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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.
As private companies approach the public market, key corporate governance best practices can help pave a path to stronger relationships with public-market investors and long-term shareholder alignment. Much like building a company to this stage, establishing a robust governance culture requires time, hard work, and a focus on prioritizing what matters most. In our view, evolving regulations and market expectations make these practices increasingly important to both company valuations and access to capital. We aim to provide firsthand insights from both our public and private investors to help our portfolio companies understand and get ahead of shifting governance requirements as they prepare for IPOs.
Here, we share our views on public-market governance best practices for shareholder rights, board composition, and executive compensation. This year, we created a deep dive Governance Guide for Private Companies for our portfolio companies’ exclusive use. Learn more about the guide at the bottom of this piece or visit our ESG insights for private companies collection to explore a wide range of resources on ESG in private markets.
Shareholder rights are significant inputs into a company’s governance analysis. We encourage portfolio companies to proactively adopt the below best practices over time. While we typically engage on these topics rather than vote against the board, rising market expectations have increased votes against directors for these issues among investors more broadly.
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 that 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 private companies better prepare to transition to public markets. Throughout the governance journey, transparency is crucial to building trust with shareholders. “Good” governance is not universally defined, but we believe early incorporation of broadly applicable best practices better positions companies for long-term success. We are a partner to our portfolio companies in these efforts, providing differentiated private-market-specific resources informed by our public-market perspective as they consider the next steps in their governance evolution.
In early 2023, we published our Governance Guide for Private Companies — an exclusive resource for our portfolio companies. The guide provides an overview of generally accepted corporate governance practices and Wellington investor perspectives across various company life cycle stages, as a reference for private companies developing their own governance policies and structures.
This is one of many resources we share in our partnership with portfolio companies, including compensation benchmarking, board build-outs, carbon accounting resources, and much more.