CII Introduces New Corporate Governance Guidelines for Startups

The Confederation of Indian Industry (CII) is a non-governmental, not-for-profit organization that plays a vital role in shaping India’s development journey. CII collaborates with industry, government, and civil society to create and sustain an environment conducive to the country’s development. With around 9,000 members from both the private and public sectors, including SMEs and MNCs, CII also indirectly represents over 300,000 enterprises from 286 national and regional sectoral industry bodies. For more than 125 years, CII has been actively engaged in transforming Indian industry’s role in national development. The organization works closely with the government on policy issues, focuses on enhancing efficiency and competitiveness, offers specialized services, and facilitates strategic global linkages for the industry. 

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The Confederation of Indian Industry (CII) recently unveiled a special corporate governance charter catered specifically for startups. This initiative is geared towards providing personalized advice and recommendations to assist startups in improving their governance standards as they progress through different growth phases.

This charter aims to guide startups through their governance requirements from the initial stages all the way to their journey towards becoming publicly listed companies. It emphasizes key governance standards that are essential for startups.

Consequently, the guidance for startups will be divided into four key phases: inception, progression, growth, and going public. Each phase will emphasize specific principles of governance that require special attention during that particular stage of the startup journey.

According to Kunal Bahl, chairman of CII National Startup Council (2023-24), corporate governance plays a crucial role in establishing clear decision-making processes guided by ethical and legal considerations. It enhances the quality of decisions, minimizes conflicts of interest, and encourages long-term strategic planning. Adopting good governance practices ensures transparency and facilitates disclosures, fostering predictability in revenue, growth, and business planning. These aspects are vital for startups and investors to collaborate with trust and mutual understanding.

The charter now includes an online self-assessment tool tailored for startups to evaluate their governance performance. This handy tool allows startups to check where they stand in terms of governance practices and monitor their progress over time. By regularly using this tool, startups can see how they’re improving, with any score changes indicating positive strides in their governance setup.

The world of Indian startups was abuzz with corporate governance concerns throughout 2022 and 2023. Some notable incidents involved legal disputes featuring prominent figures like Grover and Broker Network’s Rahul Yadav, along with law enforcement actions aimed at edtech giant BYJU’S.

Claims of mishandling finances and unethical behavior have emerged, particularly directed at the founders of GoMechanic and Skill-Lync, which has significantly eroded confidence in the startup community.

A recent study, which involved surveying 400 founders, discovered that around 44% of them faced heightened scrutiny from investors in the past year. On the flip side, as per the Indian Startup Founder Sentiment Survey for 2023, the remaining 56% of Indian founders noted either a minimal or moderate increase in investor supervision and responsibility.

According to the survey, 54% of Indian founders believe that the cautious approach taken by investors to address the flawed corporate governance practices in Indian startups is only somewhat effective or not effective at all.

The Confederation of Indian Industry (CII) has introduced a tailored corporate governance charter for startups, addressing the crucial phases of inception, progression, growth, and going public. Kunal Bahl highlights the significance of good governance, emphasizing its role in establishing clear decision-making processes, minimizing conflicts of interest, and fostering transparency. The incorporation of an online self-assessment tool enables startups to evaluate their governance performance. However, the startup community faced notable corporate governance concerns, leading to heightened scrutiny from investors. This reflects the need for an effective approach to address flawed governance practices in Indian startups.