by Lindsay Jordan
Global equity markets are currently witnessing signs of recovery after enduring years of pressure from geopolitical threats, heightened regulatory landscape, interest rate uncertainty, and other challenges. As many companies that have been waiting in the wings set their sights on rapidly approaching initial public offering (IPO) windows, it becomes increasingly important for executives to prepare their people and processes for a successful market debut and the complexities of ongoing public company operations. In this context, a well-structured and battle-tested disclosure committee is no longer just a desirable asset; it has become a vital mechanism for effective governance.
Disclosure Committees
Public companies subject to Securities and Exchange Commission (SEC) periodic reporting must maintain a robust system of internal control over financial reporting (ICFR) to ensure their financial statements are free from material misstatements. Establishing a disclosure committee is a simple – yet critical – step in achieving this objective.
These committees play an essential role in ensuring that a company’s disclosures are accurate, complete and timely. They are not merely a regulatory formality; rather, they are a vital component of a company’s governance framework. By navigating the complexities of financial reporting and risk assessment through a multi-dimensional lens, disclosure committees help ensure that all material information is disclosed in compliance with the regulations and, ideally, in alignment with investor expectations. Their efforts are foundational to preserving the integrity of the information that companies present to the market.
While disclosure committees are not mandated, their establishment has become standard practice. According to a 2024 survey by Ernst & Young LLP (EY US) and the Society for Corporate Governance, 96% of public companies report having a formal disclosure committee or a comparable group with similar responsibilities.
Read more:Global IPO Trends Q3 2025 | EY - Global
Navigating Change: Disclosure Committee Trends Survey (2024 Update) | EY - US
In this article, we will explore leading practices for establishing and structuring disclosure committees during the IPO journey to support post-IPO success.
The Critical Role of Disclosure Controls and Procedures in the IPO Process
As companies prepare for an IPO, the establishment – or enhancement – of disclosure controls and procedures (DC&P) becomes paramount. Formal DC&P that are not commonly present in private companies include both sub-certifications and disclosure committees, which together form a critical pillar of a company’s governance and risk management framework once public. While newly public companies benefit from a phase-in period for adopting a comprehensive ICFR program under the Sarbanes-Oxley Act (SOX) 404(a) and 404(b), DC&P must be both present and effective immediately upon going public. If these processes are lacking or insufficient, the company may be required to provide additional disclosures, including detailing specific weaknesses in the financial reporting process and outlining the company’s remediation plans. Additionally, it is common to see risk factor disclosures related to these deficiencies, highlighting their potential negative impact on investor confidence and stock performance.
Companies are granted substantial flexibility in their design of DC&P, but nonetheless, the purpose of these processes is to ensure that critical information regarding disclosure judgments is accumulated and communicated timely to executives to allow informed decision-making and that information that is required to be disclosed is recorded, processed, summarized and reported on a timely basis.
Tailoring Disclosure Committees for Companies Entering the IPO Journey and Early Stages of Being a Public Company
Preparing for an IPO presents unique governance challenges, particularly for companies with informal processes and structures, such as founder-led, high-growth organizations. Similarly, legacy private giants or carve-outs from established public companies may face issues related to overly governed, siloed operations that hinder the collaborative, cross-functional approach necessary for a successful transition to a stand-alone public company. To address these challenges, organizations should consider establishing disclosure committees tailored to their specific operating environment. These committees should be fit for purpose, serving not merely as a check-the-box compliance structure but as a way to enhance disclosure efficiency.
Strategic disclosure committees can play a fundamental role in ensuring evolved disclosures and a refined value proposition – one that accurately reflects the current state of the business – are effectively conveyed. By ensuring that promises made during the IPO are fulfilled or addressed, these committees can foster trust with investors. Disclosure committees that think and act proactively are particularly beneficial for supporting aftermarket investor engagement, especially in situations where performance headwinds arise.
The establishment of a disclosure committee involves several key steps. First, companies should identify preliminary members with the necessary experience and insights. The SEC recommends (but does not require) that the committee includes the chief accounting officer (or controller), general counsel, risk management officer, investor relations officer and business unit representatives. And as the organization scales and seasons in the public markets, the membership of the committee can evolve with it. As an example, it is not uncommon for smaller pre-IPO companies to outsource functions such as investor relations and internal audit. Once these competencies are brought in-house, it is important to evaluate their potential membership on the committee.
Next, drafting a charter that outlines the committee’s purpose and protocols facilitates alignment and clarity on expectations. Even in organizations that prefer to avoid formality, it’s crucial to establish clear operational guidelines. Consider these key questions:
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Will the committee’s focus be solely on SEC reporting, or will it encompass a more comprehensive approach, including investor presentations and supplemental materials? Will the committee also review material press releases, website updates and other broader corporate communications in advance?
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What is the expectation of review? Will it be a page flip or more targeted approach, such as financials (i.e., F Pages) and areas of critical focus (i.e., management discussion and analysis)?
Addressing these questions upfront helps set the stage for effective collaboration and decision-making.
Providing onboarding and education for committee members and relevant stakeholders is also vital. This cultivates a shared understanding of the committee’s objectives. Given that many members may be new to the disclosure committee process and unfamiliar with SEC reporting requirements or investor communication trends, it is crucial to offer comprehensive training sessions that cover relevant topics in detail. This training should include practical examples and case studies to illustrate best practices and common pitfalls.
Establishing productive dynamics from the outset is also recommended. Members should be encouraged to ask questions and constructively challenge decisions around disclosure, fostering an environment of open dialogue and collaboration that ultimately enhances the quality and effectiveness of the committee’s work.
While it is recommended, though not always possible, conducting dry runs and after-action reviews prior to the IPO can further refine processes and improve the committee’s effectiveness for public debut and continued public company operations.
Sub-Certification Process
Sub-certifications are a process wherein key employees within the organization provide assurances – typically through a structured survey – that information is complete and accurate. This process reinforces the integrity of the company’s financial reporting by acting as a “stop and pause” mechanism.
Common sub-certification questions to consider:
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The financial and other information provided herein does not contain any untrue statement of a material fact or omit to state a material fact necessary to make that information, in light of the circumstances under which the information was provided, not misleading with respect to the period covered by this certification.
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To my knowledge, there are no unrecorded or undisclosed material arrangements that are required to be recorded or disclosed.
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To my knowledge, we have complied with all contractual agreements or have provided for any financial consequences of noncompliance.
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I have reported to management all communications from regulatory agencies concerning noncompliance with or deficiencies in our corporate practices that may have an impact to our financial reporting and/or disclosures.
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I have reported all transactions and arrangements that could have a material impact to the financial statements and/or disclosures.
Companies' near universal adoption of sub-certifications stems from mandatory 302 and 906 certifications, which must be signed quarterly by the principal executive and principal financial officers of public companies. Sub-certifications and a well-functioning disclosure committee enable certifying officers to satisfy the representation made in these certifications. Integrating these two processes and providing summarized reporting to the disclosure committee on the results of sub-certifications supports informed decision-making, enhances oversight and facilitates timely identification of potential issues.
Conclusion
As companies prepare for the complexities of an IPO, the establishment of robust disclosure committees – and integrated sub-certification process – becomes not just beneficial but critical. These committees serve as critical guardians of corporate governance, ensuring that disclosures are accurate, complete, and timely. In an environment where regulatory scrutiny is intense and investor expectations are high, a well-structured disclosure committee can significantly enhance a company's credibility and success in the public markets.
Although it is key for organizations to prioritize the formation of disclosure committees and formalization of sub-certifications early in the IPO process, there is no one-size-fits-all approach. Like all critical governance decisions, processes should enhance transparency and accountability while emphasizing a cohesive and compliant investment thesis, rather than merely fulfilling compliance requirements for their own sake. A cross-functional, value-focused IPO team can help companies navigate decisions around form and function of the committee by providing informed insights and practical guidance. This facilitates effective operation of the disclosure committee as it moves toward a public offering and beyond.
For further IPO insights and leading practices, explore our resources: Understanding the US IPO process: a guide for private companies | EY - US; IPO readiness assessment | EY - Global; IPO destination services | EY - Global; Maximizing Transaction Value with Strategic PMO Implementation - FEI
Lindsay Jordan is a senior manager at Ernst & Young LLP and an executive within Corporate Governance Advisory.