Chess

Going public​

The market for Initial Public Offerings (IPOs) has never been more complex or challenging than it is today. The legacy of the financial crisis and the economic volatility that continues to impact the markets have made investors even more diligent in their scrutiny of IPOs. In light of these challenges, it is extremely important that any organization considering an IPO be well prepared.

Going public presents an opportunity – and the need – to improve capabilities. Some companies improve their financial controls, upgrade their infrastructure, have their financial reports audited, empower their board of directors and formalize their risk management years before going public. Through early adoption of public company policies and practices, they prepare themselves for a smooth and cost-effective public offering.

Many pre-public companies must upgrade their governance structures, policies and practices. Boards of public companies must review goals and strategies, hire and compensate management and oversee risk – among other duties. In turn, selecting the right board and instituting robust governance processes are also in the best interest of management.

When recruiting board members, attention should be paid to the specific skill sets required for certain board committees. In addition to the financial literacy requirement for audit committee members, recommended committees such as the compensation committee and the nominating committee also require board members with special skills and experience.

Organizations will also want to consider their corporate governance policies and committee charters during the pre-filing period. It is important to consult legal counsel to ensure that these documents contain all of the necessary and required duties and responsibilities.

A successful public company needs a sound finance function with well-qualified people (preferably with public company experience) and well-documented processes that can fulfill the demands of public company compliance and reporting regulations. To support the transition from private to public company, the finance function will need time and resources, another reason to start preparing early.

Although the specific requirements of different exchanges may vary, audited financial statements for several previous years will be required as part of the listing process. Financial statements must be prepared in accordance with generally accepted accounting principles and have an unqualified audit opinion.

One of the most onerous obligations to which public companies are subject are the certification and reporting requirements in the area of disclosure controls and procedures (DCP) and internal controls over financial reporting (ICFR). To comply with these requirements, organizations must ensure that they have a strong system of DCP and ICFR, along with a procedure for reviewing their design and effectiveness.

New public companies face numerous new risks such as the compliance and reporting requirements of legislation that applies only to public companies. Public companies also face an audience of investors, regulators, analysts and journalists who are sensitized to risk issues. This can lead to reputation risks, which can jeopardize the company's base of customers and investors.

Even when an executive team and a board of directors have been working together for years, they must actively develop policies and practices that address risk. In addition, they must demonstrate to regulators, analysts, investors and the public that risks have been both identified and managed.

This means having a board that exercises its oversight role by guiding management to identify all relevant risks and, through appropriate review, obtains assurance that all risks have been managed. This sets a tone at the top that fosters effective risk management and positive but realistic internal and external communication about risk.


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