Publicly-Traded Companies Should Act Like One
A recent guest post on PubCoCEO.com by Joshua Levine & Robert Ferri looked at “Intelligent IR: Research-Driven Investor Relations for Small and Microcap Companies.” In the post, the authors made the point that publicly traded companies should act like one.
Those in the microcap space have probably become accustomed to corporate executives of micro- and small-cap firms complaining about the expense of being a public company. A study from the IPO Task Force cited that the average cost for smaller companies to go public on a national exchange is $2.5 million and the ongoing cost to maintain an exchange listing averages $1.5 million per year. Those cost estimates include things like legal, accounting, compliance, investor relations, exchange fees, etc.
Levine & Ferri write that if smallcap teams cannot achieve a return on the millions it costs to be public, they should have never taken their company public in the first place. The authors also point out that “What might just as easily be said is, if the management cannot achieve that return, it shouldn’t be overseeing a public company. Once you are a public company, it’s too late to complain about the burdens of being public.”
Corporate insiders go through the exercise of weighing the pros and cons to determine whether becoming publicly traded is advantageous. Below are the pros and cons of taking a small company public according to Joshua Levine & Robert Ferri.
Pros of being public
– Your company gains prestige and visibility.
– The market provides a valuation of the company daily.
– Access to funding that does not have to be repaid.
– The ability to use shares to finance acquisitions and incentivize employees.
– Shareholders benefit from liquidity, and the ability to use their shares as collateral for loans.
Cons of being public
– Costs related to maintaining a public company.
– The time dedicated to ongoing reporting requirements of regulatory agencies.
– Public companies must answer to far more people compared to private companies.
– Important management decisions often require board approval, and sometimes the approval from a majority of the shareholders.
– The Securities and Exchange Commission, which may require firms to reveal sensitive information, including business strategies, financial results, and executive salaries and compensation arrangements.
– Shareholders’ tendency to judge management in terms of profits, dividends, and stock prices may be the most stressful part of the job. This can cause management to emphasize short-term strategies at the expense of long-term goals and growth opportunities.
– Short sellers are known to derail a company’s messaging and investor relations’ strategy, while activist investors may enter the picture and provide new sources of pressure, which happens in smaller companies more frequently than people realize.
The authors conclude that “To successfully manage all of the challenges of running a public company, management needs to learn from its supporters and critics alike, forging the skills to exploit the wide-ranging benefits of being public.”
Read the entire guest post HERE.