Myth #3: Company admin doesn’t matter
As a founder, can’t you just shortcut a few documents here and there? Surely no one is going to care whether that Shareholders Agreement change got signed by everyone, if you all agreed anyway?
The case for good company and board hygiene v. letting it slide:
Of course, when you’re a startup, getting dollars in the door and finding product-market fit is absolutely the priority, otherwise you may not even have a business to worry about, let alone the admin of it all. But when you start to scale, this is when it becomes helpful to set up good habits and make sure you’re not potentially eroding company value down the line by not completing your necessary admin appropriately, be it at the company or the board level.
Company admin requirements exist from the day you incorporate, and as a director, you need to be aware of these obligations, as you are ultimately responsible for the company adhering to all laws and regulations. On top of this, ensuring that the board is properly managed, and conducting its necessary duties and record-keeping, is something that you can’t skip just because you’re a startup, but it can, in part, be right-sized for your stage.
Having board admin requirements beyond the bare minimums tends to only really kick in when you bring on external directors, which can also coincide with external investment. Aside from your fiduciary duties as a director of your company, when you bring on VC investors, they also have a fiduciary duty to their investors, and sometimes that keeps going until it can track all the way back to you, if you’re a super fund member! This is how it can all link up, and while your own shareholding as a founder and your fiduciary duty as a director should be enough to motivate you to establish good company and board hygiene, it’s also magnified with layers of external investment - you are accountable for what you do with those funds and how integral and transparent you are with managing them and the company’s overall requirements, in the best interests of the company.
When you make sure you’re dotting the i’s and crossing the t’s, you ensure, like we’ve touched on before, that nothing process-driven will erode value in your company when it comes time to do a significant fundraise, IPO or exit.
It’s for this reason investors, and acquirers, do due diligence, to check things like the fact that you actually own your IP in the company they are investing in, or that your ESOP Plan is a legal one and has been implemented properly, and is serving the incentivisation purpose it’s meant to, or that simply your shareholder register is up to date with ASIC. It’s when we don’t do these things properly, or get them wrong, that there could be an issue that slows a deal, or halts it all together, and/or could be expensive to fix.
And, like we’ve touched on before, if your habits are more inclined to let this admin slide, this won’t just be limited to a few board-related documents. Once we’ve got this mindset, it has the potential to proliferate to not just the small things, but also the bigger things, from late lodgments costing you late fees, to casually leaving out a liability in the financials because you’re not too worried about it. It all adds up, and at the end of the day, if you have these lax standards, it has the potential to result in your company not retaining the value you and all your shareholders desire, which could ultimately be devastating.
So while admin in general, and particularly board admin, might seem like a time-consuming process that, in the early stages, is not directly getting dollars in the door, it’s actually protecting the value at the all-important later stages, where it can really matter.
We’re so fortunate to have Kirstin Hunter of Techstars on our Startup Board Course Advisory Board - she was a co-founder and CEO of Future Super, and has been on a range of boards, having started life as a lawyer and management consultant at Bain - what a combo!
On this Kirstin shares:
Kirstin Hunter of Techstars
“I definitely think the more open and transparent you are with your directors in a startup, the more value you’re going to get out of that relationship, and also, your directors are accepting a certain amount of personal liability to do their job, and you’re not respecting that contribution in the right way if you’re keeping information from them, or not executing on the necessary process tasks that just have to be done.
Alternatively, sending loads and loads of papers or having this huge reporting burden on a small team is time, energy and effort that your team cannot afford to spend on a bureaucratic process in an early stage business. On top of that, I think it hides what is really happening and makes it harder for the board to do its job. It becomes almost counter intuitive in an early-stage business: the greater the volume of board papers can mean it’s harder for the board to do their job well.
It’s all about finding the balance between sending the right amount of information to enable board directors to make informed decisions, and the opposite where you give them nothing and just provide your update live in the meeting, which isn’t helpful either. It’s about developing a process that works for you to shortcut time and much-needed brain space, and ensure you get the most impact from your board - it will make things a lot easier, and not be a burden you have to continually think about to get right.”
We talk about all of this and more in our Startup Board Course, with our next Cohort kicking off in March 2024 - find out more here.
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