Page 54 - Initial Public Offering - An Introduction to IPO on Wall Street

Another important step in fulfilling the governance requirements of SEC and the exchanges is
appointing independent members to the board of directors.

Owing to the perceived greater risk level and the transition from equity to cash compensation,
recruiting and keeping board members has become more complicated and costly.

An organization must not wait until the last minute to start the hunt for eligible members from
outside of the board. A prospective member of the board who is not acquainted with an
organization may be hesitant to join the board right before an IPO, as the director is directly
responsible for the details found in or excluded from the declaration of incorporation.

When businesses consider the transition towards being a public corporation, along with the
development and evolution involved in that process, it is essential to consider what additional
expertise, knowledge or diversity on the board will be valuable as the business expands.

One of the best places that impartial guidance can come from is from the outside or from an
independent director. Although a private organization may already have exceptional directors,
they may not be able to play a role in key committees if they are not autonomous, and their
long-term service on the board will be confined. For this purpose, the current board will need
to be transformed to fulfill the independence criteria.

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