Preface
The Telecommunications Development Fund is a venture capital firm investing in early stage companies nationwide. In our experience, corporate governance is one of the best indicators of the quality of the company and its management for potential investment. By implementing corporate governance policies early in their life cycles, companies signal future investors that they have solid business practices; that the money management has raised is, in fact, invested money; and that there is an obligation to deploy capital wisely and efficiently.
Young companies don't need to adopt complex or costly corporate governance systems. Good governance means a business respects and engages in appropriate business practices, maintains all financial information in accordance with generally accepted accounting practices, keeps shareholders informed through regular meetings and discloses relevant information in a predictable and timely fashion in concise, understandable terms. When a company is relatively young, perhaps funded by family, friends, or 'angels,' keeping them informed may not be too difficult. Once receiving money from institutional investors, the entrepreneur needs to implement more formal business practices.
In a recent 2002 McKinsey Quarterly article, Tobias Hoschka reported on findings from the Mercato Italiano di Borsa, Italy's stock exchange. Concerned about small and midsize companies that have historically been overlooked by fund managers, Borsa launched the STAR exchange for companies that follow strict governance requirements. "The STAR exchange now lists 37 companies, with a total market capitalization of $7.5 billion. They outperformed their counterparts on the Borsa by 16.5 percent from April 2001 to March 2002…." This report supports the TDF conviction that good governance makes better companies and even better business.
Although the value of good corporate governance is widely recognized, we found that entrepreneurs lack reliable and accessible information on good corporate structure and governance geared for very young companies working to become more substantial organizations. While resources on corporate governance are available for public companies, we found nothing to guide entrepreneurs as a company matures, perhaps with an eye toward the public markets.
This module was developed to begin filling that information gap. The content addresses several fundamental questions and includes suggestions for additional reading, links to other online sources of information, and refers to associations and organizations focused on advancing good corporate governance. We appreciate the enthusiasm with which our writer, John (Jack) Moore, approached the project that paralleled his work in leading the local chapter of the National Association for Corporate Directors. And we include a special thanks to Jonathan Aberman from Fenwick & West, who not only participated with our Project Contributors, but continued to review, revise and advise so all our readers may benefit from his experience and wisdom. We hope we got it right, and that this material provides entrepreneurs with information and understanding that they find useful and relevant in founding and building many successful companies.
Ginger
Ehn Lew |
Penny K. Pickett |