Jaguar Capital Inc.
Jaguar Capital Inc.
There is a considerable amount of writing dedicated
to Corporate Governance for Public Companies;
however, there is substantially less dedicated to
Governance for Private Corporations. This is odd,
considering the number of Canadian controlled private
corporations dwarfs the number of public corporations
in Canada traded on various stock exchanges.
The entrepreneurs that start businesses in Canada
are often mystified by the amount of jargon and best
practices thrown at them under the guise of “Corporate
Governance”. In this article we will attempt to set out “five
guidelines” that should be implemented if the founder of
a growth company desires to scale and succeed.
To Quote Richard Leblanc, a York University
Professor, “how a company is governed influences
rights and relationships among organizational
stakeholders, and ultimately how an organization
is managed affects whether it succeeds or
fails. Companies do not fail: boards do.” Or to
paraphrase for a new entrepreneur, your structure
gives investors, acquirers and other stakeholders
the confidence that your company is well managed.
It is just not good enough for an entrepreneur
to have an idea, they must develop a strategy. It is
a board member’s responsibility to ensure that the
strategic direction is set and when there is a pivot
from that strategy there are good fundamental and
business reasons for doing so. Although you will hear
me say “strategy without passion or vison is useless”,
it is incumbent on a board to understand and measure
a company’s performance against the agreed strategy.
In the early stages of a company this process is fluid;
however, an investor will be motivated when they see
achievement against those strategic goals.
In March 2014 BDC discovered, through their
extensive research into small business governance
in Canada, that only 6% of Canadian companies
have advisory boards. In addition 76% of companies
had neither advisory boards nor boards of directors.
Where either advisory or corporate boards exist,
those companies gross revenue were 24% higher
and productivity was 18% higher than those
companies without boards. It can safely concluded
that private companies in Canada benefit when they
have stronger corporate governance.
There are a number of relationships where there is
a misalignment or imbalance of skills and experience
that a founder will face in starting a business and that
includes accessing venture capital, to being acquired.
Putting in place sound governance structures will
assist the entrepreneur, evening the playing field.
Although access to capital, talent, partners and
customers are an entrepreneur’s most important
considerations, having a strong corporate structure
ensures confidence in management’s ability to
succeed. The following recommendations are the
“low hanging fruit” to enable the CEO of a growth
company to implement a sound basic governance
structure without getting overly complicated.
1. Create an Advisory Board early in the
company’s growth cycle and set up a corporate
board structure just before the company raises
a professional investment round
When creating an advisory board, you are
hoping to recruit significant resources who provide
support, knowledge, and access to unique
professional networks. When raising a professional
investment round, governance, and corporate board
seats can be skewed. Not all board members have
the same interest. For example, after a professional
round, it is common that an investor will sit on the
board, however their interest is more focussed
on increasing capital, and eventually having a big
payout, which is not always aligned with what’s
best for the company. An advisory board is a great
sounding board for your strategy and business plan.
2. Appoint a Non-Executive Chair or Lead
Director to lead the governance structure
Having a Lead Director or Non-Executive-Chairperson is a key criteria for a company’s
governance structure. The Chairperson will be a
mentor for the CEO, they provide guidance, structure,
and support to the CEO. Not only is the Chair a mentor
to the CEO, but he is also a spokesperson for the
board, weather it is an Advisory or Corporate Board.
They collect input from the board and from the senior
management team for the CEO’s annual review, reports
any relevant feedback to the CEO. Hosts an executive
session without management at the end of the meeting
in order to gather feedback, and creates and runs the
agenda of the board meeting. A Non-Executive Chair
role allows the CEO to run the company and the Chair
to manage the affairs of the board.
3. Structure the board of the company for the size
you want to grow to. (i.e. Audit, Compensation,
Risk and Governance Committees)
In order to ensure a solid governance practice in the
future, different committees must be established early on
and likely in stages in order for the committees to grow with
the company. The objective is to allow the committees to
function efficiently, all members to participate, and an
appropriate level of diversity of experience and knowledge
that provide oversight to the company.
Five Best Governance Guidelines to implement for Private Companies
By Gerard Buckley and Harlen Suslik