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

13 Pages Posted: 30 Nov 2018

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Date Written: December 3, 2018

Abstract

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?

Keywords: Corporate governance, startups, pre-IPO companies, governance of startups, governance of pre-IPO companies, governance of private companies, venture-backed businesses, independent directors, board of directors, implementing a governance system, setting up a governance system, financial systems, comp

JEL Classification: G1, G3, G24, G34

Suggested Citation

Larcker, David F. and Tayan, Brian, Scaling Up: The Implementation of Corporate Governance in Pre-IPO Companies (December 3, 2018). Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-75 ; Stanford University Graduate School of Business Research Paper No. 19-11. Available at SSRN: https://ssrn.com/abstract=3293883

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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