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On Sunday the Confederation of Indian Industry (CII) asked startups to keep their valuations as ‘realistic’ as possible and distinguish the goals of the organization and its founder.
“Startups can aim for long-term value creation instead of short-term. Company valuation should be realistic as much as possible,”CII said in the corporate governance charter for start-ups.
The industry body explained that the purpose of the initial charter was to make them responsible corporate citizens and to give them an opportunity to share it with stakeholders to establish themselves well managed organizations.
“The needs of the company as a whole should be separated from those of the personal needs of the founders, but at the same time the goals and needs of the founders, initiators and investors should be aligned with the long-term goals of the company,” it added.
The statutes also stated that the startup must be maintained as a separate legal entity with assets separate from the assets founders.
“A trust-based relationship should be fostered between the founders, executive management and consistent work of the board,” it said, adding that it is important to maintain adequate internal controls and accountability to third parties.
The CII charter emphasized on the external audit of startups
“It is essential to ensure proper accounting, established transparent policies, and procedures to ensure independence and effectiveness of audit functions and integrity of reporting,” it said.
“A yearly based audit of financial statements should be done by an external auditor. This also helps in prevention of conflicts of interest of business.”
CII also said that startups should ensure the timely disclosure by board members and key management personnel to address issues related to the company.
As part of the charter, CII has also published an online self-assessment governance scorecard that startups can complete to understand the current level of governance and how it is progressing.
For communities to build trust with all stakeholders, companies must apply best business rules. These rules provide a benchmark for monitoring, evaluating and improving existing management practices,” said R Dinesh, Chairman, CII and TVS Supply Chain Solutions Ltd.
The charter also includes guidelines based on the life cycle of a startup, which is divided into four phases: Start, Progress, Growth and Publication.
In the initial phase, startups should focus on forming a board, setting the tone at the top, compliance monitoring, finance, external audit, related event practices and conflict resolution mechanism.
In the later phase, the startup can also focus on increasing board oversight, monitoring key business indicators, maintaining internal control, establishing a decision-making hierarchy, and creating an audit committee.
According to CII, startups must also focus on raising stakeholders’ awareness of the organization’s vision, mission, code of conduct, culture and ethics, form management committees, ensure diversity and board membership, and fulfill the requirements set out in law, according to the limited liability of 2013 companies act and other applicable laws and regulations in growth stage.
At the going public stage, the startup must increase its leadership in monitoring the activities of various committees, prevention and detection of fraud, minimization of information asymmetry, succession plans and evaluation of the board’s activities.
What is CII?
The Confederation of Indian Industry (CII) is a non-governmental trade association and advocacy group based in New Delhi, India, founded in 1895.
CII is engaged in developing business, political, academic and other societal leaders globally and regionally. It is a membership-based organization.
The Government of India has appointed CII as the B20 India Secretariat to lead the B20 India process during India’s G20 chairmanship in 2023.
During 2023-2024, Mr. R Dinesh Executive Vice Chairman, TVS Supply Chain Solutions Ltd is a president of CII, Chairman and Managing director of ITC Limited Sanjeev Puri is a President Designate of CII. Rajiv Memani, Chairman, India Region and Chairman of Emerging Markets Committee, Ernst &Young LLP is a Vice President of CII and since May 2008, Mr. Chandrajit Banerjee has been Director General of CII.
