Board Construction for Pre-IPO Companies

By Adrian Lawrence FCA, founder of NED Capital · Part of the Board Governance Hub

A public listing subjects a company’s board to a level of scrutiny it has never faced before. Prospective investors, their advisers, the exchange and the governance codes all expect a board that meets public-market standards — genuinely independent, properly balanced, with the committees and expertise a listed company requires. For most private companies, the board that got them to the point of listing is not yet that board. Constructing an IPO-ready board is therefore one of the most important pieces of preparation in the run-up to a listing, and one that must begin early, because the appointments take time to make and the new directors need time to be effective before the scrutiny arrives. This guide sets out how to construct a board for a pre-IPO company: what the standards require, which appointments to make, how to time them, and what investors will expect to see.

It is written for founders, chief executives, investors and boards preparing for a listing, and draws on NED Capital’s work building boards for companies approaching the public markets. Every search is led personally by Adrian Lawrence FCA.

Why the Board Has to Change Before an IPO

A private company’s board is often built for the business as it has been — founder-led, investor-influenced, focused on growth. A listed company’s board must satisfy public-market expectations of independence, balance and governance, because public shareholders, unlike a private company’s known investors, rely on the board to protect their interests and hold management to account. The UK Corporate Governance Code sets the standard for premium-listed companies, and the QCA Code for many of those listing on AIM. Meeting these standards usually means appointing genuinely independent non-executive directors, establishing the committees a listed company needs, and ensuring the board has the financial and governance expertise public markets expect. A board that does not make these changes before listing will struggle in the IPO process itself, as investors and advisers scrutinise its composition, and afterwards, as it operates under public-market governance for the first time.

What the Standards Require

The specific requirements depend on the market and the code that applies, but the principles are consistent. A meaningful proportion of the board should be independent non-executive directors — for a premium listing under the Corporate Governance Code, at least half the board excluding the chair — and the chair should have been independent on appointment. The company needs an audit committee composed of independent non-executives, with at least one member having recent and relevant financial experience, and a remuneration committee and nomination committee similarly composed. The board as a whole needs the balance of skills, experience and independence that public-market investors and their governance advisers will assess. For AIM companies the QCA Code applies these principles with more flexibility, but investors increasingly expect AIM boards to approach premium-listing standards. Understanding exactly which standards will apply to your listing, and building the board to meet them, is the foundation of the exercise.

Which Appointments to Make

Constructing an IPO-ready board typically means several non-executive appointments. An independent chair, if the company does not already have one who meets the standard — a chair with public-company experience and the credibility to lead the board and reassure investors is among the most valuable pre-IPO appointments. An audit committee chair with the financial expertise and, ideally, listed-company experience to lead the committee that public investors scrutinise most closely; our audit committee chair recruitment page covers this role. A remuneration committee chair able to navigate the say-on-pay scrutiny listed companies face, covered on our remuneration committee chair recruitment page. And further independent non-executives to provide the balance, expertise and independence the board needs. Directors with prior experience of listed-company boards and of the IPO process itself are particularly valuable, because they bring the judgement to navigate both the listing and life as a public company.

Timing: Start Early

The single most common mistake in pre-IPO board construction is leaving it too late. Building an IPO-ready board takes time — identifying and appointing several high-calibre non-executives is not quick, and the new directors need time to understand the business and become effective before the IPO scrutiny arrives. Ideally the board is constructed a year or more before the intended listing, so that the directors are genuinely embedded and the board is functioning as a public-market board well before the process begins. Investors and advisers in the IPO process will look for a board that is real and settled, not one assembled hurriedly to tick the governance box. Starting early also allows the appointments to be made properly, against a considered design, rather than rushed. A board built at the last minute reads as exactly that, and undermines confidence at precisely the moment the company needs to project it.

What Investors Will Look For

Prospective investors and their governance advisers assess a pre-IPO board closely, and it is worth understanding what they look for. Genuine independence, not independence in name only — they will scrutinise the non-executives’ relationships with the company, its founders and its existing investors. Relevant expertise, particularly financial expertise on the audit committee and sector or public-market experience across the board. A credible, experienced chair. Evidence that the board is real and functioning, not assembled for the prospectus. And a board whose composition and governance give confidence that public shareholders’ interests will be protected. A board that satisfies this scrutiny supports the valuation and smooths the process; one that does not raises questions that can slow or complicate the listing. Constructing the board with this scrutiny in mind, well ahead of time, is what allows the company to meet it confidently.

How This Differs From an Ordinary Board Build

Constructing a pre-IPO board differs from building a board for a private company in emphasis. The independence requirements are stricter and formally assessed, not merely good practice. The committee structure is prescribed rather than optional. The premium on listed-company and IPO experience is higher, because the board must function under public scrutiny from day one. And the timing is driven by an external deadline, which makes starting early essential. The general principles of good board construction still apply — start from purpose, design the composition and balance deliberately, sequence sensibly, chair first — but they are applied to a higher and externally-assessed standard. Our guide to how to build a board from scratch covers those general principles, which underpin the pre-IPO exercise.

Frequently Asked Questions

How long before an IPO should we build the board?

Ideally a year or more before the intended listing. The appointments take time to make, and the new directors need time to understand the business and become effective before the IPO scrutiny begins. Investors look for a board that is real and settled, not assembled at the last minute.

How many independent directors does a listed company need?

It depends on the market and code. Under the UK Corporate Governance Code, at least half the board excluding the chair should be independent non-executive directors for a premium listing, and the chair should have been independent on appointment. AIM companies under the QCA Code have more flexibility but investors increasingly expect similar standards.

What is the most important pre-IPO board appointment?

Usually the chair and the audit committee chair. An independent chair with public-company experience leads the board and reassures investors, and the audit committee chair leads the committee public investors scrutinise most closely. Both benefit from prior listed-company experience.

Do we need all the committees before listing?

A listed company needs audit, remuneration and nomination committees composed of independent non-executives. Establishing these, with appropriately qualified chairs, is part of constructing an IPO-ready board and should be done well before the listing process begins.

NED Capital | Sister practice of FD Capital | ICAEW practising certificate held by Adrian Lawrence FCA.