What are the equity markets for?

management time on a document possibly at the expense of running the business. I am very pleased that this latter point has created the market for my business! Even with our help, however, it’s hard not to conclude the complexity and business risks of an IPO process today are a real disincentive to listing.

Where to Begin?

Fewer companies are choosing to use the equity markets than a few decades ago, in spite of hugely higher levels of GDP and numbers of companies. The options for non-public ownership and funding are wider than ever before. ICOs ask useful questions of how companies are funded and controlled, even if they turn out to be a small tool in the private placement universe.

This article is intended to provoke debate on repositioning the role of the equity markets– just as I was asked to do in the original seminar. To frame that debate, I offer up four possible topics for further discussion.

Equalisation of Corporate Governance and disclosure for private and public companies alike. In the Corporate Governance world, regulators and politicians have focused on the listed companies as easy targets. Is this sufficient when an increasing part of national wealth becomes less transparent and answerable? The reason this is important is because…

Increasing wealth inequality, part of which is the inability of smaller investors to access higher return private assets, and the consequent accumulation of wealth among the wealthiest. Raising the quality of governance for private companies, and equalising the competitive awareness and regulatory burdens between listed and privately held companies, could be options to recalibrate return profiles without imposing stricter, less capitalist-friendly measures. And would have the happy consequence of making it less of a burden to list on a stock exchange.

Therefore, restoring the link between ownership and control. This isn’t a new topic. The recent European Corporate Governance Institute working paper is well worth reading for the long term context. However, in our view the recent trends of increasing passive vs active investment in equities, the globalisation of funds, the rise of private equity, and the greater use of non-voting stock, make this an acute problem.

And in the meantime, regulatory engagement with the market to explore brave options. It is surprising to reflect the SEC, viewed as the world’s harshest regulator, has yet been publicly floating ideas both formally or informally, to lighten the burden of an equity listing. Recently these included exempting listed companies from securities class action lawsuits, and raising the bar for submitting shareholder proposals at GMs. Whether they are good proposals or not is a separate discussion – the SEC is demonstrating a willingness to ease the regulatory burden instead of piling rules upon rules.

This article is based on a speech from a panel seminar on “The New Corporate Funding” hosted by The IR Society of London on 25 January 2018. Many thanks to Richard Davies of RD:IR and ex-Chairman of the IR Society for inviting me to speak, and to Peter Montagnon of the Institute of Business Ethics and Simon Hollingsworth of Deutsche Bank for their excellent collaborative debate and input which has prompted some topics for future discussion.