Starting Up and Starting Right: Achieving Sustainability through Governance
‘Innovation’ is what gets valued in startups, while it’s ‘sustainability’ in case of large companies
The pursuit of quick growth is a common goal among startups. As equity investors tend to overly focus on capital gain, startups need to demonstrate to existing and potential investors that they can grow quickly and increase the valuation of the company.
As startups grow and become more successful, they may eventually reach a point where they transform into large corporations. This process can be challenging, as the organization will need to adapt to new levels of complexity and scale; managing a team of 20 is one thing but managing a team of 200 is an entirely different matter.
One key aspect of this transition is the need to establish strong governance systems, processes, and structures to ensure that the organization is being run effectively to achieve its goals. This may involve establishing clear documentation guidelines and policy management system, investing in a routine internal audit program, implementing clear approval matrixes to avoid conflict of interests, and putting systems in place to manage risk and compliance.
It may also involve building a strong, trustworthy leadership team and establishing clear lines of communication and accountability. By proactively addressing these issues, companies are positioning themselves for long-term success as they transition into bigger, stronger corporations.
Source: Center for Financial Inclusion
In recent years, business conversations have mostly revolved around the term ESG, with investors and stakeholders flocking to companies with good ESG scores and those that offer services to improve other companies’ ESG scores; finding ways to improve the scores of their own company or those of their portfolios.
ESG has changed how capital allocation decisions are made by many financial services firms, asset managers, and investment companies. That being said, it seems many businessmen still have not grasped the concept of ESG.
Source: Accenture
Most people’s understanding of ESG stops at environmental sustainability. While the environment is a key aspect of it, it is not the only one. ESG also covers social sustainability, which refers to an organization’s relationships with its stakeholders. This includes issues such as social equity, human rights, education, and healthcare.
Examples of factors that a firm may be measured against include Human Capital Management metrics (like fair wages and employee engagement) but also an organization’s impact on the communities in which it operates.
Meanwhile, Governance refers to how an organization is led and managed. Corporate governance is not a role or a position; it is a system of stewardship that creates policies, protocols, and practices to ensure the alignment of interests between key stakeholders like management, investors, customers, and employees.
Two core purposes of corporate governance are to mitigate risks and to support the development of long-term competitive advantages in the market. Through the deployment of functions like enterprise risk management, strategic planning, accounting and disclosure practices, talent management, and succession planning, directors can have a significant impact on an organization’s longevity.
OCBC NISP Ventura
January (Wk4) 2023 Newsletter