Public companies are subject to many requirements and that’s why a governance system has to be put in place. This includes the structure, composition, and responsibilities of their board and specific committees. For example, specific requirements for audit committees, nomination committees and remuneration committees address committee composition, authority, and selected responsibilities. There are also many additional disclosures that have to be made in the published annual report, like describing how the board oversees risk, establishes board leadership, and considers its diversity, as well as information on board committees and the number of board and committee meetings held and how it has handled financial reporting responsibilities. Related party transactions come under greater scrutiny by the shareholders, possibly the media and the regulators.
Many owners in less regulated markets use public listings to transfer their risk and syphon the capital raised to themselves for some over valued shares or promoters work and through related party transactions. This attitude has seen many newly listed companies making lower profits or increased losses after listing. Many of them are trading below their IPO prices!
Ensuring corporate performance doesn’t lag is also a governance decision that would protect the potential investors. The many governance rules and requirements for boards, along with what anticipated shareholders will likely expect, mean these decisions merit at least some early attention and consideration. However, establishing governance practices is always a balancing act. While the existing shareholder directors and executives may welcome the valued advice that seasoned directors can bring, they fear the loss of power. They are also sensitive to whether implementing certain governance practices will be too transparent and divert their attention and resources away from running the company.
Tax mis-governance, manipulating taxes, bribery and corruption, accounting for these and the financial reporting aspects would be another issue that PLCs may have to avoid.
In a PLC, your shareholder base won’t be homogeneous. Their expectations about performance can be varied and conflicting. Therefore, if you want to enter the capital markets, you better be ready to have better governance practices and be transparent. It’s no longer the story of “my money my company”, its going to be “public money and their company”.