The public company is not dead, it is misunderstood

Take an example of Klarna-a 20-year-old company-which recently had a successful public subscription in The Nyse, with nice pop music on its first day.

Why does a company like Klarna choose to put it in public? Public companies must deal with public investors, follow specific rules on governance, and reveal extensive information. Clarna has not had a problem reaching private capital in the past. Some of their indigenous supporters are certainly looking for liquidity, but there is a lot of special liquidity if this is all they need.

Many companies have decided that private markets are a better place. Over the past two decades, the number of listed companies and new public subscriptions has decreased in advanced markets significantly. The accuracy and scrutiny of circulating publicly, and the perceived pressures that come with the opening of the shareholders, are burdens that many companies prefer to avoid.

Why do you pass publicly? The answer is that there are great benefits for being a company listed in a deep global market. While there are a lot of capital options besides going to public places, public markets help companies grow. This discipline and credibility, as well as the opportunity of founders, employees and investors to take advantage of the value created, still make public markets the favorite destination.

While the lists have already decreased over the past thirty years or so, in the same time frame, the global public market value has increased to more than 90 trillion dollars, or about 112 % of global GDP. Public markets are not dead – they are just misunderstood. The idea of ​​that Companies should choose between the quarterly rotation cycle and the private market showrooms are a legend. With the right strategy and appropriate investors, public companies still offer long -term value.

Avoid the short term

This is true, that public companies spend a lot of time in this quarter-beating or missing goals, speaking to the street, etc., but the fact is that providing estimates of the next quarter profits not only encourage traders to make the stakes short-term and increase the fluctuations of the stock price. It is usually, not a condition.

The best companies realize that this focus is a distance on the quarterly cycle is distraction from building a wonderful work. To avoid this, most companies no longer make quarterly profit instructions anymore; By 2024, only 21 % of the S&P 500 companies were still doing it, a decrease from 36 % in 2010.

Attracting the right shareholders

Public companies have a lot of opportunities to speak to the investment community. However, “investors” are not a component, which is discovered by many CEOs after it is too late. They have different horizons and incentives. Some are looking for strong returns for decades, while others are simply looking for alpha. This is not a criticism. It is a fact.

However, the evidence indicates that the increase in investors in the short term, is related to cuts in long -term investments (R&D, marketing, etc.) in order to increase short -term profits, which leads to a temporary increase in stock assessments that are reflected over time. Although CEOs cannot prevent investors from buying shares in public markets, they can have a strategy for the investor trying to attract the best long -term investors by understanding time frameworks and incentives.

Companies that find success in this regard use many main tactics: they are constantly involved with senior shareholders throughout the year (instead of reducing reactions in AGM seasons). They publish the CEO and leadership at the level of the Board of Directors of the main shareholders ’meetings, and most importantly, the alignment of IR professional incentives with the long -term shareholders’ success rates instead of short -term classifications for sale. This comprehensive approach reduces focus on a 90 -day course, creates deeper support for shareholders, and opens a mutual value for both investors and public companies.

There are definitely advantages to survive companies in some circumstances. But public markets are still an unparalleled source of capital, credibility and the opportunity to expand. It is time to stop watching them as necessary and instead as a strategic origin – as long as companies can move with intent and with the correct strategies in place.

Public companies do not die, but the CEOs who do not adapt to the investor strategy will.

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