Governance in the general sense deals with the act of making laws and managing a governing body, like a country or state. Governance in the corporate world is similar, but different.
In the classic business definition from Investopedia: “Corporate governance is the system of rules, practices and processes by which a company is directed and controlled.”
Well, that sounds simple and straightforward, doesn’t it? Corporate governance involves a delicate balance of the interests of a company’s employees and their shareholders or investors.
In my experience the issue of governance, which comes down to a basic structure for running your company or organization in a sensible, structured manner, is overlooked.
Even some of the very sophisticated groups I have worked for directly or as a consultant have been shortsighted and not seen the value in documenting processes and policies and communicating them to all. From as simple as a policy for managing employee issues to documenting a complex process for developing the strategic direction for the company, I have seen voids.
More governance with growth
It would be easy to overburden a startup with more policies and procedures than it needs. Startups have one goal: to live to play another day and eventually become successful. Just like the old “pinball” game, the objective of which was to get “five more balls” so you could play again, startups need to keep playing.
But, overlooking simple employment and employee policies and rules could bring a startup to its knees in a litigation over wrongful termination. That’s why I always wanted to make sure my companies at least had a handbook to define rules and boundaries.
Once established, the governance needs to expand to cover salary planning, board issues and the need for board committees to provide structure for all areas.
At Pittsburgh Life Sciences Greenhouse, we established the employee handbook very early to define our daily rules for the team. Then as we began to invest more and start thinking about more complex growth needs, we saw the need for board committees and established audit, compensation, nominating, and governance and operating committees. These committees have been very useful in managing both employee and board issues, good and bad, over the past 10 years.
A balance for you
You need to be careful not to get your entities bogged down in detailed policies, but you also need to add more structure as they grow.
Most importantly, these policies and procedures must be communicated and understood by all involved. That is why it’s important to not just send employees the policy or handbook, but also to have them formally acknowledge that they read and understand the policy or handbook. We do that at PLSG, but I’ve seen some who just focus on the business plan and fundraising.
Like in life where “more money is better than less,” I firmly believe more policies are better than no policies at all. Hopefully common sense will prevail for you and you can find the right balance.
John W. Manzetti is the managing director of Manzetti Group LLC. John is the executive chairman of Pittsburgh Life Sciences Greenhouse, and founder and managing director of Accelerator Fund LLC, an early-stage, for-profit venture capital fund focused on life sciences and health care. As president and CEO of the PLSG from 2006 to 2016, John and his team assisted 455 companies, investing $22 million into 80 companies, which leveraged $1.5 billion of additional capital into the region.