Mature start-ups need fully functional boards: Auditing major Deloitte

Amid growing questions about corporate governance practices in Indian start-ups, auditing major Deloitte said mature start-ups, with a valuation of over Rs 650 crore, should have a fully functioning board with a full-time Chief Financial Officer (CFO) and program development. Anti-fraud covers the major areas of finance. The recommendations are part of Deloitte’s Start-up Governance Playbook.

The report came against the backdrop of alleged financial irregularities at several startups, and a day after education technology company Byju’s saw Deloitte Haskins & Sells resign as auditor due to the delay in filing its financial statements.

The Deloitte study said a startup company’s internal audit should be tasked with providing assurance about its operation, with a statutory auditor critically assessing fraud controls and raising warning flags to the board.

The study divides startups into four categories – early stage (founder-led; fundraising under Rs 50 crore), development, growth and maturity.

During an early-stage startup, Deloitte recommends having a board of directors as required by law and being aware of compliance, and has said that governance requirements should become more stringent as the startup grows.

For example, the report suggests that stage-stage startups (with valuations between Rs. 250 crore and Rs. 650 crore, and raised capital of Rs. 50 to Rs. 200 crore) should institute a whistleblower programme, and as the company grows, it should The Finance subgroup provides oversight for the programme.

“In startups, there are two characteristics: one, governance, in general, is understood to be a thing for large companies. Second, from a scale perspective, startups are growing very quickly. That’s why we’ve divided it into four phases, and across the four phases, we believe any company A startup that will take at least a decade from an early stage to a mature stage” India.

By the time the company becomes a mature startup, Deloitte recommends having independent professional directors on board, an in-house team to support the company secretary, and mandatory committees. At this point, the CFO must provide certification to the board on the effectiveness of oversight, and any material exceptions must be addressed in a time-bound manner, she said.

While all startups must disclose related party transactions, this information should be available on the mature startup’s website. She said that audit committees must approve these transactions, and disclosure must be made in accordance with legal requirements.

At this point, the startup should also have succession planning and wage related steps. “The performance of the CEO and his leadership team should be reviewed periodically and compensation plans should be aligned to attract talent. Nomination and reward committees should develop a succession plan for the president and board members as well.”

Corporate social responsibility also plays a role at this stage. Deloitte recommended that a mature startup should expect CSR spending depending on profitability, and the CSR policy should be made available on the company’s website.

Strong corporate governance enhances transparency, reduces conflicts of interest, and improves the quality of decision-making. To ensure the long-term success and stability of startups, it is essential for startup founders, venture capitalists and management to establish, implement and monitor clear governance practices at every stage of the startup journey.”, Partner and Lead Forensics, Deloitte India.