20 Jun 2016
CU LAB: IPO basics: identify your key executives and directors
Stuart Byrne explains why it's critical to get on top of your key management arrangements with your lawyers early on.
One of the key IPO streams is identifying the IPO board and the key management team.
Firs stop: the chair. Very often from the transition from a private company to public a new chair needs to be put in place. And if the company doesn't have a chair to take it forward into the listed environment the bankers and lawyers can help with this process of identifying the chair.
Once the chair has been identified and is on board, the chair and the CEO need to establish a good close working relationship to ensure that there's a suitable chemistry there going forward. You don't want the process to be stopped because the CEO and chair realise they can't get on halfway through the process and a new chair needs to be found.
Once that relationship is established, the chair and the bankers and the lawyers can look about getting new directors to fill the spots that are still vacant for the post-IPO board. These are directors that will work with the chair and help the chair and the management team go through listed company life. The ASX corporate governance guidelines, the Corporations Act and the Listing Rules contain a number of provisions which affect the appointment of directors, the composition of a board, and disclosure around directors and their backgrounds, and these need to be assessed and considered carefully when putting together your board and subsequently your disclosure. The key message here is that there's lots to do on this work stream and it should be tackled early.
Of course directors are not the only key people to lock in in an IPO process. Management is critically important to the success of the business going forward, and we will always need to look at the contracts for management to see if they're suitable for a listed company environment. Typically provisions for example relating to term or termination and non-competes will need to be amended before the IPO can go ahead.
And the other key thing to lock in with management is the right post-IPO environment incentive package. Often the incentive package that existed for the management team pre-IPO is not suitable for post-IPO, and these provisions can take time and negotiation and the involvement for example of remuneration consultants to sort out. And a key message here again is: get on top of the work streams relating to your key management, locking in their contracts, getting their incentives right, early on, and talking with your lawyers to make sure the description of those in the prospectus is appropriate and generally are consistent with the Listing Rules and the Corporations Act.