Unprecedented number of companies have gone public over last year. More than double the previous year’s total. In a risk perspective, an IPO (initial public offering) marks the end of one company and the birth of a new one. Once public business is exposed to general public, regulator, government etc., such external factors should be considered within the overall ‘enterprise risk management’ of the company.
E.g. Public scrutiny exposing the finances, and the management along with the personal assets of the officers and directors.
Risk Attitude
This increased focus on risk management is not necessarily a negative trend. The economic downturn has changed corporate attitudes toward risk, with many companies and investors taking a more enlightened view. There is a growing appreciation that risk and opportunity are two sides of the same coin. An effective approach to risk management has to strike the right balance between risk and opportunity. Companies need the flexibility to act quickly and take risks when profitable opportunities are identified, but they need to do so in a controlled way and within pre-established risk parameters.
Every business is different, so every business will balance these competing pressures in its own way. What’s important is that the company determines the right mix at the highest level and communicates its thinking across the business.
Keeping Stakeholders Happy
After a company goes public, management accountability shifts from a handful of investors to perhaps thousands of new stakeholders and owners internally and externally. As the number of stakeholders multiplies, so do the company’s responsibilities – they will now include:
- Meeting market expectations
- Being accountable for the use of IPO proceeds
- Managing the investor and analyst community
- Executing new initiatives
- Complying with public company regulations
- Driving business performance
Investors will want to feel confident that the company understands the risks it faces and can manage and monitor them efficiently, but that is not all. They also need to trust in management’s willingness and ability to communicate openly about risk management in general and what they are doing to improve its function.
What ‘internal and external risk factors’ mean to your company? Share with us….
