Early on in the IPO process, with the help of its legal advisers, a company should consider what changes need to be made to its corporate governance structure to ready itself for public life. Almost all businesses will need to consider significant changes to their board and governance structure in the transition from privately-owned enterprise to a listed company.
A company with an ESCC listing is required by the Listing Rules to “comply or explain” against the requirements of the UK Corporate Governance Code. Some of the main areas that typically require consideration are:
- the appointment of independent non-executive directors, as private companies rarely have a sufficient number of “independent” directors; and
- the board committees, including an audit committee, remuneration committee and nomination committee will be established. The roles of these committees are well-established, but directors will need to be ready at listing to fulfil these roles.
It is common for existing shareholders to retain stakes after the listing and the major shareholders may be individuals who expect (or have a contractual right to have) a seat on the board (whether executive or non-executive). A company will typically need to satisfy potential investors that it is capable of carrying on its business independently of its major shareholders, which may result in the implementation of a “relationship agreement” between the company and any controlling shareholders although this is not mandatory. In practice, AIM companies adopt a less rigorous approach as they are not required to comply with the UK Corporate Governance Code. However, they are expected to adopt a recognised corporate governance code (for example the Quoted Companies Alliance (QCA) Corporate Governance Code).