Governance Essentials To IPO Success

By Nithya Das

The IPO market has slowed down significantly since the unprecedented surge of 2021, which saw 1,026 companies raise more than $100 billion in the U.S. Many organizations that rushed to go public during the boom have since experienced steep declines in valuation, highlighting the importance of careful preparation and providing a valuable lesson for pre-IPO companies.

Achieving IPO readiness goes beyond executing on the IPO transaction itself. In this environment, the emphasis is shifting toward long-term sustainability, requiring organizations to demonstrate they are fully prepared not just to go public but to operate successfully as public companies in the subsequent years.

Ensuring the right skills for post-IPO success

A critical step in IPO success is ensuring directors and leaders have the right skill sets. Companies should consider if directors have a range of industry and public company experience in areas such as cybersecurity, artificial intelligence and sustainability. Companies also need sufficient independent directors to meet regulatory requirements and to ensure impartiality in decision-making, which is crucial for building investor trust.

For many pre-IPO companies, this may also mean including directors and leaders with public company experience. Finally, succession planning becomes more important as post-IPO board and leadership changes may receive increased investor attention so also should be an important pre-IPO consideration.

Crucially, these steps should take place ideally at least 12-18 months prior to the initial S-1 filing. This allows enough time to develop a strong governance framework for new directors and leaders.

Building investor confidence

Investor confidence is often deemed the cornerstone of a successful IPO, and companies must take the appropriate steps to establish trust with potential shareholders. To earn their confidence, a clear and compelling company story is key.

Companies must articulate their market potential, competitive advantages and path to long-term value creation. Investors want to see more than ambition; they want a clear strategy for sustainable growth and evidence of disciplined financial management.

Establishing internal governance is essential in this process. Companies must ensure their financial reporting is thorough and accurate with an operating plan to support achieving results. Companies should establish a governance framework to connect the company’s operating plan to financial reporting and external reporting which supports the company’s story. Establishing these fundamentals early sets the stage for a smoother IPO process and positions the company for long-term credibility with investors.

Preparing the board and employees

Businesses must also prioritize educating their board and employees on the IPO process and post-IPO obligations. This may require education on critical decisions directors will need to undertake during the IPO.

Companies may also need to evaluate how company culture must evolve to support public company operations. Leadership teams must make sure that the IPO and public stock performance do not distract from achieving company priorities. Ensuring employees understand the transition to being a public company is vital for engagement and retention. Without an engagement plan in place, companies risk losing valuable talent in the aftermath of an IPO.

Ensuring sustained success

Navigating the IPO process successfully requires more than just reaching the public market, it’s about setting the stage for long-term resilience and sustained growth.

Companies that prioritize establishing a clear path to sustained growth and profitability will not only weather the complexities of public markets but will also build a foundation for future success. With the right focus during the IPO process, businesses can transform the IPO journey into a lasting growth opportunity, ensuring they remain competitive for years and even decades to come.

Nithya B. Das is the general manager, governance business unit, and chief legal officer at Diligent Corp., where she leads the company’s global legal team and oversees the Diligent Institute, a modern governance think tank. Her expertise spans enterprise SaaS, corporate development, business strategy, HR and operations, driving impactful results through rigorous execution.

Illustration: Dom Guzman