Image: Scott Graham on Unsplash
Many early-stage off-grid solar companies do not have corporate governance at the top of their priority list, as they are running their day-to-day operations and try to manage their business as best as they can. Some may also believe implementing a formal corporate governance framework is only necessary at a later stage, when they are ‘’big enough”. Although this is understandable and the creation of the right corporate governance structures and policies is sometimes challenging, this approach misses an important opportunity. Having adequate corporate governance practices and a board in place before periods of growth occur can add significant value to your company, provide a competitive advantage, and help you achieve your goals.
Here’s why we advise off-grid solar companies to think about getting the right corporate governance structures in place from an early stage and how you can start now working towards strong corporate governance.
The benefits of having strong governance structures in place:
1. Do not miss out on an investment opportunity
Funders often require strong governance processes and procedures as a precondition for investing in a company to minimize the risks of their investment. This especially holds true for early-stage companies. Having strong corporate governance structures in place can therefore ensure that you do not miss out on crucial investment opportunities. A well-composed board can even more directly contribute; board members are usually individuals of influence that are well-connected in the community and can therefore help you and your business to fundraise. Furthermore, they can provide much-needed business credibility and assurance to investors on the prospects of the business idea. Once the investment is secured, board members with investor experience can help align investors’ expectations, encouraging new investments and growth.
“The “G” for governance in ESG is highly under-discussed and is essential for the sector. Investors’ Board seats and directorships have the ability to influence the priorities, focus, and outcome of a company. Our ability to drive impact and build sustainable businesses in off-grid energy are the sum of the quality of our decision-makers in many ways.”
– Leslie Labruto, Head of Investment Strategy, Acumen
2. Benefit from skills and advice of the board
Board members can contribute value beyond your company’s fundraising success and can bring complementary skills and knowledge to the management team. Founders of early-stage off-grid energy companies face a great challenge to reach off-grid customers, design or procure affordable products, provide the finance to them, and operate in turbulent markets. Yet, they often have limited resources to invest in personnel and processes. Board members can support founders by bringing in deep industry or other related business knowledge, helping you think strategically, and providing advice when necessary while keeping an eye on the broader picture.
3. Keep a healthy working culture and strong risk management
Having the right corporate governance practices in place can contribute as well to a strong and healthy company culture, where there is room for feedback and advice, and where risks are timely pointed out and mitigated. More generally speaking, adequate corporate governance structures and practices may ensure more effective management, which can lead to higher profits and sustainable growth.
“We wouldn’t have grown to where we are right now if we didn’t have a functional board from the beginning.”
– Jones Ntaukira, Chief Executive Officer, Zuwa Energy
What you can do to begin working towards a strong corporate governance:
Start by performing a SWOT analysis to find out your company’s weaknesses and understand where the mobilization of a board could help you strengthen these areas. Once known, seek suitable board members to fill these gaps.
When setting up your corporate governance structures, it is good to aim high but start small. It is natural to take the example of more mature companies that have already raised several investment rounds, but it is just as important to understand that early-stage companies are different from mature companies in many aspects, likewise for their corporate governance structures. Although there is no harm in aiming high, there is more benefit of starting small, as the added advantage of a board is clearer when it fits the development stage of your company. Creating multiple board committees or adding a number of independent board members too early in the development of your corporate governance structure might only add to the complexity of the board structure and management when the focus of the board should rather be on challenging and guiding entrepreneurs and complementing the management team in their skills and expertise.
Although it is often inappropriate to aim for a mature corporate governance structure too early in the life of your company, it is highly encouraged to think about the evolution of your board from an early stage and curate a corporate governance strategy. In the process of developing towards a more mature board, it helps to continuously assess whether the corporate governance structure remains fit for purpose based on the ownership model, size, complexity, and risk profile of your company.
Strong corporate governance is crucial for the long-term sustainable success of the business. Smart entrepreneur-founders that start to think about the development of their corporate governance structure sooner rather than later will be able to benefit greatly from the advice, connections, and expertise of board directors. Strong corporate governance is now even more important than ever in the changing environment due to COVID-19, which is characterized by pressures and demands from various stakeholder groups.
To learn more practical tools to improve your corporate governance structures and practices, join us for two corporate governance training sessions hosted by Nestor Advisors, a global corporate governance consultancy with almost two decades of experience in upgrading the governance of companies of all sizes and read this practical resource guide in the meantime.