5Qs for Every Corporate Professional: CimplyFive’s Five Qs to Answer While Preparing for an IPO or a Listed Company benchmarking its Governance Practices

It would not be wrong to say it is raining IPOs. Not just in India, but globally too, IPOs are at a record level, both in terms of numbers and value. Globally 2021 has seen 739 IPOs, which is almost ten times its number in 2009, the year that saw 79 IPOs, being the lowest number in the current millennium. India too saw its share with 28 IPOs in the first seven months of this year raising around Rs.42,000 crores. As we look ahead, the IPO flow seems set to continue unabated.

Given this scenario, with large number of companies that have gone public or are planning to go public, what changes await a newly listed company? The obvious answer is in the higher number of regulations that a listed company needs to comply with. In India, on an ongoing basis, a listed company in addition to the Companies Act, 2013, needs to comply with SEBI’s Listing Obligation & Disclosure Requirements, 2015, Prohibition of Insider Trading Regulations, 2015 and Substantial Acquisition of Shares & Takeovers Regulations, 2011. While compliance with these regulations can be either by the letter of law or the spirt of law, the five questions posed here helps a professional to understand the spirit of law and choose the level at which they want to comply.

  1. Who are the stakeholders recognized by your company while taking decisions?

Companies have large number of stakeholders, primary among them are customers, suppliers, employees, regulators, lenders, local community, and the shareholders. While in companies whose shares are not listed, it is only the customers who are an open-ended group and communication to them is addressed to both the existing customers and the potential customers. However, as a listed company the community of investors are another open-ended community consisting of both the existing shareholders and the potential shareholders which covers the entire investing community at large. This is a major change, which is recognized by the regulators and hence the company needs to be conscious of this new class of stakeholders in all the decisions it takes and conducts its affairs as required under the law.

  1. What is the nature of information that your company considers confidential or sensitive?

The usual categories of confidential or sensitive information for a business includes business plans, Intellectual properties, financial performance, and client/vendor/employee related information. However, when a company lists its shares in the stock exchange, a new category of information enters this sensitivity domain, i.e. price sensitive information. Price sensitive information is not an enumerated list but an inclusive list that contains among others, win or loss of large contracts, addition or separation of senior managerial personnel, disruption to operations or large expansions. With the addition of this new open-ended list, the responsibility of all the employees of the company in how they share this (should this be ‘any’?) information becomes critical, as it can exposes the concerned individual and even the Company to the risks of litigation in the form of insider trading. Hence listed companies, to maintain and preserve their reputation as good corporate governance practitioner, need to sensitise and train their employees to this new requirement.

  1. How does your company communicate with its shareholders/investors?

A company’s communication strategy depends on its need. For an unlisted company its communication strategy, especially the domain of investor communication is not that material. However, as the company lists its securities on the stock exchange, by virtue of its share price being in the public domain, the implications of its performance on the stock exchange has a major bearing on the corporate brand. Hence, a proactive communication strategy based on the need to genuinely communicate and engage investors is a key requirement for complying with the spirit of law.

  1. When does your company time its communication?

Timing of communication, especially regarding compliance related disclosures is not that material for an unlisted company. However, for listed companies, creating a brand for good governance requires communicating at the first available opportunity, rather than wait for the due dates. Quick and timely communication reflects good systems in place, a competent team, and clear intent to be transparent, which puts the outside stakeholders on par with the privileged insiders.

  1. What is the nature of voluntary communication that your company adopts?

Voluntary communication initiated by most companies is in areas of marketing to get new customers or in recruitment of key resources, often senior managers or key talent that is scarce. With listing, a company has the need to adopt voluntary communication with its shareholders and potential investors in building a reputation for good corporate governance. This is all the more essential when a company wants to engage with institutional investors like insurance companies, pension funds, FIIs and family offices with longer investment horizons. Hence adopting voluntary communication especially on sustainability covering social, environment and financial spheres is essential if not critical for promoting good corporate governance.

Listing is only the first step in the long journey of an equity listed company. While a good intent helps to stay steadfast on the course, given the large number of regulatory requirements to comply with, it needs to be matched with a competent team for governance & compliance and investment in robust digital systems. This can help translate the good intent into performance.

2021-10-18T11:09:42+00:00
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