The value of reputation, the meaning of governance, and the tenets of trust. Sanjeev Bhikchandani, the highly respected entrepreneur, investor, and founder of Infoedge, one of India’s most enduring internet businesses, went deep into these topics and more on the fundamentals of running a business with Kunal Shah, founder of CRED. The wide-ranging chat is filled with anecdotes from Sanjeev’s career, early struggles as an entrepreneur, and as the custodian of shareholder interests as the leader of a public company. Here is the link to the video and below are some excerpts from the conversation:
The company belongs to all shareholders: A founder needs to fundamentally recognize that the company belongs to all shareholders, not just the founders themselves. They need to look after minority shareholders – especially team members who hold ESOPs and retail investors – just as they would look after themselves. For example: when a founder puts personal spends on company accounts, they’re stealing from other shareholders because the company’s money belongs to all shareholders.
Founders’ #1 role is to create trust: Founders need to create trust across the table with co-founders, colleagues, and shareholders. “The principles of trust are integrity, consistency, competence, benevolence; the presence of all doesn’t guarantee trust, but the absence of any creates mistrust,” said Shah. Founders need to demonstrate a sense of fairness, keep commitments, and tell the truth openly and honestly even if it’s uncomfortable. Bhikchandani added: “The leader’s role is not to sell stock but to ensure that when somebody else wants to sell their stock there are enough buyers. A leader needs to build the company for all shareholders, and ensure everyone gets rich, not just themselves.”
Good governance starts in the founder’s head: Good governance starts with being fundamentally honest. If you’re clear that you want to do the right thing, surround yourself with capable people who know better, and actually listen to them. Independent directors and auditors are there to save founders from themselves. Put in place people, processes, and technology to help remain honest. The difference between honesty by default and honesty of choices becomes evident during key moments of decision-making.
Trustworthiness creates long-term value: Mistakes and losses happen in the course of running a business, but being trustworthy means that you’ve built a reputation for being open, transparent, and honest. In fact, down markets are the acid test for trust; companies known for corporate governance correct the least resulting in higher premiums. Investors want to work with honest managers whom they can trust to be truthful in good times and bad. They might even be able to help solve the problem. An American investor told Bhikchandani that Infoedge gets a 25% premium for corporate governance. Investors who believe in your honesty will not only back you, they will stay invested for longer and even if they don’t, they will tell others.
One person’s error impacts the entire ecosystem: In ten years, there will be many more profitable and large Indian internet companies. We are all ecosystem participants and every error of competence, judgement, behaviour impacts us all. Running a clean company with honest practices and good governance is therefore more important than having the highest market cap.
Go public only when you can handle the responsibility of a public company: When public money is involved, oversight is different, and there is an overhead that comes from establishing systems, processes, and people that can handle the responsibility of a public company. Bhikchandani advised founders to go public only when their profit streams are sufficient to support this while Shah suggested that companies should go public only when they’ve run eight quarters like a public company.
Reputation is the only asset: Bhikchandani quoted Ram Shriram, an investor, who said, “In the final analysis, the only asset is your reputation.” He shared this as part of the advice he gives founders, cautioning them against doing anything that spoils reputation. He said this is important because if that is intact and the company collapses, they’ll still get ahead because it’s on reputation that everything is staked.
