Corporate governance and dealing with the board

This chapter considers the challenges and benefits of developing a proper corporate governance structure and policy while expanding as a venture. Although the public debate over corporate governance seems to focus on public companies, an effective governance structure is equally important for startups and private companies. In fact, given the stronger link between the financing and investment decision in startups as compared to public companies, the question of how to structure agreements between investors and entrepreneurs that ensure that their own benefits and responsibilities are met is particularly relevant. Corporate governance is not simply about the board of directors and their activities: that only represents the tip of the iceberg. It is a more complex set of rules, regulations, and etiquettes that regulate the responsibilities and authority of shareholders and management, directed towards the achievement of the goals in the business plan and agreement on how to deal with business strategy. Topics to be decided upon include the legal structure of the firm, its board size and structure, share remuneration, and veto rights. More generally, in the case of startups, the challenge is to strike a balance between allowing investors to benefit from their investment and to secure it somehow, while at the same time preventing them from appropriating the entrepreneurs’ venture and role.