who can also coach and mentor the CEO.
6. Four or five meetings a year are more than enough. Committees are not really necessary yet. But of course directors remain flexibly available to attend an extra meeting if they really have to.
7. Try to avoid the need for the Board of Directors to arrange all sorts of ad hoc semi-operational things especially at short notice. It is really not his job to constantly put out fires.
8. On the basis of accurate information, let the directors look a little further ahead in the various policy areas: the quality of the information and discussion topics provided is more important than the quantity.

So a startup not only has to deal with all the essential managerial tasks of larger companies but also the specific opportunities and challenges peculiar to its specificity!

Because startups by definition operate in a dynamic and rapidly evolving, sometimes even disruptive, product environment. Moreover, the fact that there are hardly any data or (market) reference points available leads to extra uncertainty. Yet, despite the high risks, strategic decisions often need to be made quickly because they need to grow quickly and learn quickly.

Such points of difference from other companies require a specific governance approach from directors, very close to management.

On the other hand, as with other and larger companies, the board of directors must:

• comply with all legal aspects of NV or BV and all sectoral rules;
• fulfill the same duties and responsibilities: jointly defining the strategy, carrying out control and monitoring the general running of the company;
• oversee the general and safe operation of the company;
• set the vision and mission and monitoring the overall corporate culture and sustainability agenda.

Consequently, applied corporate governance in a startup is at once a necessity and a blessing.

A necessity because it ensures that obligations are better respected.

A blessing because governance can thus contribute substantially to the company's success. 

But governance cannot guarantee success.  It does help prevent the startup from going under quickly because of poor governance. That, unfortunately, is still too often the case....

Contact

Catherine Delanghe: catherine.delanghe@guberna.be

Olivier Braet: olivier.braet@guberna.be

This contribution is based on the book "Corporate governance in startups" by Luc Sterckx.