Going public

Directors of companies seeking to list play a pivotal role in maintaining the integrity of the listed securities markets.

John Price, Commissioner

This article was submitted to the Australian Institute of Company Directors for publication in the Company Director magazine in May 2015

ASIC is all about allowing markets to allocate capital efficiently to fund the real economy and, in turn, economic growth. But this cannot happen if there is no trust and confidence in the markets.

Directors of companies seeking listing play a pivotal role in maintaining the integrity of the listed securities markets and ensuring this trust and confidence.

Going public – be prepared

For many growing companies, listing on a securities exchange is attractive as it allows them to access capital to take up new opportunities. While boards may see ‘going public’ as the endgame, in reality the decision to list is just the start of a long road. As regulators, we see companies that have done the preparation before beginning this journey are more likely to list successfully .

With access to public capital comes the responsibility to be more transparent with shareholders. The expectations for a listed company's continuous and periodic disclosure are higher than for unlisted companies, as set out in the listing rules and Corporations Act.

It is good practice for companies to develop systems to act like a listed company before coming to market. This can avoid a steep curve in the public gaze of the market.

The transformational process

Being ready for an Initial Public Offering (IPO) requires planning and  often this means a company will need big organisational changes to meet the requirements of being publicly listed.

For instance, directors may need to consider if the existing company is the right vehicle for listing or whether a new holding company should be incorporated to be listed.

Financial reporting systems and corporate governance are areas needing review ahead of the company's transformation for listing.

Financial reporting should be looked at to ensure the company can meet its obligations and communicate with the market in the way expected for listed companies. Likewise, corporate governance policies should be revised to suit the company's post-listing needs.

But getting the right systems is not enough. There is also a very human side to listing. The board's composition may need review to ensure the necessary skills and experience to oversee a public company -  the market may seek appointment of some independent directors. Does the senior management understand how to operate as a listed company? Training and introducing new people into the company may need to be considered.

It is important for the company's long-term reputation – and that of capital market - that a newly listed company's directors and management are committed to carrying out their role in way reflecting the market’s expectations.

Importance of prospectus disclosure

Most companies going public will do a public offering to raise capital and will need to lodge a prospectus with ASIC.  IPO prospectuses are one of the key facets of listing where ASIC directly enforces regulatory standards to promote trust and confidence in financial markets.

ASIC has recently looked at some of the due diligence materials prepared for recent prospectuses. In some instances, we have questioned the commitment to producing accurate disclosure for the market and doubted that directors could rely on a due diligence defence for any liability under the prospectus.

Planning and thorough due diligence will help ensure the prospectus properly presents the company's business and matters material to investors.

Being a director of a newly-listed company

Transitioning from a private company director with private operations and accounts and a close-knit group of owners to a public, listed company often needs a new way of thinking. Previously, information that may have been a closely-held secret must now be shared and that means some control over the company must be relinquished. Ownership now belongs to a larger group of shareholders with disparate interests.

 ASIC has observed that companies which establish appropriate financial reporting systems and corporate governance policies, to which its directors and management adhere, are less likely to become front-page news for the wrong reasons.

John Price is a commissioner with the Australian Securities and Investments Commission.

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Last updated: 26/05/2016 09:34