In a recent executive round table discussion regarding factors to consider in the pre IPO phase for small medium enterprises, I was surprised by the zero emphasis on the role people play in actually making the IPO a success. This encouraged me to make the following useful, but not exhaustive observations as to important human capital considerations when moving towards an IPO.
Setting the Cultural Tone
- Construct the Board well and develop effective governance frameworks. Too many fingers in the pie will cause problems. Diluted executive autonomy is a major cause of executive group failure.
- There needs to be a clearly agreed definition of roles for the Board, the Chairman, the Board Committees, the CEO, advisors to the Board and senior management.
- Professionally brand and consistently represent the organisation in the market. Quickly move to best practice in terms of attraction, selection and retention. Talent has choice.
- If required, celebrate and recognise the entrepreneur / founder and appropriately position this person in the business.
Strategy Execution
- The entrepreneurial impetus which may have created the IPO opportunity needs to be nurtured and enhanced and not constrained by the need to develop a clear structure and supportive organisational architecture.
- Resist the temptation to tap old networks for key roles. The IPO process deserves to be fully supported. Take the identified skills, capabilities and required deliverables and use these as a template for selection. Make sure you go for the best in the market.
Leadership Development
- Do not presume the existing executive group including the current Board, MD or CEO have the skills and capabilities to execute the required strategy post IPO. Consider undertaking an executive team capability review in the pre IPO phase to identify strengths, weaknesses and to develop risk mitigation plans.
- Where there is a need for new executives in the pre IPO phase, add these people to the business sensitively and respectfully. You want the overall executive group to evolve cohesively to meet the new challenges. You do not want to lose good people and fracture the culture.
- Where there is good capability incumbent in the business (and possibly underutilised) selectively promote to build culture and a sense of shared commitment to the new business.
Remuneration Alignment
- Do not correlate the existing business size with comparable survey driven remuneration benchmarks to establish remuneration parameters. You need to position the remuneration to attract a level of capability that will get you where you need to go strategically.
- Do not skimp on the Fixed Annual Remuneration. Executive talent needs to enter the business with some momentum and not be concerned with hygiene factors.
- The STI / LTI combination needs to be market / sector relevant and must fit the business culture and strategy and the style of the executive group.
Performance Management
- Develop a Business Performance Scorecard in the Board papers which covers performance across agreed KPIs. Adverse indicators should be accompanied by management comment and action plans; positive indicators should be recognised through different reward and recognition mechanisms.
- Consolidated KPIs for the business need to be developed and written into the CEO’s performance objectives and then cascaded down into the performance objectives of the CEO’s executive team. These should be reviewed by the relevant Board Committee each three/six months.
- The above list is not exhaustive by any means, but if taken into consideration, the elements outlined will go some way towards mitigating risk.
Peter Tulau has enjoyed a diversified career in operations and production management in industrial and process engineering environments before joining one of Australia’s largest recruitment and human services companies. Over a 25 plus year career, Peter worked across executive search and organisational consulting and led major organisational transformations in the industrial and manufacturing sectors. Peter is currently a Director with AltoPartners Australia and the practice head for the industrial, manufacturing and infrastructure sectors.
Peter can be contacted on +61 490 460 492 or p.tulau@altopartners.com.au