At Protiviti, we routinely counsel private companies that a good governance and control structure is a sound business strategy for any company, and particularly for fast-growth companies with outside investors. If you don’t believe us, just ask the Securities and Exchange Commission (SEC).
Recently, SEC chair Mary Jo White gave a speech at Stanford University, directly addressing private companies. “Being a private company comes with serious obligations to investors and the markets,” White said. “For the new and evolving markets to be successful, all investors need confidence that they are being treated fairly and that the full range of risks are transparently disclosed.”
She went on to say, “Some of the principles that characterize public companies – transparency with investors, controls on financial reporting, strong corporate governance – have applicability and relevance to private companies, especially those pre-IPO companies that aspire to go public, and should not be overlooked or avoided, whether or not mandated by federal law or a SEC regulation.”
So, what are those pre-IPO “musts” that private companies should do now to create good governance and control structure? It comes down to two key pieces of advice:
- Start early. Understanding the timeline of events and transformation in an IPO process is key. We recommend certain tasks be done prior to an IPO. Such tasks include evaluating the internal control and governance environments and identifying areas of risk as well as areas for improvement.
- Know the potential issues before they arise. There are a number of issues that companies typically face during the first year of being public. If you plan properly, you can address most of these issues prior to the IPO, and then identify and address the rest as they evolve. Examples include lack of internal buy-in or understanding of the importance of proper controls, minimally documented policies and procedures, and internal control gaps.
Finally, I blogged not long ago about our latest Guide to Public Company Transformation. It contains a wealth of information, in a helpful Q&A format. It’s a good way to take care of the second point I make here – knowing the issues. The early start, that’s up to you.