Vice Chairman and Co-Leader, Board & CEO Services and Global Leader, Government Affairs
They’ve been in the public eye so much it may be hard to forget that neither Uber nor its rival Lyft are actually public companies.
But the two ride sharing firms each just filed confidentially their plans for initial public offerings, a much awaited first step toward a move that will fundamentally alter how their boards and executive teams work. Indeed, many firms find they need to add talent and change procedures to succeed. “Clearly running a public company is different from running a private market one,” says Nels Olson, a Korn Ferry vice chairman and co-leader of the firm’s Board and CEO Services practice.
To be sure, the attention each will get for their IPOs will be greater than most, given that Uber has been valued at as much as $120 billion alone. Still, as with any company, from the board’s perspective, going public certainly requires reorganizing and may require some changes in directors. For instance, securities industry regulations require that the majority of its board members be “independent,” or not having a say in the day-to-day operations of the firm. This means that some board directors will be leaving when their terms end, says Michele Pollack, a senior client partner in Korn Ferry’s Global Financial Markets practice. Another big change, firms now need to have an audit committee and a compensation committee.
The leadership side may change more than the board. Becoming public dramatically changes the types of information communicated to stakeholders, Olson says. That often means bringing in investors relations experts well versed in speaking with stockholders and financial executives with experience in public capital structures. Even if new talent isn’t brought in, at a minimum existing leaders need to learn how to effectively communicate with outside investors.
Plus, a public-company’s leaders face more scrutiny in general. Yes, management needs to explain the firm’s quarterly finances to investors, but executives and directors will have to be able to speak to stakeholders about a variety of different topics including major litigation against the firm and its executive compensation decisions. Those issues are among many that the firm will now have to spell out in documents filed with government securities regulators.
The one thing that doesn’t impact a firm’s decision to go public, the stock market’s current state. Despite the stock market’s increased volatility over the past month, “You’re not filing based on whether the market was doing last week,” Pollack says. The IPO process takes months to complete, and no one knows what stock valuations will be next week, let alone next summer.