Three challenges recently public companies face Contrary to common belief, the IPO does not represent an end in itself, but rather denotes the beginning of a new chapter for companies – the IPO afterlife now being a public company life – characterized by a new set of challenges.
The following blog article analyzes these challenges and offers three tips surrounding governance and compensation matters pertinent in the immediate IPO afterlife.
Shareholders of publicly listed companies are generally more reluctant to sudden, unforeseeable changes or adjustments in governance and compensation systems than private investors. For this reason, once public, governance and compensation should remain rather stable and long-term oriented. In this regard, it is key that promises made in the IPO prospectus are met.
For Swiss listed companies this means e.g. that Say-on-Pay compensation budgets – for members of the Board of Directors and Executives – prospectively voted on, not be overstepped. Immediately after the first extraordinary Annual General Meeting (AGM; i.e. the AGM held right after having gone public) or the ordinary AGM, these should also not be significantly changed and the storyline for developments be clearly defined, i.e. providing sufficient explanations and arguments for year-on-year changes.
Should changes be needed – either for the adaptation of listed company standards, or because unforeseen changes in the environment occur – these should be foreseen in the first-year post-listing where possible. It is hereby essential that the storyline for these changes be “air-tight”, i.e. properly elaborated on and deviations to previously communicated aspects be clearly pointed out, and congruent across all changes pursued, as well as ultimately, externally communicated in a transparent manner to especially company shareholders.
Going public means becoming accountable to a broader spectrum of stakeholders. governance and compensation decisions, means that compensation and governance-related changes are closely monitored, and if not coherent, could induce dissatisfaction and distrust among their stakeholders.
Therefore, it is key that public companies engage in effective relationships with their stakeholders.
Public companies should maintain an open dialogue with investors and e.g. proxy advisors all-year around, whereby efforts typically intensify in the pre-AGM season, when invitations and AGM presentations are being drafted and sent-out.
This helps companies prepare for upcoming questions and concerns voiced during AGMs and to test ideas on system amendments.
Shareholders and proxy advisors expect public companies to disclose governance and compensation-related matter continuously and as cohesively as possible. Hence, a proper understanding of requirements needed to be met (e.g. Swiss Ordinance against Excessive Compensation in Listed Stock Companies [VegüV], Swiss Code of Best Practice for Good Corporate Governance, FINMA Directive on Corporate Governance, etc.) and proactive stakeholder management are key to coping with the increasing number of requirements a company faces once public. In so doing, a transparent and compliant communication is required in order to meet stakeholder expectations, as well as ensue trust in stakeholders.
Communication is heavily weighted in importance already in the pre-IPO preparatory stages; however, its importance usually reaches its peak during the first year after listing. Governance and compensation reports are two main instruments for communicating information on said subjects to shareholders, whereas Say-on-Pay shareholder rights – exercised during AGMs per VegüV stipulations – represent the shareholders’ direct communication with the company.
Both the IPO process and the fact of becoming a public company require an adaptation of executive and organizational capabilities, and while this issue is sure to be tackled prior to going public, the transition into the IPO afterlife alone may come to show capability gaps in light of the new challenges faced by the company. Challenges undertaken in the IPO preparatory stages target the successful launch of the company into public life in a high-pressure environment.
While the demands by no means loosen up, the challenges faced once public are different to those in the pre-IPO stages. Markets seemingly deem velocity and flexibility the new currency in the race for market share and success, hence it may be worth considering the re-draft of a skillset map and gap-analysis post-IPO to prove whether your Board and/ or Executive Management are prepared for the challenges ahead.
For further information, please refer to our IPO Viewpoint, or feel free to contact Nadine Balmer and Donata Bauer, we’d love to hear from you.