The Confederation of Indian Industry (CII) on Sunday asked Indian start-ups to keep their valuation “realistic” and distinguish between the organization’s and its founder’s goals.
“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,” CII stated in its Corporate Governance Charter for Start-ups, released today.
The industry body 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.
It added, “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,” it said, adding that it was important to maintain adequate internal controls and accountability to third parties.
The charter emphasised the external auditing of start-ups.
“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,” it said.
“An audit of annual financial statements by an external independent auditor and prevention of conflicts of interest from external auditors are crucial.”
CII noted that start-ups must ensure timely disclosures by board members and key management personnel to address issues related to conflict of interest.
As part of the charter, 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.
“In order for entities to build trust among all its stakeholders, businesses need to adopt the best-in-class Corporate Codes. These Codes set a benchmark for monitoring, evaluating, and improving the prevailing governance practices,” said R Dinesh, President of CII and Chairman of TVS Supply Chain Solutions Ltd.
The charter also issued guidelines based on the start-up’s life cycle, which was segregated into four stages: Inception, Progression, Growth, and Going Public.
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.
For the Growth stage, CII said the start-ups must also focus on building stakeholder awareness towards the vision, mission, code of conduct, culture, and ethics of an organisation, form board committees, ensure diversity and inclusion on board, and fulfil statutory requirements as per Companies Act 2013 and all other applicable laws and regulations.
At the Going Public stage, a start-up must expand its governance in terms of monitoring the functioning of various committees, focus on fraud prevention and detection, minimise information asymmetry, plan for succession, and evaluate board performance.
First Published: Apr 28 2024 | 2:39 PM IST