Interviews

Why CFOs without IPO experience shouldn't be cast aside for the listing process

5 min read

25 January 2016

Deputy Editor, Real Business

When a company establishes a strong business model, rapidly expands its user base and raises a lot in terms of funding, talk of an initial public offering (IPO) often becomes inevitable. However, for CFOs who have yet to go through the listing process, what skills will be of help?

A successful IPO sets the stage for a company’s first years as a public business. And as predictable as everyone tuning in to the news to see if the decision will make or break the company, firms will seek out and appoint CFOs renowned for being skilled at the listing process.

However, CFOs with prior experience of taking a company public are in short supply, and most companies embarking on an IPO will do so with a CFO who is leading the process for the first time. And why not?

Keegan Chua, CFO of BH Global Marine, is of the belief that the pre-IPO process is more mechanical as it involves ploughing through data and statistics for analysis and compliance. In that sense, the current CFO, who knows the company far better than a new CFO brought in for the IPO ever could, shouldn’t necessarily be placed to the side. 

In fact, Mike Nuzzo, CFO of General Nutrition Centres, suggested the key thing to keep in mind is that nobody understands the business as well as you do. “You have to make sure that you have direct input into the key areas that are meant to reflect what the business does and the attributes of the business,” he said. It also means learning from the pros. As such, what should the finance team keep in mind?

The real work comes after the IPO, Chua explained, as the role of CFO will include managing stakeholders’ expectations and the stringent regulations of the relevant authorities.

Read more about IPOs:

Essentially, in the words of Wilson Cheung, an Institute member, the CFO should “help the company look sexy”. Cheung said: “A good CFO should drive the timeline of the compliance procedures and ensure the launch of the IPO under good market sentiment. The role of a CFO after the IPO is to help the company deliver its commitment to the investors. If I were an investor, I would be very careful if the CFO of an IPO company looks only for the IPO deal.”

It also means the CFO must have a thorough understanding of the drivers of the business and the company’s financials, strong technical skills and a commercial sensibility enabling him or her to articulate concepts to impatient investors. This requires a healthy dose of confidence.

“CFOs get pulled from many different directions, and you have to have a strong enough centre that you and the CEO, as a team, understand what you’re putting forward; it must be credible, consistent and correct,” said Jacqueline Reses, executive vice president of people and development at Yahoo!. “Companies and executives can be disproportionately punished for any misalignment between expectations and actual results.” 

This was echoed by Nuzzo. He suggested the degree of uncertainty will likely be significant, but you need the courage to acknowledge that fact and seek out counsel and advice. 

Ideally, a CFO should find out how to manage public reporting, how to close the books, how to position financial results and, most importantly, how to deliver accurate financials on a timely basis. Delivering reliable numbers is a critical skill. “There isn’t a penalty or consequence when a private company misses numbers,” according to Tim Keating, CEO of Keating Capital. “For a public company, it can be punitive to miss numbers.” 

And because CFOs are central to the preparation process, along with the CEO, CFOs will become the face of their firms. They spend most of their time outside of the office, and investor relations becomes a top priority. “In the first year of being public, you need to make sure that investors have a good sense of the company,” Keating said.

As it takes months of preparation and, if done wrong, will lead you to retract your IPO, consider these ten steps to IPO readiness.