Scaling Up: The Implementation of Corporate Governance in Pre-IPO Companies

Scaling Up: The Implementation of Corporate Governance in Pre-IPO Companies

By
David F. Larcker, Brian Tayan
Stanford Closer Look Series. Corporate Governance Research Initiative, December
2018

Companies are required to have a reliable system of corporate governance in place at the time of IPO in order to protect the interests of public company investors and stakeholders. Yet, relatively little is known about the process by which they implement one. This Closer Look, based on detailed data from a sample of pre-IPO companies, examines the process by which companies go from essentially having no governance in place at the time of their founding to the fully established systems of governance required of public companies by the Securities and Exchange Commission. We examine the vastly different choices that companies make in deciding when and how to implement these standards.

We ask:

  • What factors do CEOs and founders take into account in determining how to implement governance systems?
  • Should regulators allow companies greater flexibility to tailor their governance systems to their specific needs?
  • Which elements of governance add to business performance and which are done only for regulatory purposes?
  • How much value does good governance add to a company’s overall valuation?
  • When should small or medium-sized companies that intend to remain private implement a governance system?