The past 20 years have been riddled with disasters in the United States: Enron, WorldCom, Bear Stearns, Lehman Brothers, and Countrywide Financial, the dot com bubble in 2000, subprime mortgages, and commercial real estate. Canada has not been immune, with Bre-X, Nortel, RIM, and Valeant, to name a few. The loss of investor and public trust in the capital markets is hurting valuations, access to capital, and the ability of managers to do their jobs effectively.
The rise in popularity of exchange-traded funds (ETFs) is further complicating the situation. Investors are taking money out of equities in favour of ETFs, which typically track the more liquid companies. This shift is driving those valuations higher, while pushing the valuations of smaller cap, illiquid companies lower.
Regaining investor and public confidence is one of the crucial issues facing corporations today. If you run a public company, you need to be able to access debt and equity markets to grow and restructure your business.
To reduce your cost of capital, decrease dilution, and position your business for accretive acquisitions, you require an effective capital markets strategy.
SHARE PRICE MATTERS
Share price performance will have an impact on whether high-quality employees join, stay, or leave your company.
The performance of your stock is also an important indicator of operating efficiency and solvency to debtholders, current and potential customers, and suppliers.
Share prices directly affect top senior executive compensation and tenure. Shareholder and Board impatience is a big risk. The average CEO tenure in the United States was cut by a quarter from 8 to 6 years over the past two decades. The movement for Director independence and increased governance has transformed the Board of Directors from managers’ counsellors and advisors into supervisors and monitors, and sometimes even adversaries. Activism, short reports, and litigation are all real issues for public companies. Rebuilding confidence in our capital markets system requires an effort by each company’s management team to repair relations with investors and the public.
Don’t ignore your capital markets requirements!