At its heart governance is about leadership and decision making. It’s about setting and monitoring the parameters within which a business or organisation operates. Defining the strategic context, risk appetite and culture are key elements. Perhaps most simply, within a business context governance can be thought of as two things – compliance and performance. In other words, ensuring the business doesn’t make any unforced errors while also ensuring it optimally delivers on its purpose. It’s the ‘and’ here that often creates the tension, as it can force companies to ‘slowdown in order to speed up.’
Board directors are tasked with working in the best interests of the company (all its stakeholders not one individual group) and have a fiduciary duty to manage conflicts, apply proper care & diligence and ensure ongoing solvency. If board members do not properly discharge their duty, they can be held personally liable in some situations. This liability ensures board members take their role seriously but can also cause some challenges, particularly in start-ups, where boards find themselves balancing the need for thoroughness with management’s capacity to deliver it while often at times fighting for survival.
In large, listed companies governance requires a substantial investment of time and resource. In addition to a paid board of directors that meet regularly, there are often committees established to manage specific aspects of governance, for example, audit, risk, remuneration and investments. The flow of information from management to directors is significant but necessary to enable directors to discharge their duties.
So, the question becomes – how does a board discharge its duties and add value to a start-up that has its very limited resources focused on growth not governance (driving the car as fast as possible, not checking directions and seat belts…).
Enter the idea of Minimum Viable Governance (MVG). Like an MVP that we acknowledge needs continued development what does MVG look like in the context of a start-up, which by definition is hurtling towards insolvency should it not be able to raise again.
Note: zero governance isn’t an option with the Corporations Act, company constitutions and shareholders agreements setting out duties of directors and requiring certain decisions to be made by a board.
There is no one perfect answer here, there will always be a requirement for judgement and context will ultimately define, but at a minimum directors should be satisfied the following are true:
- The company is solvent (able to pay all its obligations). Within a start-up this means having clarity on cash burn / runway, understanding the capital raising environment, and knowing the point where it’s no longer likely obligations can be met. This point is generally several months before the end of your runway, to ensure obligations to employees (superannuation and redundancy payments), suppliers and the ATO are met.
- The company is compliant with all regulations specific to its industry. For example, in financial services this means ensuring all APRA requirements are met.
- Employees have a safe working environment (both physically and psychologically).
- Data and digital infrastructure is secure and compliant with regulations.
- The company strategy (to execute on its purpose) is well thought through and makes clear choices on how to utilise limited resources in the best possible way to affect company objectives.
- There is an understanding of the critical risks facing the business and where possible, controls are in place to mitigate them
Of course ultimately it makes sense to have your board achieve much more than just the very minimum. To this end it’s important to consider:
- Board composition – do you have the right people on your board? Do they have appropriate experience but also diversity of thought? Who’s going to take on the role of chair? Because you really don’t want to find yourself chair, founder, and CEO.
- Meeting cadence – how often are the board meeting? Generally every 2-3 months at a minimum but it may make sense to meet more often depending on the situation.
- Board pack – what you share with directors ahead of the meeting to get the most value from your board
- Board minutes and action items – it’s critical these are recorded accurately, signed off and actions followed up in order to demonstrate proper care and diligence has taken place.
For information on structuring your board and the roles and responsibilities of directors you might find the following resources useful:
