Going public opens up a world of opportunity for a business. Your brand steps onto a bigger stage, visibility increases, and access to capital gets easier.
But it also comes with a new rule book. There are far higher expectations from multiple stakeholders surrounding financial reporting, audit, governance, transparency, risk management and more.
We look at five priority areas that the management teams of newly listed firms should be ready for:
Through a series of three expert panels at our recent 'Preparing for IPO Success - Are you Ready?' event, we unpacked the essentials for IPO readiness.
Much of the pre-IPO effort is dedicated to showcasing potential – by building and communicating your firm’s equity story. Once listed, the emphasis switches to demonstrating results – by showing how you’re realising that potential.
That means having and implementing a clear strategy; and consistently delivering on the promises you made to the market ahead of flotation.
All of which happens under intense scrutiny. You’ll publish quarterly updates, half-year results and full-year results for investors to pore over. And you’ll need to explain any significant events or changes to your business or its operations to the market.
Every decision and development should align with your business strategy. How will it grow your revenues, streamline your cost base, or both? How will it help achieve your objectives, and over what timescale?
This continuous commitment to delivery demands a different mindset compared to running a start-up or scale-up. It requires a relentless focus on performance and outcomes, backed by rigorous discipline over governance and controls, data management, documentation and disclosure.
Falling short of these expectations will weaken your equity story – the very reason why investors chose to back your organisation in the first place. They won’t stick with you for too long if you’re not making good on your pre-IPO potential.
You should start identifying and recruiting non-executive directors (NEDs) to advise the board relatively early in the IPO process.
Finding the right people takes time. And for their part, your NEDs will need time to get to know the company and management team.
Carry out thorough due diligence on the NEDs you’re considering, and expect them to do the same on your organisation. They’ll want to gain a detailed understanding of your business, sector, risks and opportunities, operations, governance and more.
A NED’s role is to bring a governance and risk management lens into the boardroom. They can help you to strike a crucial balance managing risk as a public company (more on this below); and preserving the entrepreneurial culture that’s been vital to your success.
That will mean not just supporting the management team, but also challenging them at times. That can be difficult to get used to. It’s important to establish a positive, trusting relationship with your NEDs as quickly as possible, if you’re to get maximum value from their perspective.
The hike in governance requirements once a company goes public is enormous – especially if you’re listing in the US.
At the event, we asked guests what worries them the most about the IPO process. ‘Sarbanes-Oxley’ (SOX) – the law regulating the governance of public companies in the US – topped the list. ‘Governance and reporting’ was also among the more frequent responses.
These are understandable concerns. SOX sets a stringent, rules-based regime for governance and financial reporting by listed companies. And it’s supported by robust enforcement: failure to comply can result in up to ten years’ imprisonment.
The documentation requirements under SOX are significant and will take time to meet. And the regulation works to a simple principle: if it isn't documented, it didn't happen.
So if you’re listing in the US, start designing and implementing the governance frameworks, mechanisms and controls needed to comply with SOX as early as possible.
The UK Corporate Governance Code is less prescriptive and sets out a “comply or explain” framework. It offers more flexibility in how listed businesses are governed, especially on AIM. However, there is often a significant step-up required to align to the governance requirements of a listed business and the timeframes to implement and adopt these structures should not be underestimated.
Trust will be fundamental to your success as a listed firm. Your stakeholders – investors, employees, regulators – will want to know the risks facing your business, have confidence in how you’re addressing them, and understand your risk appetite.
That’s why public companies are obliged to publish their risk register, risk management strategy and framework, and mitigation strategies.
Transparency is essential here: what you disclose must reflect the organisation’s real-world exposure. Generic, copy-and-paste reporting won’t cut it.
As a business coming to the market, you’ll no doubt have risk management procedures in place. But they may not be formalised to public-company standards, and you may not have experience of documenting and publishing them.
Make sure your NEDs look closely at your risk framework and reporting, and encourage them to challenge you where necessary.
Have you identified the right risk factors? Have you missed any? What’s on the horizon that could impair business performance? Are your controls robust enough – without stifling that all-important creativity and entrepreneurialism? Does your reporting give stakeholders the level of detail they expect?
Effective governance of executive remuneration is critical in a listed entity.
Boardroom pay is one of the most closely scrutinised aspects of post-IPO life. It must be publicly disclosed, which inevitably draws attention not only from investors and regulators, but also the media and public.
Rightly or wrongly, any perception that reward packages are excessive, or unaligned with performance, may trigger negative headlines and shareholder activism. That can bring about reputational damage for the organisation and the individuals concerned.
The right remuneration strategy and structures depend on where the business lists and operates.
In the UK, executive plans tend to be largely performance-based. Indeed, the Investment Association's latest update to its Principles of Remuneration reduces the emphasis on pay restraint. The aim being to promote greater competitiveness, and give UK-listed companies more flexibility.
Hybrid reward strategies are more common in the US, combining elements of pay for performance with recognition of time spent at the company.
Ultimately, your investors need to feel that there's a cogent rationale behind your executive remuneration. Your business and pay strategies must align, so that the board is rewarded for taking the right decisions and actions.
The NEDs on your remuneration committee are responsible for overseeing executive pay. It's complex and detailed work, so give them access to the right data, with the right quality and level of detail, to inform sound judgements.
The factors outlined above are only a snapshot of life for the management team of a publicly owned company. There are huge amounts of preparation, both for the IPO itself and the realities of running a listed firm.
Whichever stage of the lifecycle you’re at, our experts can assist at every step.
We help businesses of all sizes and ownership structures: from fast-growing startups and large private businesses funding growth through IPO; to global public companies undertaking M&A.
We’ve worked on some the most complex IPOs and public company transactions, across all major capital markets: London (Main Market and AIM), US, Hong Kong, Euronext and more.
We can bring this deep expertise and extensive experience to your management team. Please get in touch to see how we can support you through your IPO journey and beyond.
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