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Going Public? Pay Attention To Board Composition

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Ideally, you should have the board in place and prepared for work at least 12 months before the day you want to ring the exchange bell.


I’ve been fortunate to work with several companies during the pre-IPO phase. Some have been successful, and others less so. But companies that have successfully navigated this phase of growth have one thing in common: all had strong boards of directors with strategic mindsets, a commitment to preparation and a tactical focus on the endgame. Any CEO and CFO preparing a company for a public exit must be certain that the company has the right board in place.

An IPO is an important demarcation point in the lifecycle of a business. The strategic leadership of a private company is measurably different from that of a public one and the personnel called upon to provide that leadership must usually be different, as well. A private company might have several members of the founding family on the board in an effort to properly advise and steer the company in a manner that provides the best mix of financial return and autonomy for the owners. A public company, however, needs a board composed of members with skillsets distinct to the challenges of operating a company with the full force of regulatory and accounting standards at play.

A public offering changes the nature of a business forever. There are many good reasons for a private company to consider an IPO, including having the ability to:

• Liquidate a portion of the owner’s equity without giving up overall control of the company;

• Access to capital raising using the public equity markets, often a more efficient way to attract investment capital;

• Use industry-standard price-to-earnings multiples which are typically higher for public companies and create higher equity valuations;

• Acquire other companies by issuing attractive and fungible equity directly to the public or sellers to raise the funds for a cash purchase;

• Attract and retain employees, directors and strategic partners by offering equity-based compensation and incentives.

All these benefits are great opportunities for growth-minded organizations. It’s important that the board understand and know how to optimize these kinds of goals.

In addition to the strategic factors influencing board makeup, there are regulatory considerations to be considered, as well. For example, the SEC, many state securities regulators and most of the public stock exchanges in the U.S. and around the world have guidelines and even mandates concerning board composition. For example, the boards of listed companies must be composed of a certain number of independent directors not employed directly by the company as an employee. Companies are also required to have a Governance Committee, Compensation Committee and Audit Committee and see those committees staffed with the appropriate number of independent directors. California and other states have regulations in place mandating the presence of female directors, a trend that will likely continue into the foreseeable future. Finally, there are some entities that purchase stock in public companies to further social justice issues like racial makeup on boards of directors.

As with most things in life, timing is everything. When should you begin to think about the proper architecting and people structure for your soon-to-be public company? The time it takes to select, recruit, onboard and gel a new board will depend on many factors, not least of which is leadership and focus on the task at-hand. Assuming you have the board you want ready to go, you should have them in place and prepared for work at least 12 months before the day you want to ring the exchange bell. If you wait too long, you’ll spend the first months reorganizing the membership, making committee assignments and fixing problems that loom large but could have been addressed without consequence previously.

True success comes when the board, management team, outside underwriters, lawyers and market makers are all pulling in the same direction. An informed CFO can be central to the success of one of the most momentous events in a company’s history. Working closely with the CEO and General Counsel, the CFO should advise on all financial aspects of the IPO transition process and be prepared to proactively educate board members on what financial perfection looks like, and what to do if it doesn’t materialize. Moving forward with a definitive plan, including others in germane decisions and supporting the board and individual board members in their decision-making process is the mark of a stellar CFO—and will serve the company’s best interest as it seeks its next phase of business growth as a public company.


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