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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
For private companies approaching the public markets, we believe there are key corporate governance practices that can help pave a path to strong relationships with public market investors. In our view, evolving regulations and market expectations make these factors increasingly important to both company valuations and access to capital. Building a company to this stage requires an incredible amount of hard work and innovation. As private companies begin this transition, we hope our insights as public investors can help make it as easy as possible for them to adapt to rising governance requirements so they can remain focused on growing their businesses.
Here, we share our views on public market governance best practices for shareholder rights, board composition, and executive compensation, in particular.
Shareholder rights are significant inputs into the analysis of a company’s governance. We encourage portfolio companies to make progress toward adopting the below best practices over time. We typically choose to engage on these topics rather than vote against the board, but rising market expectations signal increasing votes against directors for these issues.
In our view, businesses create shareholder value by appointing directors who foster healthy debate in the boardroom, develop constructive relationships with management, and bring an array of relevant skills and experience. This requires boards to elect highly qualified directors who contribute insights from a broad range of perspectives. We understand board composition is a complex topic and use the below considerations as a starting place in our analysis.
Management incentives are a key element in long-term value creation and play a vital role in strategy setting, decision making, and risk management. While design and structure vary widely, we believe effective compensation plans attract and retain high-caliber executives, foster a culture of performance and accountability, and align management’s interests with those of long-term shareholders. Due to each firm’s unique circumstances, we evaluate plans on a case-by-case basis. At a high level, we look for: alignment of pay-and-performance evaluated as pay versus annualized total shareholder return over a three- to five-year period; transparency of metrics, targets, time frames and use of discretion; and a balanced mix of awards, preferably closely tied to long-term performance with a significant percentage of compensation at risk.
Strong corporate governance is critical to every business but can specifically help a private company better prepare for the transition from private to public markets. While “good” governance is not universally defined, we believe that companies that begin to incorporate these broadly applicable best practices earlier on in their life cycles are better positioned for long-term success. Along this governance journey, we think transparency is crucial to building trust with shareholders. As our portfolio companies consider their next steps and governance evolution, we are happy to share our experience and perspective as public market investors to serve as a resource and partner.
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We highlight five key areas for private companies to prioritize in 2023 and share the essential steps they can take to keep up with today’s evolving ESG risks and opportunities.
Equity investing with a thematic lens: Three game changers for 2023
Head of Investment Research Mary Pryshlak and Equity Portfolio Manager Tim Manning highlight their strongest convictions across global equity markets heading into 2023.