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Is Your Board Ready to Go Public?

March 25, 2019

Posted in: WATSON Views

By Rachel Colabella, Governance Consultant

You’ve decided to take your company public. This is an exciting time in your company’s evolution, but there is a lot to think about – starting with who should be on your board. This is something most boards do not think about enough. Yet, if you want to take your company public, being intentional about how you design your board is critical. For any organization, having the right people around the board table with the right complement of skills, experiences, and perspectives is a critical first step in having a well-functioning, successful organization. As a public company, it is no longer sufficient to simply have founders, family, and friends sitting around the board table.

So, how do you best set up your company for success in the public markets? It starts with understanding why board composition matters, what you need to consider in designing your board, what good board composition looks like for public companies, and how to get there.

Why Does Board Composition Matter?

Having a strong, balanced, and independent board is widely accepted by securities regulators and institutional shareholder groups as being a critical element to enhancing a company’s long-term sustainability. This is a key consideration for investors and in fostering fair and efficient capital markets. Intentionally designing your board composition practices can create significant strategic value for your newly-listed public company:

  • A diverse board that includes independent viewpoints will expose your company to opportunities and ideas not otherwise available. It also helps establish a good check and balance on the sustainability of key strategic initiatives.
  • The right directors can give your company a long-term perspective and help you intelligently manage growth and deliver on strategy. They can also help forge strategic relationships and provide access to needed capital, markets, customers, and resources.
  • Your company is more likely to attract investment capital from a diverse base of investors, including institutional investors, who may be key to achieving your company’s strategic goals.

What do You Need to Consider in Designing Your Board?

The Canadian Regulatory Framework

Designing your board should not simply be an exercise in compliance. It should be a thoughtful process that addresses your company’s strategic needs. That being said, as a public company, you do need to consider the Canadian regulatory framework which can be complex and challenging to navigate. If your company is new to the TSX, your board must at a minimum, comply with the board composition requirements set out in the TSX Company Manual as well as your company’s incorporating statute. Your board should also consider incorporating the composition requirements and guidelines adopted by most provincial and territorial securities authorities, including those in National Instrument 52-110 – Audit Committees (NI 52-110), National Instrument 58-101 – Disclosure of Corporate Governance Practices (NI 58-101), and National Policy 58-201 – Corporate Governance Guidelines (NP 58-201).

These guidelines are not prescriptive and instead use a principles-based approach, suggesting recommendations for best practices for board and committee composition. This approach allows your board considerable flexibility in designing its composition to suit the company’s needs. Your company, however, will be required to publicly and meaningfully disclose whether or not your board complies with these guidelines. If you do not comply, you will need to disclose why not and how you otherwise ensure objective and independent decision-making, nominations, compensation, and governance practices. Securities regulators are clear that they expect all public companies to adopt practices consistent with those outlined in the regulations.

Public Company Governance Beyond the Regulations

Along with the regulatory framework, your board also needs to consider the voting and disclosure guidance issued annually by proxy advisor firms such as Glass Lewis, Institutional Shareholder Services (ISS), and by the Canadian Coalition for Good Governance (CCGG). Glass Lewis, ISS, and CCGG all serve institutional investors and provide guidance to promote good governance practices in Canadian public companies. Some larger institutional shareholders issue their own voting policies regarding specific board composition issues.[1] These guidelines provide important insight into the investment community’s views and expectations on different aspects of corporate governance practices for TSX-listed companies. Board composition is at the top of this list. In a world where accessing much-needed capital is becoming more competitive, it is imperative to pay attention to this guidance and to design your board with this in mind.

What does Effective Board Composition Look Like?

Minimum Composition Requirements

At a minimum your board composition must reflect the following:

  • Director Skills and Competencies: All directors should have experience and technical expertise relevant to your company’s business and industry. Your directors should also have public company experience.
  • Independent Directors: At the time of listing, your board must have at least two independent directors, meaning directors who have no direct or indirect material relationship with your company. A material relationship is defined as “a relationship which could, in the view of the board of directors, be reasonably expected to interfere with the exercise of a member’s independent judgment”[2]
  • Audit Committee: Your board must have an audit committee, composed of three independent[3] and financially literate directors.

Additional Good Practice

As a newly-listed public company, you should also strive to meet the following standards to promote effective board composition:

  • Independent Board and Board Chair: At least a majority of your board should be independent. Additionally, your board chair should be independent, and CEO and board chair roles should be separated.
  • Board Renewal: Your board should have a clearly-articulated philosophy and process for director and chair succession. As part of this process, the board should have mechanisms to identify gaps in board composition.
  • Board Evaluation: To identify gaps in board composition, your board should regularly assess itself, its committees, and each director on their effectiveness and contribution.
  • Defined Nominations Process: Your board should clearly define a process for nominating directors to your board which sets the skills, competencies, and experiences required for the board as a whole, assesses the skills and competencies of existing directors, and identifies gaps to be filled.
  • Board Diversity: Your board should clearly articulate its philosophy with respect to board diversity and how it will achieve diversity, particularly with respect to gender representation.
  • Committees: In addition to an audit committee, your board should have one or more committees dedicated to board governance, director nominations, and director and executive compensation. All directors on these committees should be independent.

How Do You Get There?

As a board, you have a lot of latitude under the current regulatory framework to design your board composition. Be strategic and thoughtful about what works best for your company. To set your company up for success in the public markets, consider implementing the following practices for balance board composition:

  • Appoint an independent nominating committee to drive the nominations and recruitment process. To ensure key skills and competencies are properly accounted for, have your nominating committee develop a skills matrix and nominations process to assess your board and committee composition. As your board’s needs will change over time, review and update your skills matrix annually. Focus your nominating and recruitment process on the skills, experiences, and perspectives not fully represented on the board.
  • Be thoughtful and intentional but recognize that Rome wasn’t built in a day! The investor community and regulators accept that newly-listed companies need time to put these governance standards and practices into place and offer a one-year grace period. It may not be practical to achieve the gold standard of board composition on day one. Have a plan in place for how you will adopt these standards within the first year or two after listing and as your shareholder base evolves.
  • Ensure your prospectus and ongoing disclosures give your investors enough detail for them to understand how your board composition plans will develop and how your board will ensure objective and independent decision-making.
  • Keep the following questions top of mind when thinking about your board’s composition:
    • What is your company’s purpose and what is its strategy for the next 3-5 years?
    • Do you have enough independent directors?
    • Does your board include a diverse mix of directors to enhance your board’s oversight and guidance in achieving your company’s strategic objectives?

Some Final Thoughts

Your company has a lot to think about when it comes to going public, including the implications on its corporate governance structure. As you position your company to go public, board composition should be top of mind. Having a strong, balanced board can provide significant strategic value to your company and can be a powerful source of competitive advantage. It’s an exciting time, so be intentional and enjoy the journey.



[1] See for example, the December 21, 2018 global voting policy issued by the Canada Pension Plan Investment Board which sets out its voting practice relating to gender diversity on public company boards.

[2] As set out in NI 52-110.

[3] Newly-listed companies are given a grace period in achieving this independence requirement – specifically, requiring only one independent director at the time of listing, a majority of independent directors within 90 days of listing, and all independent directors within one year after listing.