Your Business Might Be Ready for an IPO, But Is Your Reputation?

The IPO market is on fire. This past year has been the busiest for IPOs since 2000, with as many as 400 companies expected to go public this year, up approximately 100% from a year ago. And this doesn’t include SPACs or direct listings.

While the IPO market is heating up, it is also evolving. Businesses are going public at earlier stages and investors are demanding more detailed information about a company’s environmental, social and governance (ESG) commitments. In fact, the SEC recently created enhanced guidelines for publicly traded companies to disclose their actions around these critical issues. 

The prerequisites for going public have long been rooted in business performance, with fundamentals like revenue and customer growth taking priority. Of course those are important— proving your business metrics helps separate companies with the ability to actually make money from those who are still only selling a vision. Yet many businesses continue to overlook a key part of IPO preparation in today’s market: proactively shaping their corporate reputation. 

High-potential businesses must start building reputation equity with key stakeholders during earlier stages of growth.

Uber is the poster child of what happens when the opportunity to proactively build reputation is ignored. The company has invested billions of dollars into rehabilitating its brand and repairing relationships with key constituencies since Dara Khosrowshahi took the helm in 2017. Imagine what Uber’s leadership team could have focused valuable time on without the distraction of reputation missteps and hundreds of millions of dollars spent on apology ads. What if Uber had put the right reputational infrastructure in place from the start? 

In the aftermath of Uber and the culture conflict stories like Coinbase that emerged during the pandemic, corporate reputation has become a crucial part of IPO preparation. There are five non-negotiable investments your pre-IPO company needs to make today to help it thrive as a public company. At first glance, they may appear obvious, but the vast majority of companies don’t address them until after going public. While that approach may have worked in a pre-pandemic world, the rules have changed and the companies that are slow to invest in these areas could lose out on talent, partnerships, and even funding.

Here are the five non-negotiable investments:

Build a board of directors that serves the interests of every stakeholder. A commitment to serving every stakeholder—not just investors—should be clearly outlined in your board governance plan to build a shared sense of accountability. Today’s key stakeholders include customers, employees, policymakers and regulators, as well as the communities where you operate, among others.

A company’s earliest board member selections say the most about what matters to your organization. Prioritize board members who bring a proactive mindset around reputation risks and opportunities, not a “We’ll deal with it when we have to” mentality. The board must be champions of your ESG commitments and support meaningful investments in building reputation at an early stage.

Ideally, your board validates at the highest level of governance how you live diversity, equity and inclusion (DEI) values and it supports programs and actions that demonstrate the character of the company. A board that deprioritizes these issues will expose your company to greater reputational risk down the line. 

Make DEI a core value, not a check-the-box exercise. More inclusive and diverse companies are in a position to better serve the interests of their diverse customer bases and other stakeholders. They are also proven to attract and retain more engaged talent.

Building this critical cultural infrastructure is a marathon that takes years of work and investment. The longer companies wait to make this investment, the longer unhealthy organizational behaviors have time to become entrenched, and the longer it takes to build a truly world-class culture and brand.

If you aspire to build a multi-billion dollar company, you should have a chief diversity officer in place who reports to the CEO well before you hit 250 employees. The organizational impact of a diversity lead who reports to HR is often limited by a lack of influence in shaping inclusive product, marketing, customer success and vendor partner strategies.

Make social responsibility part of your corporate identity. Many CEOs and VCs are unwilling to allocate any of their investments to philanthropic initiatives. Their argument is that until a company is profitable, every dollar should be invested in growth. This is the wrong approach.A well-designed and executed social impact program with sponsorship from the CEO can be a catalyst for growth.

I’m not advocating that a Series B startup budgets $1 million for social responsibility. But early-stage companies definitely need to devote time and resources to this area. When these programs are authentically designed around your core values, vision and mission, they become a critical part of your company’s brand identity and a proven way to build loyalty with every stakeholder.

For example, Okta reallocated hundreds of thousands of dollars originally intended for attendee swag at its annual user conference to school supplies for San Francisco public school students. More recently, Canva’s founders pledged the vast majority of its wealth to the company’s foundation that will commit resources to schools, nonprofits and climate change. 

Dedicate more time to proactive issues management and less on crisis management. We receive many requests from our pre-IPO clients to help them build playbooks for responding to major crises like cyberattacks. They recognize their risk profile grows with their business profile as a public company. They want to have a plan in place for if and when the proverbial shit hits the fan.

Crisis plans are always well-intended, but more often than not those plans become a static file that collects virtual dust, with relatively little practical value. Getting value out of that investment requires companies to build a high-performance crisis response culture. Minimally, this means a formal quarterly review of the crisis response plan, and running a simulation with all internal stakeholders at least once per year to build muscle memory.

Leaders also need to dig into where a company may encounter and be exposed to risks in the future. Engaging in proactive issues scanning can uncover potential business threats related to a specific industry, to societal demands or to the policy and regulatory environment

Develop ethical principles to guide partner ecosystem impact. Silicon Valley and its ripple effects are under more scrutiny than ever. Facebook continues to experience reputational damage for putting profits ahead of customers, with increasing attention being paid to the company’s impact on mental health and young people. Meanwhile, we’ve seen users, lawmakers and the media push back on food delivery apps’ exploitative practices as restaurants have struggled during the pandemic.

Companies need to spend more time contemplating and scenario planning for unintended consequences. This starts with understanding the larger impacts of products, practices and partners. Of course, it’s impossible to understand this impact without engaging directly with all stakeholders, from users and employees to local communities.

Be intentional about choosing vendors, customers and even where you bank. 

For early-stage companies, the five principles outlined above can help guide product development. For example, setting guardrails around privacy and how personal information will be stored and shared should be a priority for every startup.

As companies grow and develop an ecosystem of partners, the same principles should extend outward. Be intentional about choosing vendors, customers and even where you bank. For example, Microsoft outlined its commitment to addressing racial injustice through its partner ecosystem in 2020. With these principles in place, companies will be inherently better positioned to make business decisions that prioritize impact beyond profit. 

It’s a mistake to wait until a crisis occurs or until a business has gone public to start building reputation equity. In order to thrive on the public markets under the heightened scrutiny of employees, customers, investors and the media, business leaders must invest in their reputation management infrastructure early on in their development. Doing so will build in the behaviors required to sustain strong relationships with all stakeholders and improve brand resiliency around major reputational peaks and valleys.

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