INTRODUCTION

Starting a business can be an incredibly daunting task, and the success of a startup depends heavily on the strategies and decisions the business owners make. Corporate governance can help startups grow and thrive by providing structure and direction to the business. Corporate governance involves a set of rules and regulations that guide how a business is managed and how its resources are allocated. This can include everything from setting out processes for decision-making to establishing ethical standards and creating a company culture that encourages collaboration and innovation. Corporate governance can also help protect the interests of shareholders, encourage transparency, and promote ethical and responsible  behavior. Not only does corporate governance help startups succeed, but it can also provide a competitive edge in the marketplace. With the right corporate governance practices in place, startups can be better prepared to handle the challenges of an ever- changing market and stand out from the competition.

 

STARTUPS AND CORPORATE GOVERNANCE

In practice, there are numerous examples of lack of good corporate governance leading to a company’s downfall. The most recent example is the collapse of one of the cryptocurrency behemoths, FTX.

 

FTX was the world’s second largest cryptocurrency exchange prior to its collapse. Due to lack of a good corporate governance system in place, FTX was forced to declare bankruptcy. The initial announcement of the company’s failure resulted in a nearly 25% drop in the price of Bitcoin, a panic in the market, and FTX  losing a rumored $1 billion in customer funds. 

The company did not maintain accurate books and cash accounts and currently is not able to locate accurate accounts and transaction history to verify its positions. There were also auditing failures and a lack of clear employee and contractor records. The company failed to represent the best interests of its stakeholders, which resulted in its collapse. This demonstrates the significance of having a good corporate governance structure in place, as poor corporate governance can lead to the collapse of a fast rising company.

 

Corporate governance is a concept, rather than an individual instrument. It includes debate on the appropriate management and control structures of a company. It includes the rules relating to the power relations between owners, the Board of Directors, management and the stakeholders such as employees, suppliers, customers and the public at large.“ DR. Narayana Murthy, President Sec, INDIA.

 The Companies and Allied Matters Act, Cap c20, is a major law in Nigeria that governs corporate governance. It includes mechanisms for corporate governance such as appointing directors, removing directors, provisions for auditors and audit committees, and the mandatory participation of shareholders in corporate decisions.

 

Corporate governance has a significant impact on businesses and determines whether they succeed or fail. A number of startups in Nigeria have failed because they lacked clearly defined corporate governance structures. According to experts, the failures of Nigerian startups are not always due to lack of funds or a harsh environment, but also a lack of internal process that would ensure success.

Prof. Umar Garba Danbata has blamed some companies' failures on a lack of corporate governance structures, as seen in major companies around the world such as FTX, Enron, Worldcom, Arthur Anderson, Leeman Brothers, and Cadbury Nig. Ltd.

 

In order to succeed, startups need to adopt corporate governance practices at every level of conducting business. There are four different stages to a startup’s growth process which require governance structure at each stage, they include:

1.       Creativity stage

2.       The early stage(Minimum viable product)

3.       Traction stage

4.       Growth stage

 

Creativity stage

This is the initial stage where the ideas are conceived. At this stage, the market analysis is done to determine the problems the startup company intends to solve. At this stage, corporate governance focus will be on;

·         Roles and responsibilities of partners

·         Definition of equity interest

·         Ownership of the company’s intellectual property

 

The early stage(Minimum Viable Product)

This is the stage where all the ideas start to materialize. At this stage, the product has been created and is being tested. The governance focus at this stage will be on;

·         Getting investors and partners

·         Means of dispute resolution

·         Protection of intellectual property

 

Traction stage

At this stage, the MVP being tested is now validated. The next step will be searching for ways to generate revenue, and getting customers and new employees. The Corporate governance focus at this stage will be on:

Establishing a board

Defining hierarchy

 

Growth stage

At this stage, the company has been well established and is ready to move forward with business. The corporate governance focus at this stage will be on:

Implementing policies

Codes and ethics

Improvement of shareholder/investor relations

 

CONCLUSION

Okpara (2016) argued that weak or non‐existent law enforcement mechanisms, abuse of shareholders' rights, lack of commitment on the part of Board of directors, lack of adherence to the regulatory framework, weak enforcement and monitoring systems, and lack of transparency and disclosure are causes of CG failure in Nigeria.

The importance of having a solid corporate governance structure for startups cannot be overemphasized as it encourages success and business stability. It should also be noted that early integration of corporate governance at all stages of a startup’s growth is crucial for boosting productivity and attracting investors.