Implementing Strong Corporate Governance Pre-IPO

The decision to go public is a turning point in the life of any company, as it means a transition to a fundamentally new management model characterized by a significant increase in the role of various stakeholder groups. Check how to implement strong corporate governance pre-IPO in the article below.

Why Do Companies Go for IPO?

Today, the question of the importance of strong corporate governance pre-IPO is no longer raised in the life of an issuer – improving the practice of corporate governance has become an objective necessity for many companies. The need to address corporate governance issues is primarily associated with the attraction of investments by business structures through a public offering of company shares on the exchange market.

Why do companies go for IPO by implementing strong corporate governance pre-IPO?

  • To attract a large amount of investment. Multimillion-dollar investments are directed to expand the business and improve the issuer’s product.
  • To become more popular. Claiming an Initial Public Offering is like running a global advertising campaign.
  • To build a positive reputation. Quotation of shares on world stock exchanges is very prestigious. The valuation of the business and the liquidity of the securities of the enterprise, as a rule, increase.

The choice of the optimal offer structure is one of the key factors for the success of an IPO; however, the structure may be revised during the active phase of preparation based on feedback from investors and changes in the situation in the stock market. For example, upon receipt of relevant information, the volume of the proposal may be increased or revised towards an increase in the capital-raised component.

Company Corporate Governance Pre-IPO

For most commercial structures, the financial audit has already become an indispensable condition for doing business, and more and more companies are mastering the audit of business processes. As interest in attracting investments and understanding of the importance of corporate governance as a factor of investment attractiveness grows, such a new tool as the audit of corporate governance of a company is gaining popularity.

The key to the success of strong corporate governance pre-IPO is the introduction of corporate governance best practices – an extensive set of recommendations developed by investor associations, international organizations, financial institutions, and consulting companies. However, as experience shows, the simultaneous implementation of the entire extensive set of international best practice recommendations cannot be called rational for all domestic companies.

A Key Component of a Modern Corporate Governance System

If we consider corporate governance pre-IPO as a set of tools that allow separating the functions of control and management and coordinating the interests of owners and managers, the interests of the board of directors, and the general director as the company’s manager, then it becomes obvious that the formal approach has already exhausted itself.

The main economic features that influence the implementation of strong corporate governance pre-IPO are:

  1. The high degree of dispersal of share capital.
  2. Most investors are focused on short-term goals, on receiving income from exchange rate differences.
  3. The stock market is highly liquid due to such a share capital structure and regulatory features.
  4. Capital structure and high liquidity contribute to the high prevalence of hostile takeovers.
  5. The stock market is not just a stock market but a market of companies: through it, control over the largest companies are transferred.