'Public company as public good'

Companies may be becoming more responsive to responsibility issues -- and some are well ahead of regulators. But what does it mean for environmental, social and governance issues if the publicly-listed company (generally more amenable to scrutiny on social performance issues) is in decline relative to other more private corporate forms?

Unveiled around the G8 summit last week, President Obama's food security plan for Africa envisages a leading role for major listed companies such as Unilever and Diageo -- see here. Firms linked to the initiative will 'sign up' to new responsibility guidelines relating to communities' land tenure and access (see my most recent blog post).

However, a leading story in The Economist this week charts as a serious public policy issue the dramatic drop in the numbers of publicly-listed companies (and new offerings) in Western economies as businesspeople choose other vehicles that are not subject to the same disclosure and reporting requirements (May 19, 2012, pp. 12, 24-26).

Would one feel as assured about private sector-led development initiatives if the main players involved were not publicly-listed companies but more opaque private firms?

One premise of (the?) The Economist piece is that over-regulation by authorities of listed companies carries the risk of driving firms underground: they will chose to be fully private and operate behind the comparative 'veil of secrecy' that comes with not being listed, yet still enjoy access to capital alongside listed firms; ('by shining a spotlight on public companies, [regulators] are encouraging businesses to take refuge' in unlisted corporate forms; another result noted is narrowing the options for popular uptake of shares, perhaps making financing and wealth-creation more exclusive and privileged).

One need not agree with all The Economist says about de-regulation; moreover, there are plenty critics out there who would no doubt disagree with the magazine's sub-heading  'Public company as public good' (p. 26; think critics such as Coleman, Korten, Hertz, Glasbeek, Klein). I do not subscribe to much of that criticism -- the corporate form has enabled all manner of social contributions even if it also produced Enron. It can be an instrument of public virtue, it depends on how we use it. There remains a governance gap in reconciling private with public interests -- but more regulation and good regulation are not the same thing. I think The Economist raises an interesting meta-regulatory question: in finding the right balance on regulation for constraining and 'civilising' corporate conduct, a relevant issue is not disincentivising firms from listing if the fear of regulatory burdens favours choosing other corporate forms less amenable to public scrutiny.

These issues are important in the region I cover (sub-Saharan Africa) not only as so much of the capital in-flows and out-flows do not involve listed firms, but also because other than Johannesburg the continent's own principal stock exchanges are still subject to various regulatory question-marks; moreover, as private equity flows into African settings it often seeks an eventual public listing to enable PE investors to exit. As regulation of African and global stock markets evolves, there is scope for selling better to investors how the discipline and diligence fostered by disclosure and reporting rules can be understood as protecting investment (for example from social or political risks) rather than as an inconvenient drag. There is also considerable scope for regulators to consider how to make rule-systems work for public ends not frustrate them.

I mentioned these issues -- including the rise of state-owned companies -- in this blog's very first post, as a foundational theme when analysing the private sector and its public impact or role in the 21st century (here).

Thanks for reading and I invite comments and sharings.

Jo