Running a business is exhausting, not in the least because a business owner is expected to be a jack of every trade, and a master of them all.
When your business is new, you are the CEO, CFO and COO, as well as the entire board of directors. This is an inevitable part of the start-up journey for most entrepreneurs and founders.
The benefit is full control over decision-making, which makes the exhaustion an easy price to pay. While some positions are inevitably occupied by specialists, there’s often a key-person risk that lingers as the founder takes direct responsibility for many aspects of the day-to-day running of the business.
Many business owners describe their company as their baby, which makes it understandable why relinquishing control can be scary.
A dilemma is thus created as the business matures and the founder ages: the need to retain control and the need to increasingly delegate decision-making authority. Some never solve this dilemma, leading to succession battles and/or companies left in limbo, driven by the passing of a hands-on founder who occupied a myriad of positions.
Preparing the next generation for succession and having a solid succession plan is a useful tool to prevent this, but there remain risks in relying purely on human solutions. Good systems and structures help to mitigate these residual risks, and public market listing provides companies and founders with the incentive and ability to build many of these systems.
Governance is the main consideration. Listed companies hire a professional Board with independent directors to manage oversight of the company. These individuals retain a fiduciary duty to the business owner as a shareholder, which means they must work in your interest.
Professional executives and management can also be recruited by the Board to undertake day-to-day running of the company.
Since public companies provide a minimum of 15 percent (10 percent for SMEs) of their shares for trading, you can retain up to 90 percent of your company’s shares while being listed. This ensures that the founder retains a large proportion of voting rights, which drive Board member appointments and strategic company initiatives.
A founder and their family may retain board seats themselves, where deemed necessary. This allows a founder to delegate authority while retaining control over the business.
Additionally, due to the presence of a secondary market (investors can sell to other investors), a founder can benefit from an increase in the value of their shares and has a ready venue to transfer their shares to the next generation who can continue to realise value, or to sell their shares on the open market and cash out completely.
As a business continues to mature and scale, public listing provides an opportunity to raise capital and undertake complete and partial exits.
More to the point, quoting your company’s shares on an Exchange allows founders to corporatise, delegate and retire peacefully. This is all while retaining oversight and control of the strategic direction of the company.