The leadership of a new, privately owned enterprise has the opportunity to build a foundation of good governance.

Staff Writer

What measures should a new, privately owned enterprise put in place at the outset, so that they practice good governance even after they become big? originally appeared on Quorathe place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Shefaly Yogendra, Board Director experienced with for- & non-profit, private & listed boards, on Quora:

The leadership of a new, privately owned enterprise has the opportunity to build a foundation of good governance that stands them in good stead as they grow the business, create value, build a reputation, and lay structures in place for long-term sustainability of the business. In a promoter-led company, there may be conflicts arising as to minority shareholder rights, so that is where the work starts.

Do not create share class structure apartheid.

Many Silicon Valley behemoths that have recently gone public operate a dual share class structure, which can leave some shareholders with no voice at all, even when those shareholders raise valid concerns about how the company is run.

One could argue that extremely wealthy promoters/owner-operators need not care a jot for the “feelings” of those shareholders, who invested their monies knowing that they will have no voice. But not all promoters/owner-operators are Zuckerberg with his enormous wealth.

A public company, with a dual class share structure, can be punished in other ways. By the stock market. This has a direct impact on the promoters’/owner-operators’ wealth. Bluster and arrogance are not long term value creation or sustainability strategies.

Articulate publicly the values that guide the enterprise.

This helps direct the behaviors the company will nurture or punish. I work with some rapidly growing startups and this is one of the first steps I encourage them to take. Once the company starts to grow fast, nobody has time to come back and state the values but meanwhile all manner of decisions and behaviors may have taken hold. Values also create a template of customer expectations that can help build the company’s brand. A startup I advise, which has grown at a crazy speed, chose to put its employees’ well being first. And they say it publicly so their staff know that every behavior in the company has to pass that test “does this serve the employees who serve the customer?” In their industry, employee turnover, especially in production, is very high but because they insist on employee well being, they have zero attrition, reducing one major burden from the founders’ shoulders: that of repeat hiring to keep the staffing levels needed to deliver to customers.

How you word the values statements also counts. “Don’t be evil”, the Google motto, that was eventually dropped, was replaced by “Do the right thing” by Alphabet. The former set the bar too low, while the latter raises the bar.

Build accountability into the enterprise at every level, not just the board.

Because if you don’t design accountability into the business, someone will make sure you are held accountable.

As an example, several promoter-led Indian companies are finding themselves in turmoil. In the first round, professional managers and directors were challenging cozy relationships and poor business practices. In the second round, promoters/owner-operators were raising their voices. Infosys promoters are not happy with US-style executive pay and aggressive targets, citing them as imprudent, as reported in the Financial Times. Cyrus Mistry, who was appointed as Executive Chairman of Tata Sons, found himself ousted and Ratan Tata returned for an interim period. The saga is ongoing.

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