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Getting Ready for an IPO

Provided by IFC Corporate Governance


Going public is a long and complicated process that does not take place overnight. Family businesses that are planning to go public have to get professional advice and help in many legal, technical, financial, and marketing areas. In addition, many investors are now requiring the companies that are going public to show a long-term track-record of good corporate governance practices before the actual IPO. In particular, investors and the market highly value the company’s practices in the areas of the board of directors, shareholder rights, and transparency and disclosure.  

The following table provides a summary of key corporate governance practices that would help convey a positive image to the market about companies that are preparing to go public. Of course, most of these practices need to be put in place a few years before the IPO in order to show a good track-record of adequate governance to the market and potential investors.[1]

Governance Attributes

Examples of Best Practices

Shareholder Rights

 

- Clear protection of minority shareholders in charter, by-laws, and company governance code.

- Adequate notice and shared agenda of all shareholders’ meetings.

- Ability to participate and vote meaningfully at shareholders’ meetings (e.g., cumulative voting for directors).

- Fair treatment regarding information disclosure (material shareholder agreements, conflicts of interest, etc.)

- Clarity in rights of different classes of shares – voting rights vs. economic rights.

- Equitable treatment in changes of control (e.g., tag-along rights).

 

Board of Directors

 

- Right mix of professional skills (e.g., marketing, strategy, international financial markets, and audit committee expertise).

- Strong independence component.

- Separate chairman and CEO roles.

- Regular schedule and agenda of meetings.

- Existence of board committees responsible for oversight in key areas (Audit, Governance and Nomination, and Remuneration).

- Initial and continuous director education.

- Periodic evaluation of directors.

 

Transparency and Disclosure

 

- Information prepared and disclosed in accordance with high quality standards of accounting, financial and non-financial disclosure.

- Annual audit conducted by an independent, competent, and qualified auditor in accordance with the International Standards on Auditing.

- External auditors accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of their audit.

- Channels for disseminating information should provide for equal, timely, and cost-efficient access to relevant information by users.

 




 

[1] International Finance Corporation. www.ifc.org/corporategovernance.

Copyright © 2014 IFC Corporate Governance.  All Rights Reserved. 

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