Corporate Governance

My father, Ralph Risley, was an executive at General Electric in the 1960's and 1970's then was recruited to several successful start up (in one case going public) enterprises in the energy industry during and following the first "energy crisis" in the mid-late 1970's.  Over the past couple of years he has become engaged with the topic of corporate governance.  He provides the following thoughts:

The business models of start up companies focus on product, markets, distribution, financing and technology development. Insufficient attention is placed on those governance and ethical oversight issues which will become critical as a company grows, especially when a public offering is considered.

Early stage Boards of Directors have a much narrower interest spectrum than those of public companies where the shareholder base is more diverse, less knowledgeable of industry specifics and expectant of candid disclosure.

When early stage investors and venture capitalists use the term "Adult Supervision" I doubt that they are referring to governance at the Board level but rather they are injecting the lixor of experience and insight on operational and budgeting elements.

Regardless of the success of the business, initial investors will eventually seek liquidity. Without strong independent Board oversight an undesirable company culture can root itself so deeply that removal may be next to impossible.

Comments

[Tony Baer]

Great insight on the fact that governance is not exactly top priority when a startup is lean and hungry. I'm wondering if our value system, which praises companies retaining the startup spirit, has given short shrift to the goal of transparency?

[Ralph G. Risley]

"Lone Ragers can do more or less what they want as long as they do not violate any criminal laws.In business, however, there is sufficient vagueness in the rules and regulaations that day to day operating realities encourage getting too close to the ethical line; which in many cases is quite different from the legal line. Most startup compenies are founded under the culture and inventiveness of entreprenurship and by the business equivalent of the "Lone Ranger".

An undesirable culture and habits is hard, if not impossible, to change. Failure to transition from these characteristics leads to governance, transparency and objectivity issues which may eventually necessitate the institution of "adult supervision by the initial investors or other stakeholders.

[balu]

hai