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Board Meetings? But I’m only a Start-Up?
Board Meetings? But I’m only a Start-Up?

As the founder of your business, you should be crystal clear about two very important principles. Your PURPOSE in life is what gets you out of bed in the mornings and keeps you going when the going gets tough.

Your exit strategy is the other important issue that you should have clarified, articulated, and preferably have this in writing as one of your goals. Your exit strategy should determine how you build your business from the ground up. Further to this, your business will probably require funding at some stage to enable expansion.

Both your exit strategy and funding requirements will require a certain level of corporate governance for any chance of success. If you can prove to potential investors that you have a properly constituted board and conducted regular board meetings, your success rate will improve immeasurably.

What are Board Meetings all about anyway?

Good corporate governance is about balancing the inherent conflicts of interest between diverse stakeholders in the business. These stakeholders include internal management and employees, and external parties such as shareholders, funders, customers, suppliers and creditors. Indirect external stakeholders include the government, regulators, society, and the environment.

Taking our cue from large public companies, shareholders (being the owners), delegate the management of the company to the Board, which act as agents on their behalf. The primary role of the Board is to act in the best interests of the company.

Board meetings provide the Board with the opportunity to engage with the management team and to ensure that they are executing the strategy according to plan.

How does it apply to start-ups?

Most entrepreneurs have heard of networking. And many entrepreneurs simply detest it. However, by constituting a Board, you are automatically networking, by building a partner universe of people that are more experienced and knowledgeable in business that what you are. This should provide a competitive advantage in your market.

In most large, publicly listed companies there is a separation of ownership and management and no controlling shareholder. This is normally never the case with start-ups. However, the start-up entrepreneur should instil a level of corporate governance from inception to build a credible track record for the exit and potential funders or investors.

What is important to understand are the various roles that are conducted in any company and how these impact on corporate governance.

Shareholders:

Have no direct responsibility in the daily operations as they are not employees of the company. 
They are eligible for dividends as per company policy.
The can vote at Annual General Meetings (AGMs) and appoint directors, either directly or via proxy. They can attend the AGM even if they own only one share in the company. Activist shareholders can play a huge role in disrupting AGMs.
Shareholders have rights by law.
It should be apparent that you should select shareholders very carefully. These shareholders, however, are not your Board of Directors.
It should also be apparent that, as the founder, you are probably a shareholder.

Board of Directors:

Executive directors are employees of the company. The CEO is therefore an employee. If you are the founder, then your role doubles up as an employee and as a shareholder.

Non-executive directors are not employed by the company, but sit on the Board in their capacity as a specialist or advisor to management.

Executive directors receive a salary as an employee and dividends if they are shareholders. Non-executive directors do not receive a salary but are paid per Board meeting attended.

Many start-ups dish out founder shares freely in lieu of paying salaries and executive meetings. Consider that your company could one day be paying out a $1 billion dividend and you have given away shares years previously and now have to pay those shareholders their share of the dividends…your founder shares are precious so guard them jealously.

The proverbial buck stops with the Board of Directors therefore very important to keep Minutes of Meetings at AGMs or Special General Meetings to prevent personal liability when things go wrong. They provide a record of decisions that should reflect good governance alternatives were decided upon.

As a member of the Board, you should ensure that Board meetings are conducted regularly, with an Agenda and Minutes.

Executive Management:

The executive management team executes the strategy devised by the Board of Directors. Executive management includes the very important roles of Chief Executive Officer (CEO), Chief Financial Officer (CFO), and Chief Operating Officer (COO).

While the start-up may not be able to afford these individuals, the roles are what is important. In many start-ups, all three roles could be conducted by one person, the founder, until there is enough cash flow to warrant appointing suitably qualified people into these positions.

The executive management team should operate the company on a budget approved by the Board to facilitate reporting requirements to the Board at regular intervals.

Staff:

Employees in the company execute instructions from the management team, who are giving effect to the strategy given to them by the Board.

Again, in many start-ups, the founder could well be conducting the role of a staff member during the course of operations, depending on the pertinent set of circumstances at the time.

 

This article has focused on stressing the importance of conducting Board meetings. Further articles will consider how to constitute a Board as a start-up, including how to choose the role and profile of members. How to conduct a Board Meeting and preparing for them is important to ensure they are legally valid.

In the meantime, establish the groundwork for good corporate governance by considering who could be appropriate Board members of your very own Board of Directors.

 

 

 

 

 

 

 

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