Annual Corporate Governance & Executive Compensation Survey

2018 Corporate Governance Survey

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Page 52 of 109

Shearman & Sterling LLP IPO Corporate Governance | 51 INVESTOR CONSIDERATIONS FOR IPO COMPANIES There are a number of key factors that frame the way investors think about IPO companies versus established public companies. Purchase is Approval IPO investors have in effect approved the company's corporate governance policies (as detailed in a comprehensive disclosure document) by deciding to purchase stock in the IPO. Investment Thesis IPO investors are buying into an investment thesis involving a particular management team and business model, which doesn't rely on a sale or take-out as the most likely path to a successful monetization of the investment. Therefore, they are fairly insensitive to anti-takeover measures. Control Many IPO companies remain majority- controlled after going public, making the concerns over anti-takeover measures largely irrelevant. Vulnerability An IPO typically involves a business with a projected growth trajectory unlikely to be achieved in a more mature company, and the company is executing the plan when it has significant vulnerabilities relating to, among other things, access to capital, market presence, competition, diversification, personnel and stock price volatility. Dual-Track Processes In many cases, sellers will approach potential strategic and financial acquirers at the same time as they prepare for an IPO. In such cases, the possibility of better value from a strategic or financial buyer has already been tested and reasonable anti-takeover measures are not likely to significantly disadvantage public shareholders. New and Evolving Board Under stock exchange rules, there are transition periods for moving to majority independent board committees, which are delayed for controlled companies. As a result, IPO company boards are often in a slow transition to independence. Membership is therefore in flux and the board is still in the process of developing a business and governance culture.

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