Corporate governance is the last thing on the mind of a start up franchisor, and in many ways is irrelevant at the outset. If you are the owner, director, financier and key employee you don’t need too many policies. However it is important that as the business grows and new stakeholders are involved appropriate corporate governance rules are established. Otherwise those stakeholders will not have the necessary confidence to properly partner with you on your journey, or the stakeholder relationship will end in tears if the entrepreneur behaves “entrepreneurially” one time too many.
We have developed sophisticated corporate governance for clients, and assisted in the transition from private business to corporation. However the underlying principles are relatively simple, and mostly common sense:
- there needs to be an empowered board separate from the founder, and with the skills and experience to properly discharge their legal and business duties as directors;
- the board needs to ensure there is a senior management team in place with the requisite skills and experience. Having a founder as CEO with unilateral decision making power is no longer appropriate;
- all stakeholder interests need to be protected. This is particularly relevant if these are shareholders other than the founder, as they have rights that directors must protect;
- there must be effective risk management systems in place;
- record keeping and financial reporting must be strong.
The earlier franchisors begin thinking about these issues, the more likely they are to successfully progress from a corporate extension of the founder with all the founders inherent vulnerabilities to a successful corporation that has corporate value and assured longevity.