Capital market activities, such as IPOs and carve-outs, play a crucial role in an organization's development and adaptation to the ever-changing conditions of today's dynamic world. To ensure a solid foundation for success, these activities require careful planning, implementation, and strong corporate governance. In this context, the role of supervisory boards is instrumental. We had a conversation with corporate governance advisors and hkp/// group partners, Dr. Pia Lünstroth and Dr. Jan Dörrwächter.

Dr. Dörrwächter, Dr. Lünstroth, how does corporate governance impact capital market activities, particularly IPOs?

Dr. Dörrwächter: Corporate governance encompasses the rules, practices, and processes by which a company's management or executive board governs, overseen by the supervisory board. Its purpose is to consider the interests of stakeholders and ensure the long-term, sustainable success of the company, beyond just financial aspects.

Dr. Lünstroth: This is especially crucial during IPOs to ensure the company is sustainably positioned, including organizational, operational, and compliance aspects.

What specific aspects of corporate governance are essential to consider during IPOs?

Dr. Lünstroth: Transparency is key. All relevant information about the company’s management, in other words, its corporate governance must be made available to stakeholders, especially potential investors, enabling informed decisions.

But it isn’t just about shareholders...

Dr. Lünstroth: Absolutely! The interests of employees, customers, suppliers, and other stakeholders should be properly addressed.

Dr. Dörrwächter: Ultimately, we aim for a balance between financial and non-financial considerations and between short-term and long-term objectives to ensure sustainable value creation , benefiting all parties involved.

Ensuring compliance with legal and regulatory requirements is vital.

Dr. Dörrwächter: Companies – and this expectation doesn't just apply to the executive board, but also to the supervisory board in the final instance – must ensure compliance with legal requirements. For listed companies, specific obligations under capital market law, such as ad hoc disclosures, must be fulfilled.

So, supervisory boards have a significant responsibility in monitoring and advising the executive board during challenging situations?

Dr. Dörrwächter: Absolutely. Supervisory boards are crucial in capital market activities, overseeing IPOs or carve-outs for long-term success.

Dr. Lünstroth: The supervisory board has gained an important role as an interface for capital market communications in recent years. When it comes to capital market activities, but also to larger transformation projects, investors are no longer satisfied with receiving information from Investor Relations. Because of their different understanding of governance, large Anglo-American investors in particular often approach the supervisory board directly, especially the chair - which poses all kinds of challenges for corporate governance at companies with a two-tier board system. 

From your point of view, how close should the collaboration with the executive board or management be?

Dr. Lünstroth: In the context of capital market activities, the supervisory board should support the executive board in monitoring processes, managing conflicts of interest, and ensuring an effective risk management system, for example to identify and suitably address potential risks in relation to the IPO.

How do you support companies and supervisory boards in this role?

Dr. Dörrwächter: That of course depends on each individual case. Nonetheless, supervisory boards have to deal with the requirements of a functioning and sustainable corporate governance system more than ever before. As well as providing support in matters relating to executive and supervisory board compensation, we also support companies in defining necessary competencies for the supervisory board and targets for its composition, as well in determining rules for collaboration between the supervisory and executive board, and for collaboration within the boards. 

Could you provide specific examples?

Dr. Lünstroth: Drawing on our expertise, we assist in defining a strategy-compliant target picture for the supervisory board as well as in defining relevant competencies and the relevant qualification matrix. The composition of the executive board and supervisory board are essential topics at every road show leading up to an IPO. The next step is to make the boards fit for the future, which includes thinking about succession. So we also support companies in designing and implementing long-term, resilient succession planning for the executive and supervisory boards. 

Dr. Dörrwächter: We design strategy-driven and sustainability-oriented compensation systems that meet legislative, governance code, and investor requirements, while ensuring market competitiveness and fairness. We also harmonize compensation practices across hierarchical levels if required, to cascade strategic goals within an organization in the interest of consistency, as successive levels also move more into focus with an IPO.

Thank you for sharing your insights with us.

Author Dr. Jan Dörrwächter

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