April 3, 2020

Congratulations, you are a public company… Now what? (Part 1)

Part 1 – The Two Company Pillars, Corporate Leadership and Board of Directors

 

Once a company has passed the milestone of becoming a publicly traded company and achieving a listing on a major stock exchange, a whole new set of tasks, issues and required capabilities must be addressed. While the previous history of success and growth are the attributes that fueled the ability of the company to become public, now there are additional new requirements incumbent on the company and new qualities and capabilities the company must develop.

In this Part 1 of our blog we will take a look at the two pillars of the companies: Corporate Leadership and Board of Directors:

• Build Out a Complete Senior Team– While as a private company leadership responsibilities and management tasks can be apportioned out across the company in an ad hoc manner or, as in many cases, remain primarily with the CEO as a “one man/one woman show”, public companies are expected to have a complete senior team with roles and responsibilities assigned in a relatively conventional manner. Exceptions of course exist, but usually the senior team organization follows a fairly traditional pattern. One way to start sorting through this is to consider the five major functions within an enterprise as shown in the diagram.

The five different areas can be summarized as follows:

“Corporate Leadership”: Setting the strategic direction of the company, establishing the operating principles of the business, promulgating the “tone at the top” and values of the enterprise and generating enthusiasm for the business within the ranks. This position is typically filled by the CEO, possibly assisted by a President and/or a Chief Operating Officer.

“Create”: This is the part of the team that actually develops the products and/or services the business actually supplies to its customers. Typically this area would be lead by a Chief Product Officer or a VP of Engineering, possibly assisted by staff positions such as a Chief Technical Officer.

“Make”: Here is where “the rubber meets the road” in serving the business’s customers, whether it be actually producing a physical product, providing a service of some sort or maintaining an effective customer support function. Usually this would be under the purview of a Chief Operating Officer or a VP of Manufacturing or Service. Also included in this area would be supply chain management or similar functions essential to actually getting the products and/or services to the customer.

“Market”: This is the group within the enterprise that guides the “customer journey” from initial contact through advertising and promotion through to buying decisions, monitors the markets for new trends and opportunities and alerts the organization for emerging threats or dangers. Typical positions leading this part of the organization would be a Chief Marketing Officer or a VP of Sales and Marketing. Within this area there can be a number important staff positions to attend to the different sub tasks that are particular to a given business or market area.

“Administrative Foundation”: To be successful, an enterprise must have a solid administrative  foundation that supports the classical functional areas noted above so that day-to-day life runs smoothly. In short, the goal is to make “routine things” just that, i.e. “routine”. First and foremost, this area includes operating the financial function of the business, but often includes such functions as legal, human resources, facilities and information technology. The most common leadership position in this area is the Chief Financial Officer, however that position may be assisted by positions such as Chief Counsel, a VP of Human Resources, a Chief Information Officer and the like. While having a solid administrative foundation is not a sufficient condition for business success, it is a necessary one.

• Select a Strong Board of Directors– While not part of the company’s senior management team, the company’s Board is a key partner in managing the affairs of the company. Critically, in the role of representing the stockholders of the company, the Board will select the CEO, approve yearly business plans, approve multi-year strategic plans, approve any M&A activities of major consequence, set senior management compensation levels and operate in a myriad of other arenas. Also, while some management teams view their Board as a “necessary evil” of being a public company, a far more constructive approach is to view the Board as a group of experienced senior advisors with a multitude of different viewpoints that can provide invaluable advice to the company. For that far more positive approach to become the norm, it is essential that the Board members be selected on the basis of the value that they can bring to the Board discourse. Deep and varied experience combined with a diversity of viewpoints and a willingness to put in real effort are the hallmarks of an excellent Board. Additionally, there are various Board membership requirements established by both SEC and exchange regulations. Another key decision will be if the Board is chaired by an independent Board member or the CEO. There are factors that mitigate for both of those options, with current trends running about 50/50. If it is decided to have the CEO chair the Board, it is strongly recommended that a Lead Director be identified to act as a bit of a counterweight to the CEO/CoB position.