Board directors of public and private companies have many of the same duties, but regulatory matters have changed the role of public board directors substantially. Board directors of private companies act as advisors to the CEO, whereas board directors of public companies have experts advising them as they go about the business of short- and long-term strategic planning and oversight.

Private and public board members must fulfill their fiduciary duties, but boards of public companies accept much greater liability after the initial public offering (IPO). Board directors of private companies will need to spend much of their time preparing for the necessary changes of going public. They also need to prepare themselves to take on a new role with added and different duties and responsibilities than they’ve had in the past.

The Role of Private Board Directors in Preparing for the Transition to a Publicly Traded Company

It’s essential for private companies to prepare for the change in their duties for at least one year before going public. Private companies that have been following the principles of good corporate governance will be well ahead of the game. In the preceding year before a company goes public, boardrooms will have a flurry of activity as they begin the process of putting the right people and systems in place so that they can transition into their new responsibilities.

Once the board of directors reconfigures itself to meet the regulatory criteria for a public board, and they have hired new advisors to mentor them through the IPO, they need to turn their attention to working with management and overseeing all aspects of the company.

In preparing to go public, the private board will need to hire many different experts to advise them in different areas. They’ll also need to start setting up new systems that meet the requirements of regulatory bodies for reporting purposes. Board directors will also need to set up a few basic committees and to establish a plan to attract investors.

A Private Board’s Role in Hiring the Necessary Staff 

While a private board is used to making many decisions as a group, the board of a public company relies on many professional experts for advice. Prior to the transition, the board will need to hire a general counsel and an investor relations specialist with expertise in SEC reporting. Public companies have many new rules with which they must comply, and experts will help them maintain reporting compliance.

The board will also need to decide if the public company will offer stock to their employees to promote loyalty. If so, they’ll also need to hire a human resources professional with experience in benefits that include stock offerings.

Private companies usually hire business development and marketing representatives. With the change to a public company, the board may need to replace or add marketing staff that has professional experience with interacting with investors and global media. Some boards opt to outsource this service. The SEC now allows companies to place alerts on social media, but there are rules for that also, and the board may want to consider hiring a social media expert.

The Role of the Private Board in Reconfiguring a New Board of Directors

Public boards of directors are much more visible than private boards, and they accept more scrutiny and liability.

Regulations in the securities industry require that the majority of board directors are independent. This means that some board directors will be leaving when their terms end. The board will need to recruit new board members who are not only independent, but who are experts in specific areas, such as attorneys and financial experts. They will also need to form a new board that is diverse and that well represents their desired shareholders.

The new board will also need to set up committees for auditing, governance and compensation. The compensation committee should be composed fully of independent directors. The committee needs to include an attorney, a compensation specialist and an investment banker. The committee should work with the full board to establish a total compensation philosophy, with a plan to change the equity compensation as the company transitions to a public company.

The Role of the Board After the Initial Public Offering

After a company becomes a publicly traded company, the board can begin to delegate some of the duties they’d done themselves in the past. This is the time for board directors to build solid working relationships with managers and to make plans for how the board will receive information.

The board will begin to rely less on themselves and more on other professionals as their role changes to focusing their attention on strategic planning and oversight. Board members who remain on the board after hiring independent directors will need to get up to speed on reading financial reports so they can oversee them properly. The board will also oversee the work of the compensation, audit and governance committees.

As the board moves closer to becoming public, they’ll need to set up plans for board director orientation, development, evaluations and succession planning.

Taking Advantage of the JOBS Act to Become a Public Company

In 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act, which allows companies to use crowdfunding platforms like GoFundMe, Indiegogo and Kickstarter to fund their initial investments.

The JOBS Act formed a new path for emerging growth companies to enter the public marketplace with lower thresholds for entering the market. Private boards will find that the JOBS Act lets them get their feet wet as a public company and get some initial feedback from investors.

The Board’s Role in Attracting Investors

Besides all of the duties of reconfiguring the board, hiring experts and taking other necessary steps to meet the qualifications of a publicly traded company, the board will need to make plans for how to attract investors.

Investors want to know how quickly the board expects the company to grow, and what numbers they expect to produce. They’ll also want to know what the company offers that their competitors don’t, and what the long-term strategy is.

Some Final Words on the Changing Role of the Board in Transitioning From a Private to a Public Company

The old private board got used to learning about the company’s goals and direction from the management team. The new public board provides the goals and direction for the managers to carry out. The switch in responsibilities gives the new public board responsibility for setting clear goals, measuring performance and providing business governance to help management succeed.

Board directors of public companies need to refrain from micromanaging employees. Any problems that arise as companies transition from private to public offerings require strong communication between the board and management.

While, in the past, private boards have relied on the advice of family, friends and business associates, making the move to a public company requires a higher level of expertise. It’s a mistake for newly formed public boards not to rely on industry experts as they make the transition.