The post-IPO process can be an important time for corporate governance reform, as newly public companies may face increased scrutiny and demands for better performance. The compliance and governance burden is high. Yet many companies struggle to implement effective corporate governance practices during this time.
Corporate governance principles and codes exist around the world. But compliance with the minimum requirements of these codes and principles does not mean a company has good corporate governance. While a corporate governance structure helps people interact with the company, manage and monitor operations, it is essentially a set of rules and practices that the company uses to ensure transparency, accountability and fairness. Going one step further, strong governance can also help mitigate risk.
Below are five key tips for successfully implementing corporate governance reforms in the post-IPO period.
1. Preparing for changes after going public
Once a company completes its initial listing, it must prepare for the changes that are likely to come with life as a publicly traded company. One of the biggest challenges for a new public company is the need to regularly update shareholders on various aspects of business performance.
Newly public companies must also comply with strict disclosure requirements regarding the company’s financial performance and provide regular financial statements to investors. Managing investor expectations can be difficult for a new public company, as many investors have unrealistic expectations regarding growth and revenue projections. Companies with realistic growth expectations are often able to sustain higher levels of revenue and earnings over the longer term. New companies that expect rapid growth in the early stages should aim for a sustainable business model before listing.
2. Creating a corporate governance structure
One of the first steps in the post-IPO process is to create an appropriate governance structure for management and business operations. The board of directors plays a very important role in this process, overseeing the management of the company and approving all major business decisions. To avoid silos, risk management, compliance and internal controls are integral to an effective board-level decision-making process.
A well-structured board should also include independent directors who can objectively assess the company’s performance and make recommendations for improvement as appropriate. The board should further include a nominating committee whose task is to identify and appoint highly qualified candidates to board and executive management positions.
3. Building a strong management team
One of the most important factors in the success of a newly public company is the quality of its management team. A successful management team should be composed of competent individuals who have relevant business skills and experience and can lead the company to achieve its goals. A company should also focus on retaining key executives after listing, as it can be very difficult to find qualified candidates to replace departing executives.
An investor relations expert can bring years of experience to bear on building the governance structure. He or she can help the company ask the right questions, analyze the decision-making process and evaluate relationships between units, departments and stakeholders.
4. Focus on stakeholder engagement
A company’s stakeholders include its shareholders, employees, customers, suppliers and other external groups that may have an interest in the company’s activities. These groups are important stakeholders that influence a company’s performance and can have a major impact on the its long-term success. Not all stakeholders are equally important, however. Companies should identify their most important stakeholder groups and allocate resources accordingly.
For example, while shareholders have the greatest impact on a company’s financial performance, they are not the only stakeholder group that should be considered. Other important groups include employees and customers. Companies should work closely with these groups to ensure their goals and expectations are understood and respond to their concerns in a timely manner.
Another important issue is to ensure transparency and accountability in relation to company activities. This can be achieved by setting clear and objective management goals, developing clear KPIs and performance-measurement systems, and regularly reviewing and evaluating the performance of top management.
5. Communication with the company’s shareholders
Once listed, a company must try to communicate with its shareholders to keep them informed of important developments in the business. Most newly listed companies hold annual shareholder meetings to communicate directly with investors and solicit their feedback on the company’s performance. These meetings also provide an opportunity for the company to highlight its successes and discuss potential business opportunities that lie ahead. Effective communication between a company and its investors is critical to the company’s long-term success.
A company’s corporate governance structure can have a major impact on the firm’s overall success and its ability to generate positive long-term returns for investors. The values, principles and philosophies established by corporate management can have a significant impact on the behavior and decision-making of all employees in the company, as well as at the board level, when integrated into the governance structure.
Müge Yücel is director of investor relations & sustainability at Galata Wind