02/27/2012 03:26 EST | Updated 04/28/2012 05:12 EDT

Facebook Alert: What You Can Learn from the IPO


If you're reading this, the chances that you are on Facebook are relatively high. And sadly, the chances that you personally will duplicate Mark Zuckerberg's business success are relatively low. Very few of us will take our companies public, let along profit so handsomely during our careers.

What we can do, however, is learn from this success. And particularly, learn from the Facebook IPO.

The key to this is the prospectus. The prospectus gives a prospective investor all of the information they need to make a knowledgeable investment decision. Too many large organizations have their latest prospectus hidden away so that only the most sophisticated investors can find it. Test this amongst your friends and family: how many of them have personally reviewed the Facebook prospectus, the most publicized IPO in the history of the world? Likely, very few. And of course, only companies that are going to the public markets need create a prospectus in the first place.

If we dissect the IPO itself, there are three items that are highly relevant -- and that most "non-IPO" leaders should consider:

1) Risk Factors: This is a multi-page, open-the-kimono look at everything that might go wrong with the company. Everything from tech trends to competitive threats to internal weaknesses, and then some. Insight: How often do companies openly and honestly share their risks... publicly? (It's easier to believe your own PR.)

2) Financial History: For several years prior to an IPO, the company must run their organization in a squeaky-clean, financially-sound manner, and their audited financial statements must reflect this. Insight: The increased public scrutiny of past financial results is a foreshadow of the financial transparency required of all public companies. Those organizations that are active in social media know that it is impossible to fix the past; the only way to have a great history is to make sure the present is as good as it can be. The same is true with financials.

3) Transparency: If the goal of the IPO is indeed to ensure that all investors have what they need to properly make their investment decisions, then it follows that there can be no "hidden" areas of nondisclosure. Within the IPO, one can find minute details on the controlling shareholders, senior managers' compensation, legal considerations, and more, on 186+ pages. There is complete transparency. Insight: Many managers profess to be open with their employees (and shareholders), but how many are this open? What's the worst that could happen if those around you knew "too much"? Perhaps alignment and better decision-making? (And perhaps management would be more accountable?)

Sadly, these three factors often get sidelined by political expediency, corporate greed, or self-interest. Yet why not more open disclosure on these topics within most organizations? Perhaps disclosure -- and discussion -- can be the first step towards stronger alignment with the public interest - and a more profitable enterprise. We need not wait until a Facebook-sized IPO to start.

Postscript: If you are interested in reading the Facebook IPO prospectus, it's available here.