This is the fifth in a series of posts: The Ins and Outs of Preparing for an IPO -What Your Company Needs to Know.
Phase II – Executing an IPO
Corporate governance and a board of directors
All of the major stock exchanges require a registrant to have a majority of independent directors on its board. According to PwC, “…one of the best sources of objective advice can come from an independent or outside director.” As with every other element of the IPO journey, a company should seek qualified board members well in advance of the IPO launch. “A potential board member who is unfamiliar with a company may be reluctant to join the board immediately before an IPO since a director has personal liability for information contained in or omitted from the registration statement,” PwC adds.
EY’s Guide to Going Public survey revealed that recruiting qualified independent board members was the greatest corporate governance issue faced during the IPO process.
Choosing an investment bank
Of all the external advisory professionals involved in an IPO, the underwriter is potentially the most important. While no company is obligated to use an underwriter to go to market, garnering their expertise has its advantages. An investment bank can ensure an IPO will be properly managed and successfully marketed. Investment banks also have an instinct for timing an issue, and they can often anticipate pitfalls and calculate risks. The size and scope of a company and its offering will, in part, determine the size of the underwriter it will need to enlist for its IPO.
For more on the IPO process, listen to the complete webinar HERE.
Other characteristics to look for when choosing investment bankers include the candidate’s likeability, communication style and trustworthiness. It is also important to find an investment banker that specializes in businesses or industry segments similar to that of the IPO candidate, and one that has proven experience in underwriting IPOs.
Regulatory compliance: The financial health-check
According to KPMG, the process of going public will necessitate a fundamental shift in financial reporting and planning. IPO candidates will need to comply with the local regulatory requirements for their respective exchange. In the U.S., this means compliance with both the federal Sarbanes–Oxley Act and local U.S. GAAP accounting practices.
Sarbanes-Oxley requires a registrant’s management (CEO and CFO) to provide certifications in periodic filings with the SEC, and to have an independent audit committee with at least one member qualified as a financial expert.
Any public company will need a suite of board-approved risk management and control policies. Companies in today’s business environment are focusing more on risk assessment and response as a result of increased regulatory and investor scrutiny. Shareholders are also increasingly expecting transparency, open communication and effective global risk management.
Enhancing internal controls can help meet evolving tax, legal, accounting and procedural challenges. Establishing an internal audit committee is key to meeting these requirements. Audit committees typically examine the annual and quarterly financial reports, and review the financial reporting and budgeting processes.