Issuer Consulting Blog

Doesn’t the title of this article remind you of the famous idiom, “digging your own grave”? I personally think this is fitting because it takes a lot of effort, time and patience to get a company listed on the stock exchange, and only seconds later to have it all come crashing down. Sometimes situations like these are unavoidable considering the nature of the industry, stock market, economic forces, and other factors that go into running a successful public company.

With that said, we’ve compiled a list of the seven most important factors in determining if a public company will be successful:

1. Ethical Standards:

Yes, this makes the top of the list! These are essential ground rules that companies must follow to maintain trust from customers, financial analysts, suppliers, investors, regulatory agencies, and exchanges. When a company goes public, it means there are more stakeholders, and you have to try to keep them all happy. United Airlines stock dropped $1.4 billion after its security officers forcefully dragged a passenger off an overbooked flight. A soft apology from the CEO was not enough to woo the customers who were looking forward to hearing more about better customer service.

2. Accounting Standards:

Public companies have to keep growing to retain investors, but it appears that they sometimes forget that growth doesn’t mean fabricating figures. It is similar to your child failing a math test and changing the teacher’s grade from an F to a B. Yes, he is a genius, but only until the teacher doesn’t call to tell you about it. The Discovery of the hidden liabilities of Enron is a comparable situation here. The company kept showing itself to be making profits even though it was hemorrhaging cash. Another recent example of fabricated sales is Luckin coffee that has left a bad aftertaste and is now struggling with a share plunge of 81%. Well, you can’t expect a tip if you don’t serve your customers well. Also, it looks like accounting scandals are a favorite of the public companies with other examples, including telecommunication companies, MCI, Inc., previously known as Worldcom and HealthSouth Corporation, a healthcare company.

3. Data Breach:

You will not allow someone inside the house, knowing the person is a thief. Data today has become very expensive, and any company that deals with public data must ensure the highest safety standards. Credit reporting agency Equifax and social networking site Facebook could not escape neighborhood watch, and the news of data compromise came to limelight with both companies badly losing on the stock market.

4. Environment:

Going big comes with additional responsibilities, and no company can ignore them. So, whether the BP spilled 3 million barrels of oil into the Gulf of Mexico or Volkswagen cars emit high levels of poisonous nitrogen oxides, they had to bear the brunt by paying huge fines and consequent stock market losses.

5. Product Recall:

In the year 2019, two giant product manufacturing companies Johnson & Johnson and Apple, had to go through the embarrassment of re-buying their products. FDA discovered traces of asbestos (cancer-causing mineral) in Johnson & Johnson baby powder as a result of which the company is now under 15,000 lawsuits. Apple, the tech giant, had to sell battery replacements at much lower prices after facing allegations for the slowdown of their older models. I am still wondering if my mother did right using the baby powder on me?

6. Top Management:

Never underestimate the power of social media and an excellent reputation. Perhaps Elon Musk is yet to learn that as he continues to top the charts with his controversial tweets. He faced a defamation case in 2018 on his “pedo guy” tweet and a lawsuit on taking Tesla private, which had Tesla’s shares slowed down.

7. Frauds:

The health industry seemingly aces this category with examples including health insurance giant, Cigna, that artificially inflated medical costs, Turing Pharmaceuticals artificially increasing the value of the life-saving drug Daraprim by 5,000% and another pharmaceutical company, Mylan, boosting prices by 400% for its EpiPen auto-injector.