Corporate Governance

Shearman & Sterling IPO Governance | 27 Every IPO involves a conscious decision to invest based on a comprehensive disclosure document that includes a detailed description of governance policies. IPO investors are buying into an investment thesis involving a particular management team and business model. As a result, they are fairly insensitive to anti-takeover measures in the short term. Under stock exchange rules, there are transition periods for moving to a majority independent board and 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. 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. Many newly public companies continue to be majority-controlled after the IPO, rendering concerns about anti-takeover measures largely irrelevant. An IPO investment typically involves 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. Investment Thesis Needs Time to Play Out Dual-Track Processes Controlled Companies KEY FACTORS FOR IPO COMPANIES As outlined in last year's survey, there are a number of key factors that frame the way investors think about IPO companies versus established public companies: Purchase is Approval Vulnerability New and Evolving Board

• Cover