The UK’s Information Technology (IT) sector continues to grow healthily. It is a competitive marketplace where companies hustle for position, each with their own idea and end goal of starting to generate profitable revenues. A significant number of start-ups continue to receive funding to assist their research, testing and ultimate release of new products.
Amid all the excitement of funding campaigns and product development, the individuals or groups behind IT start-ups need to make sure they are setting up their companies correctly. This includes the highly important step of introducing a good culture around governance.
There are a number of issues that start-ups tend to gloss over when thinking about governance processes. Some may even be a little naive when it comes to introducing a good governance culture. That needs to change: good governance is vital for the successful growth and development of any company.
What is good governance?
In business, governance can be defined as the board of directors guiding and managing the values and goals of the organisation through introducing and adhering to policy and procedures.
Governance therefore starts with having an effective board. Members of the board need to be sufficiently senior and experienced to be able to make key decisions and introduce formal policies and procedures.
Some IT start-ups fail to think hard enough about who to include on the company’s board. In the early stages of the company’s development, the board would usually be very small. However, as the company starts to grow, the board needs to grow with it.
Who might you invite to join the board? You could consider involving directors, management, shareholders (if applicable) and other non-executive stakeholders (perhaps experts in their field who provide valuable advice to support your company’s development).
Policies and procedures
The second issue that IT start-ups tend to ignore is the importance of ensuring they have a good culture of approved formal internal policy and procedures in place.
These can take some time to write, but they are essential. They establish the values that employees need to live by when at work, setting the standards expected of them.
Such policies and procedures can address how employees are expected to behave and how they are expected to work in their roles.
These expectations can be encapsulated in the form of internal processes and control documents for each part of the business. Without such measures, companies—and in particular employees—have no guidance to follow, which increases the risk of incidents within the business.
Governance discussions
How about key discussions required to ensure that the company remains operational on a day-to-day basis?
These could include discussions on financial issues such as current financial results as well as more forward-looking analysis. By looking ahead into the future, companies can develop and implement plans to achieve their targets.
Risks facing businesses in the IT sector must also be considered. How are these risks identified and documented? How do you make sure you have relevant controls in place to mitigate the risks identified?
These kinds of discussions are essential for building a successful company. They should be held regularly within board meetings and properly documented.
As the company grows, so setting up specialist finance and risk committees is another vital step towards establishing good governance.
As highlighted, IT start-ups can take a number of actions to begin embedding a good governance culture within their core values.
One final recommendation: someone must be held responsible and accountable for governance. This is the best way to ensure that good governance is considered as early as possible in your company’s life, and that governance procedures evolve in tandem with your company’s growth.
Chris Beveridge is associate director in the governance, risk & assurance department at Moore Stephens.