In a recent paper, "Scaling Up: the Implementation of Corporate Governance in Pre-IPO Companies," authors David F. Larcker and Brian Tayan review governance practices and how these evolve in the lead-up to an IPO. The authors studies 47 companies that completed IPOs from 2010 to 2018. On average, the companies in the sample set were nine years old at the time of their IPO. Though the authors note that there was great variability among the sample set in terms of the governance systems that were in place at the time of their IPOs, they were able to observe a number of common milestones. Almost all of the companies said they became focused on corporate governance in connection with planning for an IPO and that process, on average, began three years prior to the IPO. Also, generally at that time, the companies recruited their first independent directors. On average, prior to the IPO, companies added three independent directors. Approximately 77% of the sample set had a staggered board at the time of IPO. In approximately 53% of the surveyed companies, the founder served as the CEO at the time of the IPO. Those companies that brought in a non-founder CEO prior to the IPO did so in order to address some perceived managerial or commercial problem. The CFO who took the company public was on average hired three years prior to the IPO. Given the growth in the number of unicorns and the increasingly dispersed ownership of pre-IPO companies, it is surprising that governance practices have not changed much for these companies and that pre-IPO institutional holders do not press for more significant governance changes. The full paper can be accessed here:

Originally published January 22, 2019

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