The colossal collapse of firms such as Enron, Tyco, and Worldcom in the early 2000s was a lesson on the need and importance for strong corporate governance. It was an inflection point and wake-up call for listed companies, most especially, to understand the depth and breadth of the consequences involved when good governance falls by the wayside.<\/p>\n\n\n\n
Start-ups and early-stage private businesses are perceived to have the luxury of instituting good governance frameworks at later phases of growth. This is partly due to the fact that their processes and priorities are often oriented towards agility and flexibility in decision-making and quick strategic execution. Board and management structures are also smaller and simpler which still allows for a transparent flow of information. <\/p>\n\n\n\n
But as they choose to scale and raise capital through an IPO, they will have to implement and adopt a corporate governance framework that reflects their readiness to operate as a publicly-listed entity.<\/p>\n\n\n\n
Apart from satisfying listing requirements, there are a number of benefits to embedding good governance practices for pre-IPO companies.<\/p>\n\n\n\n
Perhaps an example of how poor governance can impact corporate culture and affect its long-term financial prospects is the case of Uber Technologies<\/a>. Uber became notorious after widespread allegations of its hostile and discriminatory work culture, non-compliance issues, problems with labour organisations, to cite a few. The reputational damage was great and had a significant impact on the timing of their IPO, which had to be delayed. <\/p>\n\n\n\n The case of Uber highlights that strong corporate governance keeps companies in check \u2014 allowing them to make ethical decisions that benefit and align with the interests of stakeholders. It is an important component of the firm\u2019s ability to stay profitable, accelerate growth and satisfy customers. All of which impact a company\u2019s ability to deliver on their strategy.<\/p>\n\n\n\n Pre-IPO companies who have systems and processes of good governance provide assurance to prospective investors. It delivers the message that shareholders are valued as owners and that the firm operates responsibly. It signals a corporate maturity that will allow them to meet governance expectations required of publicly-listed companies.<\/p>\n\n\n\n Even if companies decide to defer or abandon their plans of going public, strong governance principles place them in a better situation to execute their long-term strategies. Some notable benefits<\/a> to implementing broader governance frameworks include \u201csignificant bottomline benefits, better credit ratings, increased access to capital, improvements in operational efficiency, and reduced risk.\u201d<\/p>\n\n\n2. Increases Investor Confidence<\/h3>\n\n\n\n
3. Improves Ability to Execute Long-Term Strategies<\/h3>\n\n\n\n