Many times, people ask me what it takes for a SME to become a listed company? Being a company secretary I can speak for hours on the line of governance and compliance which a listed company needs to follow as compared to closely held company, however, is compliance alone enough to sustain a company in the absence of incremental financial success? In today’s materialist world is it possible even to retain and hire best people to run compliance and governance function without ensuring continuous growth for the SME company?
In my experience, the biggest challenge for SME is to be in mindset of growth and excellence all throughout. Once you are listed, investor becomes one additional critical stakeholder and investor wants growth.
Everyone wants to grow but growth is not free. At times growth needs lot of sacrifice. My experience says unless the leader of the organisation is growth obsessed, organisation goes in maintenance or can even go in slow decay process. In any organisation if some individuals grow financially without being obsessively focused on excellence and growth, consider that someone else is doing this for them.
So, for SME to transform to mainstream listed company, first it needs to master growing and doubling size in predefined timeline. Unless the company cracks this formula while being 100% compliant and ethical , we should not even think about getting listed. And once you are listed you must have lot of processes, controls, protocols like approval of independent director for many business decisions and therefore speed needs to get replaced with extra ordinary planning and exceptional alignment.
Data shows that those companies which are continuously in small cap index are growing at CAGR of ~17 to 20%. And if an entity does not aspire to be in leadership category probably listing is not a good idea.
Once you are listed, it is almost a norm to engage with investors every quarterly after the financial results is declared and management answers questions of investors. Answering and meeting expectations of investors quarter on quarter is a task and unless entire organisation is wired to work towards it and unless leader ensure vector alignment in the organisation this is not possible.
The companies which were growth obsessed but not disciplined also went to bigger trouble of IBC. Almost 8-10% companies of top 500 companies in India went through IBC process. This highlights that excellence obsessed is a precursor for growth obsession for being a listed company. if we are afraid to fail, if our projects get delayed regularly, if customer satisfaction is less than 70-80%, if employee satisfaction is less than 80% then even if a company grows at times, it will not be sustainable and therefore should not go for listing. Off course these are just few examples but not out of context.
In fact, I suggest and insist every company planning to go for an IPO to behave as if it is a listed company to experience and master this trait. If this works well, either entrepreneur and company realises its true potential, or it accepts that it should not go for listing.
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Section 166(2) of Companies Act casts duty on every director to ensure that the interest of every stakeholder are addressed.
Under Regulation 19(4) r/w Schedule III of SEBI (LODR) Regulations, 2015, the appointment of Senior Management requires the recommendation of the NRC. Furthermore, Regulation 23 mandates prior approval of the Audit Committee for all related party transactions
Under Regulation 30 read with Para A of Part A of Schedule III of the SEBI (LODR) Regulations, 2015, listed entities are required to disclose the schedule of analyst or institutional investor meets at least two working days in advance. Furthermore, audio/video recordings of such calls must be disclosed to the stock exchanges and hosted on the company’s website within 24 hours (or before the next trading day), and written transcripts must be made available within five working days.
Vector Alignment” is a concept most famously detailed in the book “The 15 Commitments of Conscious Leadership” by Jim Dethmer, Diana Chapman, and Kaley Klemp. it, it cannot sustain.
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