Erin Lanciani, Chief People & Experience Officer, Sage Therapeutics.
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When a company goes public, it's a big deal for anyone involved in the business. An IPO affects the whole organization, and there’s no how-to manual. Not everyone has firsthand experience to rely on, and for those who have been through the process, such unique conditions (industry, markets, timing, circumstances) make a strict guidebook not totally possible.
In addition, you’re entering a world not everybody understands. New terminology, rules, market variations, SOX compliance, evergreens, 10b5-1 plans — you can understand why it would be a bit daunting.
When it comes to the role of the human resources department, going public comes with its own set of considerations. Below are those challenges and opportunities, as well as best practices, for the people function in a company making its IPO.
1. Develop A Complete Book Of Work
Focus on how the IPO will impact the organization. A critical aspect to this is the shared vision and mindset to the approach between finance, legal and human resources departments.
There will also be challenges from a people, organization and culture perspective. To tackle some of these challenges, develop a complete book of work — not just about the IPO, but the business. We broke it into six major buckets:
• What corporate initiatives do we need to take on (government affairs, vendor management, tech strategies, etc.)?
• What will our integrated filing and launch plan be if development is successful?
• How will we execute the product portfolio?
• What kind of infrastructure do we need going forward (document management, legal compliance, budgeting systems, etc.)?
• How can we help each business function take things to the next level?
• How do we continue to maintain and grow our culture?
2. Get People Prepared
On the subject of communicating, ensure the concept of “material, non-public information” is understood. Everything that happens within the four walls of the company can now potentially be made public, and you will have SEC reporting requirements. After you go public, the discipline of how, when and where you share information externally becomes even more important. All investors need a fair opportunity to have access to your material information in a Reg FD-compliant way.
These will be new concepts for everyone. How do you tackle them?
• First, think about how you communicate. Clearly identify who will speak to the investment community and adopt processes for alignment on what is communicated (where and when). Create internal rigor and specific communication plans around key events in the business.
• Second, ensure everyone understands the concept of insider trading, that they cannot buy or sell stock, including through option exercise/sale transactions, if they know material, non-public information. Here, too, there are several decisions to make: Should 10b5-1 plans be available to the whole organization? What would be the strategy for allowing sales by the leadership team following the IPO lock-up period and on an ongoing basis? Should we adopt quarterly black-out periods? If so, at what stage in our growth?
• Third, educate your teams. Run sessions to help people understand the ramifications of working for a public company, such as sticking to goals discussed externally, the need for careful forward planning and the importance of material milestones. And go through terminology: What does SOX mean? What is our set hiring plan? What does it mean to be a public company? Be mindful of placing too much emphasis on what people can’t say, and focus on what they can say.
And remember, communicate, communicate, communicate. A successful business is all about human interaction.
3. Celebrate Together
When you finally go public, you must celebrate in style! Make ringing the bell on NASDAQ something everyone can enjoy together in some way.
Considerations As You Build Your Strategy
There are a few important things to consider as part of your strategy:
• Temper expectations: Your stock can feel like a daily report card. Price fluctuations can be driven by all sorts of market factors, but people can jump to the wrong conclusions quickly. It’s worth underplaying whether your stock goes up or down in your ongoing communications. Just focus on your purpose, strategy and what you’re there to do, and the stock price should follow.
• Mitigate binary events: Every company has tough times. Look at your business and work hard to mitigate the binary nature of those times that can come from external communications.
• Beat the “bio-bucks:” If you plan on completing a reverse stock split in conjunction with your IPO, prepare your organization in advance. People love to work out their “bio-bucks” — they take the number of shares they have, take your IPO price and multiply them to predict how much money they will make. It’s worth working with your finance department to create more informed guidance to avoid this sort of guesswork, as this can be a hard concept to grasp.
• Keep a performance mindset: Consider performance milestones as part of your stock program. Some options can be time-based, but you can grant PSUs that vest on the achievement of significant company milestones — research and development, commercial, etc.
• Prepare in advance: Think forward and nail down your strategy for each phase of the IPO. Plan the compensation aspects (especially stock options) and trading policies in advance. How will you handle 10b5-1 plans? Who is your stock option administrator? How soon after lock-up will you allow leaders to sell? You won’t get everything right, but strategizing early frees you up to handle unforeseen issues when they arise.
• Involve everybody: It’s a big event, and it’s a one-time-only opportunity to get everybody involved and feel like a part of your success. Make your IPO another challenge that you and your teams conquer together.
• Communicate, communicate, communicate: This can’t be emphasized enough. Educate your teams, manage their expectations and let them know what they can say (instead of focusing on what they can’t).
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