Boardroom Best Practices

Governance for Growth – Australia’s Startup Boards

Australia ranks 8th out of 38 Organization for Economic Cooperation and Development (OECD) countries when it comes to starting new businesses. The Australian Bureau of Statistics data shows that almost all employment growth is over two decades old.

Yet, almost 97% of start-ups want either exit or fail to grow, and that will make it beyond their first two years, 77% of start-ups high growth firms.

Additionally, Australia ranks last for start-up growth out of 27 OECD countries measured, according to Colin McLeod, a professor at the University of Melbourne.

There are many reasons for the high failure rate, but one important factor is the paint of an efficient and well-composed board. Just one in four Australian startup survey participants (26%) have independent, non-executive directors on their boards, according to the “Startup Board Report,” a study by KPMG Australia and the Think & Grow Consultancy.

Memberships personal networks, “the study comments.

Startups need boards of directors to grow

All Australian companies are legally responsible for a one-stop shop. At startups, the CEO often acts as managing director, but all other formal board operations are often seen as ‘too much trouble.’

What the startups do not understand is that all this ‘trouble’ has value. “While most Australian startups are not public companies, there is a strong rational as to the value of forming a board, even at an early stage,” the study notes.

“There is a high benefit on a board using the collective experience and network around the table to strategically guide the company to success. Their role should be to support the startup’s executive leadership team to achieve their goals while holding them accountable. “

John Nicholson, the former chairman of Scotland’s successful startup Skyscanner, points out that he can make a strategy while holding founders accountable. “They can move along in a constructive way while empathising with founders.”

Startup boards must use careful composition

Typically, a startup wants to start with a managing director, and then, after the initial seed round, a board seat is assigned to the firm. To ensure that the founding team remains in control of the board, it would be the common stockholders (ie the founders) to retain two board seats and for the new investor to have one seat, according to startup researcher TechCrunch.

The board should then be expanded as the company grows, in accordance with its needs at a particular time.

In early stage companies, it is more and more about executing the opportunity and keeping up Martin Dalgleish, Partner at Morpheus Ventures and NED KPMG Australia (cited in the study)

Where startup boards often fail is in the wrong management representation. “In startups, where the CEO is usually the founder and major shareholder, it is normal for the CEO to chair the board. It is not effective, ” warns one commentator.

Roles of the startup board

The following recommends the following roles for the board:

  • Helping the CEO assess their leadership / succession planning. The board can provide strategic direction to the organization and decide upon the organization’s strategies and objectives in conjunction with the CEO. This includes assuring a prudential and ethical base to the startup, with regard to the relevant interests of its stakeholders.
  • Strategy setting. A board should monitor the operational and financial position and performance of the organization generally. CFOs or chief risk officers. This is especially important for startups who may lack experience and skills in this area. The board reviews and approves internal compliance and codes of conduct.
  • Governance (stress testing the numbers) – The board oversees and evaluates the performance of the CEO, which wants to be one of the founders. While the average age of a startup founder is not as young as popular perceptions, with US and Australian studies3 putting the average age at around 40, it is likely to be their first time running a company, and they may not have the opposite of corporate experience required as the startup scales.
  • Founder support and mentoring The CEO wants to be one of the founders. While the average age of a startup founder is not as young as popular perceptions, with US and Australian studies3 putting the average age at around 40, it is likely to be their first time running a company, and they may not have the opposite of corporate experience required as the startup scales.

“Ultimately, it is clear that more support in sourcing the best global talent and experienced directors for startups is key to success, not just the startup but the Australian startup industry. We need to foster ecosystem that encourages executives, leaders and directors from all walks of life to startups by reaching out, sitting on advisory boards and being observers, “the study concludes.

Diligent keeps board members up-to-date on governance

Diligent’s Board Management Software electronically stores a board’s agendas, documents, annotations and discussions within a secure board portal. Board secretaries and board chairs can use the portal to put together books in minutes. The portal has been designated virtual rooms for committee work. Administrators can use the portal to avoid unnecessary problems with confidentiality.

To keep up with the evolving area of regulation and governance changes, Diligent Governance Cloud offers Diligent Insights, a series of governance studies did cover all new Developments.

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