Private companies making the leap to the public market typically assess and overhaul numerous financial functions and processes to prepare for and complete their journeys. Understandably, adjusting these internal activities to ensure that they satisfy regulatory, reporting and shareholder demands following an initial public offering (IPO) tend to become the focus of senior executives, particularly CFOs.
But an organization's culture also determines its post-IPO success — it is a foundational element that encompasses employee experience, total rewards, learning and development, diversity, equity and inclusion, as well as talent recruitment and retention capabilities.
While possessing the right talent, culture and strategy all produce growth, the late business management guru Peter Drucker famously noted that "culture eats strategy for breakfast." That is, regardless of how effective, elegant and sophisticated an organization's business strategy may be, how employees respond to challenges, manage pressure, act in critical situations and treat partners, customers and each other all influence success.
Similar to a point made in an earlier blog about the importance of formulating a people strategy when transitioning to the public market, executives often focus on the tactical, check-the-box execution and understate the significance of culture during the IPO process. Why? Largely because it is not readily measurable in the same way sales, revenues, inventories or other financial metrics are.
The way things work
By defining culture, organizations can begin to understand and gauge the results of a cultural shift in tangible terms. As we see it, no other definition sums up culture better than "the way things work around here." Taking it a step further in preparing for an IPO, the sentiment becomes "the way things work around here pre-IPO is a lot different than how it's going to be when we have to operate under a lens of public scrutiny, pay more attention to risks inside the organization and operate with heightened discipline to ensure processes are managed and repeatable."
When driving a culture transformation, it is important to demonstrate how changes in behaviors and processes will result in quantifiable benefits in a post-IPO environment. Here are a few themes that organizations should consider when planning a transformation in conjunction with an IPO:
What brought you here may not get you there
Companies must realize that characteristics that mark successful startups and emerging growth companies — an entrepreneurial drive, fluidity in responsibilities and a desire to be disruptive, to name a few — are generally not the primary characteristics suited for a public operating company. In particular, risk may not be as large a concern when an organization is in control of its destiny and has to answer only to supportive stakeholders. But answering to thousands of shareholders and regulators requires a substantial change in day-to-day behaviors. In many cases, that includes a recalibration of the organization's mission, purpose and vision. While some ideals may stay the same, the mindset around risk management must evolve.
Operating in a more disciplined environment
Similarly, the deadline to close financials as a private organization is considerably more flexible than what is acceptable under public company reporting rules. Preparing for this requires the elimination of manual procedures and redundancies in favor of more structure and discipline as it relates to processes, accuracy and controls. It also necessitates greater collaboration and the sharing of information across functions. All of these shifts should translate into cost savings that CFOs and executives can clearly identify and appreciate. Beyond finance, all areas of the business will require greater discipline in the areas of process documentation, policies and standard operating procedures to protect the business as well as scale with speed and precision.
Finding and keeping top talent
Relentless competition for talent shows no signs of diminishing. Consequently, companies need to identify how their culture helps or hurts their ability to recruit, hire and retain employees.
Culture as a catalyst for growth
As challenging as it can be to get to the IPO, the growth imperative remains. While this blog is focused on the transformation of culture as it relates to IPOs, the same points could be made for companies experiencing a merger, acquisition, spinoff or some other major strategic shift. Effectively addressing an organization's culture during any period of significant change will help maintain high levels of productivity, engagement and focus to ensure strong performance. It also will help an organization retain its most valuable asset — top talent.
