By Anna Whitlam
Think of IPO-ing your company like getting married to your new investors. You must first attract the right partners and get them engaged. Then there’s the frantic preparation, the thrill of the big day, the honeymoon phase and then, hopefully, a long and prosperous partnership.
But, just as marriages can go awry, so too can IPOs, and one of the most common reasons for both is a breakdown in trust. According to a 2020 research paper published by SenateSHJ, major Australian listed companies which experience a reputation crisis with their stakeholders lose, on average, AU$1billion in market capitalisation and suffer a 30% drop in earnings per share.
For small and medium cap companies reputational damage can be far more devastating, even terminal. That is why any founder preparing to bring their company to market must develop a robust Reputation and Communications Strategy with which to both attract investors and hold onto them post-IPO.
This is just as much the case for Chinese companies seeking Western investors through capital raisings on the Hong Kong Stock Exchange, where in 2020 some 154 companies raised HK$398 billion – the highest amount raised in a single year since 2010. In the US, the UK and Australia, as well as increasingly throughout Asia, today’s investment choices are informed not just by cold hard financial results but by how a business performs on the “Environmental, Social and Governance” or “ESG” issues that can make or break its reputation.
In my two decades as an executive-search professional placing Corporate Affairs and Communications leaders and advising Boards across Asia-Pacific on Reputation Management, I have noticed that all too often such matters have been an afterthought for small and mid-cap businesses.
In many ways that was entirely understandable. The typology of most founders – including the tech and fin-tech unicorns that China is producing at such a prodigious rate – is that of the brilliant Type A entrepreneur driving their business hard to innovate and scale up fast. It’s what they do best.
For such leaders, the prospect of a huge sudden flow of investment from an IPO can be hugely attractive. But it comes with hidden costs, such as time-sucking compliance and reporting requirements, increased scrutiny, and greater risks to the precious brand they have devoted themselves to building.
The good news is that there is also huge hidden opportunity for those leaders who invest upfront in the necessary skills to manage reputation and risk. Not only can they attract more capital from investors far and wide but those shareholders are more likely to stay loyal post-IPO.
So, what can you do as the founder of a Start-up or Scale-up as you position your business to come to market or to tap new backers post-IPO? Here’s five things for starters.
1. Understand the value of your brand
Think of the most successful companies in the world and how much they invest in their brand and reputation. In the same way, you must understand the various audiences that your brand touches, and what value your brand has to them.
I keep hearing of wonderful, innovative companies that are missing out on investment simply because they have not taken the time to fully understand the value of their brand to their various stakeholders and how to best communicate that to their potential investors.
2. Understand what matters to your potential investors
As discussed, most of today’s global investors are not just focused on financial results, they also need understand your ESG policies and feel confident that you have a solid “social license” to operate. In other words, that your stakeholders, including employees, investors, the communities you serve, and the public have an ongoing acceptance of your operating practices and procedures.
3. Get good people around you
As international and global regulations tighten regarding financial transparency and market practices (such as how you spend your new capital), it is increasingly difficult for listed companies to please all their investors all of the time. Having not just a formal board but a high-quality advisory board can be a vital insurance against the risks this creates for the business.
4. Check your employee practices in order
Community expectations are rising that employers treat their employees with a high standard of care, even in hard-charging companies with fast-growth where performance expectations are understandably sky high.
You must therefore be clear to potential investors about how you are going to manage the impact of fast growth on your employees. That includes undertaking a thorough review of your employment contracts.
5. Don’t try to do it all yourself
Many founders who IPO their businesses are then frustrated to find that they lose precious time managing governance, compliance and reputational issues themselves post-IPO.
However, those founders who make the relatively minor investments required to get a formal Corporate Affairs Function in place that can demonstrate its value before the business comes to market, remain free to do what they do best: drive their business for growth and generate great returns for their new shareholders.
That is a marriage made in heaven.
Anna Whitlam is Founder and Managing Director of Executive Search and Advisory firm Anna Whitlam People – www.awpeople.com
(In the event of any conflict between the English and Chinese versions of this blog, the English version should be the reference.)
To subscribe to Bamboo Works free weekly newsletter, click here