An IPO or an Initial Public Offering is the first time a company is offering any sort of stock options to the public. This is the moment that company crosses over from a private company to a public one. For those companies that are private or public there are many benefits and disadvantages. For example, a private company does not have to disclose a lot of financial or accounting information as most of that information stays between the executive team and the board of directors. As a private company you are sometimes shielded from having the internal workings of the company being exposed, however, that is not to say that everything at a private company stays private.
For those companies that are looking to IPO the advantages are plentiful. First and foremost, an IPO will generate a large sum of revenue for a company as their forecasted value is evaluated, which determines the amount of stocks available and the cost per share. However, when you move toward an IPO, you now have to handle both the relationships between investors and shareholders. This can sometimes be a very delicate relationship and one that can expose the company to a lot of different issues. With an IPO comes shareholder expectations and within those expectations are the fact that the company will be continuously scrutinized in regards to strategic planning, financial results and the overall price of shares. Additionally, executive compensation and the performance of both management and the board of directors is now in the spotlight. During the annual meeting, shareholders can choose to vote out board members for poor performance and choose to elect new members. There is always the threat of shareholder activism, which can expose the board to a shareholder trying to gain a board seat while removing a tenured member.
How To Handle Shareholder Relationships For Companies That Are Announcing An IPO
Companies that go public need to be aware of the many risks that come with having shareholders, while also being aware of following proper procedures to create a fair environment between the company and those who decided to buy stocks. More recently, you can see an example of this poor relationship with the Snap Inc. IPO. With their IPO, they essentially blocked investors from having any sort of voting rights, which changed how companies could IPO in the S&P 500, S&P MidCap 400 and S&P MidCap 600 indices.
Finally, there is additional strain on the board. A private board should already be looking into increasing security and using the right technologies to protect not only their investments, but also private information that should not be leaking to the public. One thing that a majority of private boards have started to utilize is board portals. By using a board portal you can secure communication, better prepare meeting materials and securely share high-level information. It will help a private board of directors better live up to the future standards of shareholders.
The Challenges of Balancing Short-Term And Long-Term Factors For Public Boards
The shareholder relationship is a very new thing for private companies. Being able to better address that relationship and how to approach it is a very important step of the IPO process. Boards should be ready to incur some costs in terms of covering legal costs and should also be prepared for more scrutiny as more of the board’s activities move into the public sphere.
With the organization in the public eye and now having to live up to the expectations of the investors and shareholders, a board should understand the challenges they are now facing between managing the short-term and long-term factors and strategic planning for the company. Shareholders and investors alike except rapid growth and a positive return on their investment. As a board member understanding how to better approach these challenges is a necessity and finding the right balance in how to differentiate.
Board portal technology is changing how boards and executive teams communicate and achieve their goals. If a private company is not already using a board portal, which many companies these days are, it is imperative to investigate this technology to improve communication, streamline initiatives and secure company information within a private platform where leaks cannot occur. Using a board portal will also foster a better environment within the boardroom.
Monitoring Growth of Your Private Company
As your company experiences growth, the decision to IPO becomes a very important one, but is also one that is not necessarily required. There are countless companies that decide to never go public because they have experienced unprecedented growth without the need of more investments and the strings that comes with going public. However, those companies should be aware of how their board should adapt as the company grows and what other things that they should pay attention to so that their company can continue to experience unhindered success.