Search
Close this search box.
Search
Close this search box.

Going Public? Pay Attention To Board Composition

© AdobeStock
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.


MORE LIKE THIS

  • Get the CEO Briefing

    Sign up today to get weekly access to the latest issues affecting CEOs in every industry
  • upcoming events

    Roundtable

    Strategic Planning Workshop

    1:00 - 5:00 pm

    Over 70% of Executives Surveyed Agree: Many Strategic Planning Efforts Lack Systematic Approach Tips for Enhancing Your Strategic Planning Process

    Executives expressed frustration with their current strategic planning process. Issues include:

    1. Lack of systematic approach (70%)
    2. Laundry lists without prioritization (68%)
    3. Decisions based on personalities rather than facts and information (65%)

     

    Steve Rutan and Denise Harrison have put together an afternoon workshop that will provide the tools you need to address these concerns.  They have worked with hundreds of executives to develop a systematic approach that will enable your team to make better decisions during strategic planning.  Steve and Denise will walk you through exercises for prioritizing your lists and steps that will reset and reinvigorate your process.  This will be a hands-on workshop that will enable you to think about your business as you use the tools that are being presented.  If you are ready for a Strategic Planning tune-up, select this workshop in your registration form.  The additional fee of $695 will be added to your total.

    To sign up, select this option in your registration form. Additional fee of $695 will be added to your total.

    New York, NY: ​​​Chief Executive's Corporate Citizenship Awards 2017

    Women in Leadership Seminar and Peer Discussion

    2:00 - 5:00 pm

    Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations. 

    Limited space available.

    To sign up, select this option in your registration form. Additional fee of $495 will be added to your total.

    Golf Outing

    10:30 - 5:00 pm
    General’s Retreat at Hermitage Golf Course
    Sponsored by UBS

    General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.

    The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.

    To sign up, select this option in your registration form. Additional fee of $295 will be added to your total.