Welcome to Part II of our Uplisting.com Series. Last time, we talked about how to get started in planning your uplisting. Today, we’re going to explore a topic, digging a little deeper, into some of the qualitative requirements you need to meet before you can be listed on a major exchange: specifically, that of Corporate Governance.

For many CEOs this subject is like watching paint dry. However, not only is Corporate Governance a mandatory requirement for your company to list on NASDAQ and the NYSE, it also provides a layer of focused stewardship for the C-Suite management and Board of Directors. In fact, during your uplisting process it is an area that both exchanges will pay close attention in their review of your application. So, it warrants us paying close attention to it too.

Why Is Corporate Governance Important?

Corporate Governance is a fundamental requirement to be listed on a major exchange. It protects the interests of investors and shareholders, mitigating risk and making sure your company’s dealings are on the up and up. In short, it is the company’s oversight mechanism.

Additionally, Corporate Governance can actually improve your company in a variety of other ways. It can attract a stronger Board of Directors and provide operational assurances for your Investment Banker and other key service providers. In addition, it demonstrates to the regulatory and investing communities that management is serious about being a quality, compliant, publicly oriented company.

Board of Directors

There are two basic things you need when it comes to Corporate Governance. The first, is an independent Board of Directors, with “independent” being the operative word. Independent means the Board member must have no relationship with the company or management that would skew his/her judgment with regard to carrying out their responsibilities.

Both Nasdaq and NYSE have strict guidelines on this, including lists of relationships that compromise independence. For instance, if an immediate family member serves as part of company management, you would not be deemed to be independent as you couldn’t be relied upon to have truly unbiased judgment in your decisions. A complete list of rules and guidelines can be found on each exchange’s website. In addition, your legal counsel can often be a good sounding board in determining if directors are independent.

Committees

Once your independency requirements are satisfied, the Board of Directors will be required to form committees. Each committee handles a different aspect of governance, discussing important decisions and bringing their recommendations to the Board at large. There are four required committees: Audit, Compensation, Nominating, and Corporate Governance. However, many companies elect to have additional committees dealing with everything from risk management, to AML requirements, to social media. At UpListing.com, we recommend our clients establish these additional committees as part of good company stewardship from day one.

Many companies that contemplate uplisting often leave the decisions of Corporate Governance till the 11th hour, or until they receive comments from the exchange. When they do this, they end up surprised by the number of comments regarding governance and find them difficult to comply with given a shortened time frame. Corporate Governance is an essential part of the uplisting process and it shouldn’t be left until the last minute. Start early and plan thoroughly, to make sure you’re fully compliant.

In Part Three of our Series we will talk about the Investment Banking relationship and why it is one of your company’s most important partnerships in the uplisting process.