Boards & Governance
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Rob Kiser
Product Marketing Director

Preparing for an IPO: Governance must-haves for going public

December 26, 2023
0 min read
executive leaders discussing preparations for an IPO

Preparing for an IPO is an exciting time for any company. Not only does your personal net worth stand to skyrocket, but the business you worked so hard to build will join a chosen few, making headlines and earning its own ticker on the public markets.

Yet as visions of Bloomberg interviews and vested stock options dance in your head, it’s more important than ever to mind the basics — like essential corporate governance frameworks and best practices.

As your company moves from private to public, it will also grow from having just a few owners to thousands. And these stockholders will have detailed and stringent expectations, many outlined by law.

You’ll need to not only comply with all the rules and regulations associated with the IPO process, but also assure the world you have the right governance structures and frameworks in place to safeguard your stakeholders’ interests well into the future.

What governance structures should companies have in place before they go public?

Going public will require a team of legal, financial and regulatory advisors to wrangle a host of details. Getting these details right isn’t just a gift to your future self — it can also make your initial offering price higher, as investors share your confidence in your company’s sound governance structures.

Your board of directors

Especially in today’s business landscape of growing risk and heightened activism, one place a regulator or investor looks first in a soon-to-be public company is the board of directors, who will be providing top-level strategic oversight.

Do you have the right people in place to make this oversight effective?

  • Directors should represent a wide range of backgrounds and viewpoints. For many pre-IPO companies, this means expanding the leadership team that brought the company to this point.
  • The board’s expertise should reflect today’s challenges. Across industries, this includes areas like cybersecurity, sustainability and AI.
  • Most of the directors in your final board composition should be independent — in other words, not an employee of the company, like a CEO or CFO. This ensures objectivity and impartiality in oversight and decision-making.

Your board committees

For a public company, board committees aren’t just a handy way to delegate. Many are required by law, and regulations like the Sarbanes-Oxley Act may require a certain proportion of independent directors in their membership.

There are three committees every public board must have:

  • The audit committee, to oversee financial reporting independent of management (typically with a CPA or other financial professional among its members)
  • The compensation committee, to manage how the many complex facets of executive renumeration are structured and administered, and to support company goals
  • The nominating and governance committee(often called the “nom gov committee”), for bringing on new directors, ensuring board effectiveness, and administering an all-important succession plan

Your executive leadership

To the people and institutions investing in a public company and the regulators overseeing it, the people at the top matter a great deal.

Among the CEO’s responsibilities are overseeing company expansion, driving profitability and improving share prices, while the CFO manages activities from cash flow and financial planning to compliance and reporting. Make sure that responsibilities are clearly defined for these two critical roles, and that the people holding them have the expertise and skills needed for a public company.

As with the board, it’s important to have a robust succession plan for key executives. This builds trust that the company will be well positioned to obtain top talent and maintain institutional knowledge, and that shareholders will be unaffected by changes in leadership.

You’ll also need a general counsel to lead corporate response on legal issues, along with a corporate secretary to ensure that the board has the resources to fulfill its fiduciary duties. In many companies, and especially as board oversight involves an evolving range of regulatory and legal frameworks, these two roles are combined and held by the same person.

What other best practices will shareholders and stakeholders expect?

In addition to a qualified board and executive leadership team, today’s shareholders and regulators will also be looking for governance best practices, such as:

  • A code of ethics that codifies principles, like those in the ISO 2600-2010 standard: accountability; transparency; ethical behavior; and respect for stakeholder interests, the rule of law, international norms of behavior and human rights
  • Whistleblower programs that encourage open communication and enable problems to be addressed internally
  • Consideration of the Caremark standard and business judgement rule to ensure that the full range of potential risks and issues are considered by the board

What rules and regulations must companies comply with before going public?

The examples and guidelines below reflect requirements for companies going public on U.S. stock exchanges. Please keep in mind that this is not an exclusive list, and if your company is going public outside the U.S., you’ll need to be familiar with the applicable rules and regulations for these exchanges and jurisdictions.

SEC registration

One of the first steps a U.S. company must undertake before going public is filing an S-1 registration statement with the U.S Securities and Exchange Commission (SEC). Be sure to plan ahead and allocate adequate staffing and time for this task; you’ll be required to provide detailed information about your company, including its financials, management and operations.

Financial reporting

Operating as a publicly traded company brings with it high expectations for financial reporting, starting with four letters: GAAP. You’ll be required to prepare and disclose audited financial statements that conform to these Generally Accepted Accounting Principles. Be prepared to significantly amp up the time, resources and expertise you devote to financial reporting overall — shareholders will expect a comprehensive view of your company's financial condition and performance.

Internal audit management software and continuous monitoring tools can help ensure your financial reporting is accurate, up to date, auditable, and always ready to surface for the board and relevant committees.

Quiet period

While you add more disclosures and reports to your to-do list, you’ll also need to know the rules about when to stay quiet. To prevent unfair promotion or market manipulation during the time leading up to a public offering, pre-IPO companies must strictly limit statements and the release of information about their company from the time they file the IPO until 40 days after the stock starts trading.

Material events disclosure

Information and events are considered “material” when they could affect your company’s financial condition or stock price. They include both positive and negative developments, and your company as a publicly traded entity must be prepared to disclose them in a timely manner.

Underwriting agreement

When companies like yours goes public on a stock exchange, an underwriting group (often an investment bank) acts as an intermediary. The underwriting agreement outlines the details of this arrangement and the terms and conditions of the IPO, including the number of shares being offered, the price per share, and the responsibilities of each party.

Shareholder voting rights

In a publicly traded company, certain stockholders are entitled by law to vote on issues impacting company performance, such as mergers and acquisitions, dividend payouts, new securities and elections of new directors. You’ll need to familiarize yourself with these shareholder voting rights, as well as mechanisms like proxy solicitations, where shareholders request an authorized party to vote on their behalf. To stay up to speed on how shareholders might vote, a tool like Diligent Market Intelligence can help you monitor shareholder sentiment and proactively manage any brewing issues or pressures.

Insider trading and reporting

As a public company, you’ll need to be conversant in and compliant with rules and reporting requirements related to insider trading — an illegal activity wherein officers, directors and others use confidential information to their own advantage on a public stock exchange. This may include employee education and trading restrictions, an in-house “watchdog,” or specialized technology for monitoring operations, flagging potential issues and responding appropriately.

Filing requirements

The paperwork doesn’t end after your company goes public —far from it. Investors and the SEC will expect regular disclosures. Make sure your systems and staffing are equipped to file a Form 10-K each year, Form 1 Q each quarter, and Form 8-K documentation to disclose any material events.

Proxy statements

In the United States, the SEC requires publicly traded companies to file proxy statements before annual and special meetings. This is so shareholders can make informed votes in areas like new director elections, executive compensation and mergers and acquisitions. 

A proxy statement can also be a powerful governance tool. Especially when combined with a market intelligence tool, preparation of these detailed documents can help you identify emerging risks early and prepare for activism or other shareholder pressures. 

Sarbanes-Oxley Act (SOX)

Going public on a US stock exchange also requires compliance with the Sarbanes-Oxley Act—lengthy legislation with numerous stringent requirements related to financial reporting, internal control assessments and whistleblower protections. It’s a lot to oversee, and you may want to consider specialized software to make it easier to get contextualized data and customizable reports from your audit teams.

Dodd-Frank Act

Another act you’ll need to familiarize yourself with, along with the terms “pay for performance” and “say on pay,” is Dodd-Frank. Provisions within this act require your company to justify its executive compensation — in great detail — before each shareholder meeting.

Be warned: This can be a highly involved activity consisting of extensive peer and market research, detailed benchmarking, and a specific format, table and metrics to follow for reporting. Executive compensation tools can help you stay ahead of compensation-related scrutiny and ensure compliance with Dodd-Frank.

Listing requirements

One essential area when preparing for an IPO: the listing requirements of the stock exchange where your company’s shares will be traded. There may be specific criteria for your company to meet in terms of share price, market capitalization and so forth. 

Fair disclosure (Regulation FD)

Enacted to combat insider trading, Regulation FD (the SEC’s fair disclosure rule) prohibits the selective release of information to investment professionals and analysts. In both formal and informal communications, material information about your company must be shared with all investors at the same time.

From a governance standpoint, this means your company will need rigorous compliance and monitoring programs and guidance for key personnel — initiatives your board will need to oversee.

Compliance with state securities laws

Once you’ve gotten up to speed on federal regulations for compliance, monitoring and disclosures, it’s time to drill down further to see what’s required at the state, regional and provincial level. Will you need to register to sell shares in a specific state? What kind of anti-fraud laws do you need to be aware of?

If your company crosses numerous jurisdictions or has a structure that is particularly complex, specialized entity management software can help you keep track of the details.

Anti-money laundering (AML) and Know Your Customer (KYC) regulations

Specialized software — including for third-party management and global due diligence — can also help you keep on top of another complicated and important compliance area: AML and KYC.

It’s an investment you might want to consider well before your IPO. Behind these deceptively simple acronyms lurk a host of regulations related to sanctions lists, fraud, bribery, corruption and more, heightening investor scrutiny in areas like vendor management and M&A due diligence. 

Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure (SEC)

New rules enacted by the SEC in 2023 raise the bar for publicly traded companies in terms of cybersecurity oversight — and make Diligent’s SEC Disclosure Readiness packages another worthy technology investment.

The package for cybersecurity includes:

  • Cutting-edge software for the automated identification, assessment and remediation of IT and cyber risk
  • A user-friendly dashboard that delivers a comprehensive view of risk
  • Self-paced e-learning and certification for directors and management

The Enhancement and Standardization of Climate-Related Disclosures for Investors (SEC)

As similar rules loom related to ESG, the climate readiness package can help pre-IPO companies prepare in this area as well, offering:

  • Carbon accounting software for climate data, including up to 80 audit-ready reports
  • A risk management dashboard that brings performance data and market insights together into a consolidated view
  • Self-paced e-learning and certification for directors and management

Why is governance, risk and compliance (GRC) technology critical to maintaining good practices as a public company?

If you’re thinking that all of this seems like a lot to manage, you’re absolutely right — and the burden will only grow after the initial offering is made.

That’s why GRC technology is a critical board investment. It enables boards and leadership teams to:

  • Get a cross-organizational view of progress, risk and compliance
  • Collaborate at the speed of business
  • Make decisions based on the latest data
  • Secure sensitive communications
  • Deliver the auditable data and reports shareholders and regulators expect

Don’t get caught out by pre-IPO complexities. Download our full pre-IPO checklist to start getting your governance in order.


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