The Changing Nature of Public Listed Companies

During the week that the Facebook IPO has captured the
attention of market observers, the Economist has carried a couple of pieces (here and here) that raise questions
regarding the interest and viability of public listed companies with diffused
shareholding (epitomized by the Berle and Means corporation). The statistics
shown by the Economist are quite stark:

The number of public companies has dropped
dramatically in the Anglo-Saxon world—by 38% since 1997 in America and by 48%
in Britain’s main markets. The number of initial public offerings (IPOs) in
America dropped from an average of 311 a year in 1980-2000 to just 81 in 2011
(chart 2).
Going
public no longer has the glamour it once had. Entrepreneurs have to wait
longer—an average of ten years for companies backed by venture capital,
compared with four in 1985—and must jump through more hoops. Lawyers and
accountants are increasingly specialised and expensive; bankers are less
willing to take them public; qualified directors are harder to find, since even
“non-execs” can go to prison if they sign false accounts.
However, it appears that modified forms of the public
listed corporation, of the varieties prevalent in economies in Asia, remain
unaffected. Examples include the state owned enterprises (SOEs) in China and
family enterprises in India. As the Economist report notes:
The rise of new economic powers has further changed
corporate organisation. In the 1990s it seemed that emerging-market companies
would take the Western public company as their model. In fact they have
embraced two slightly different corporate forms: SOEs and family conglomerates.
These companies list on the stockmarket but do little to constrain the power of
the state or of family shareholders.
… Family businesses account for about half of
listed companies in the Asia-Pacific region and two-thirds in India. Families
exercise tight control of their empires—and limit the power of other
shareholders—through a variety of mechanisms such as family-controlled trusts
(which have more power than boards), appointing family members to managerial
positions and attaching different voting rights to different classes of stock.
Diversified family firms are good at taking a long-term view, diverting money
from cash cows to new industries that might take a long time to produce
results. They are also good at dealing with the government failures that plague
emerging markets. It is remarkable how fast even India’s lumbering government
can move if a Tata or an Ambani calls.

The report further discusses the merits and
disadvantages of public listing of corporate securities. Overall, an
interesting analysis.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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