Thursday, August 25, 2016

The benefits and drawbacks of working in finance for a publicly traded/listed company in India

Ok I admit it. The title is a blatant effort to win some SEO brownie points. But thats par of the course these days, and given the uniqueness of this topic (I hardly found any relevant links), I thought I would write on this subject, from personal experience, and also from interactions with other finance professionals. Firstly, some background on what distinguishes a public listed company from other companies?

  • Minority shareholders: These are often the very reason for a listing, and to ensure liquidity in trading, Indian stock exchanges mandate a minimum 25% free float i.e promoter shareholding capped at 75%. Not coincidently. key corporate actions in India require a special majority i.e 76% of shareholders to approve matters, but since this % is calculated on those shareholders present and voting, 75% or a much lower shareholding is often enough in practice. That said, minority shareholders have a veto on certain related party transactions and actions, so one cannot ignore them. 
  • Periodic reporting: Quarterly reports in addition to annual reports, within the stipulated timeline of 45 days/60 days
  • Internal Financial Controls certification: For listed companies, there is a CXO level certification with stringent penal liabilities if proved wrong. Hence, the demand for a robust finance controller who can keep the CXO from jail 
  • Voluminous disclosures/ Multiplying non financial reporting Be it CSR, ESG, BRR, IND-AS, IFRS..listed companies are often the first guinea pigs of financial and non financial reporting since they are public interest entities. This can prove a burden to report all this.
  • Independent Directors/Audit Committees: For listed companies, there are mandates to have a certain proportion of independent directors, over and above that stipulated by the Companies Act 2013. These additional stakeholders bring new perspectives, but could also challenge management in a manner not to the former's liking
Why do I single out the finance function here? While all functions experience a (hopefully) more stringent control environment, it is the finance and legal functions whose stewardship role increases here.  The difference being clear (hopefully), let us now see why a listed company would be preferable to a finance professional, and why sometimes it may not. Firstly the pros
  • Independent Audit Committee (in theory)
  • Better controls
  • Multiple audits/certifications
  • Multiple professional interactions
  • Exposure to handling minority interests
  • Investor Relations: This is a unique role in public traded companies, since even private equity companies would have more of internal MIS than an extensive IR engagement. Preparing IR decks, financial press releases, stakeholder mapping
  • AGM/EGM: This is a JV between Finance and Secretarial functions, however every finance professional should get involved in the preparation for an AGM of a listed company atleast once so that they appreciate the extent of background effort
  • Strategic disclosure drafting:Strike a balance between disclosing more to please investors and win awards, versus revealing business model insights.

The cons however could be
  • Non value adding work: Be it reviewing an annual report for the nth time before review despite the knowledge that it will likely not be read by even 0.1% of investors, getting backup certifications/attestations for the comfort of independent board members
  • Disclosure overdose: Not all reporting is likely to help investors(eg BRR) but is mandated and wastes man-months in its preparation
  • Potential Legal Liability: If you are a victim of management override(possible if other functions have 'promoter appointed' people-like a 'Lala company'), you are still presumed to be culpable unless due diligence is proven: 
  • Dealing with controlling shareholder-ethics: The controlling shareholder/management is the on
  • Hierarchial/Ladder-Big company woes: Listed companies usually tend to be large profitable entities (when initially listed atleast). So the issues of 

Overall, it is for one to map their stage of career, aspirations

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