SOUTHERN DISCOMFORT

18 OPINION TUESDAY 9 AUGUST 2016
CITYAM.COM
FORUM
EDITED BY TOM WELSH
How going public changes the
role of the chief executive forever
Bernard Liautaud, managing partner of
Balderton Capital and the first ever
European entrepreneur to take a
company public on Nasdaq, lifts the lid
on the life of a chief executive of a public
company in an open letter to Mike
Tuchen, the chief executive of software
company Talend, which listed on Nasdaq
at the end of last month.
Hi Mike,
Congratulations on a great stock
market debut and for all you have
done for Talend so far. As I’m sure you
know by now, your job as a chief executive
has changed forever. As you prepare
for this new chapter, I thought I
would share a few things I’ve learned.
THAT WONDERFUL (AWFUL) THING
CALLED THE STOCK PRICE
It is mesmerising to see your share
price on the ticker for the first time,
and it is tempting to monitor it constantly.
But the novelty wears off,
especially when people start to use
the constantly fluctuating number as
a yardstick for your own performance.
Your team needs to know that it is an
indicator of company performance
over the long term, not a day-to-day
barometer.
Your share price can be blown
around in the breeze by market fluctuations,
economic outlook, political
instability, currency movements, and
even your rivals’ results. Make it clear
to your team that you will stay
focused on the business regardless of
stock fluctuations. Perform well and
the stock price will eventually reflect
your success.
PUBLIC MEANS PUBLIC
Every quarter you will release earnings
to Wall Street. Everything that
SPECULATION is building over
who will replace Raghuram
Rajan, the much-admired governor
of India’s central bank,
amid growing expectations
that an announcement will be made
soon.
Rajan, one of India’s key reform figures,
is stepping down in September.
His three-year term wasn’t extended
despite his important role in helping
restore investors’ faith in the way the
economy is run.
Inflation has fallen under his watch,
as have interest rates. Foreign
exchange reserves of some $362bn are
near record levels. Problem loans in
the banking system are finally being
tackled. The country has been one of
the greatest beneficiaries of the windfall
gains from cheaper oil, but government
finances are healthier too.
The days when India was derided as a
“Fragile Five” economy seem long ago,
and the country is now feted as one of
the few shining stars within the
emerging markets constellation.
Rajan represents that rarest of things
in emerging markets: a public servant
whose competence is admired around
was once a private conversation will
become a detailed press release and a
two-hour phone call with well-prepared
analysts. The transcript of this
call will be available to anyone who
wants it, and even your tone of voice
will be analysed.
Private investors are used to results
that are “not quite on budget”. Public
investors, in contrast, have little tolerance
for even a small earnings-pershare
miss. Poor results, or even good
results with a lowered guidance, will
send the stock tumbling. It is often
said that it takes six good quarters to
recover fully from a bad one.
Forecasting is one of the hardest
things to master. You have to issue
guidance but also watch the “consensus”.
If your guidance is too low, the
analysts’ consensus will be higher. Fail
to reach the consensus in the next
quarter and you may be punished,
even if you have beaten your forecast.
YOUR SHAREHOLDERS AND BOARD
MEMBERS WILL NO LONGER BE ONE
AND THE SAME
Many private chief executives grow
close to their investors, who often
become mentors. However, over the
next few years most of us will make
way for independent board members.
Take the time to choose an experienced
board with different expertise
and backgrounds, who will challenge
and support you equally. Perhaps
most importantly, pick people who
have the time to be engaged. There is
little point in having a brilliantly qualified
board that you never speak to.
You must also take care of your public
shareholders. They have entrusted
you with close to $100m. Building
strong relationships with them, and
communicating openly and regularly,
the world; whose private affairs are
untainted; someone who speaks his
mind and is free from inappropriate
political influence.
However, he also alienated some in
the ruling Bharatiya Janata Party by
being so outspoken and because of his
refusal to cut interest rates at a faster
pace – a move that would score points
with voters but risks conceding
ground in the fight against inflation.
One serious constraint to reforms
has been the inability of the state-controlled
banks, saddled with bad loans,
to support investment. Rajan forced
the country’s lenders to conduct asset
quality reviews as the first step
towards identifying and dealing with
these loans – a long and painful
process that is unpopular with some of
the country’s most powerful businessmen.
A credible successor will ensure that,
when the going gets tough, the task of
cleaning up bank balance sheets isn’t
quietly swept under the carpet.
While the markets may welcome the
prospect of more central bank stimulus
– the stock market has actually
strengthened since Rajan’s departure
Bernard
Liautaud
Becoming a public
chief executive
comes, of course,
with great
responsibilities, but
it is the most thrilling
adventure a person
can have
will help to gain their trust. The
grilling questions of research analysts
and shareholder technical teams can
offer great insight on what really matters
to your business, and therefore to
your shareholders.
YOUR FIRST CLASS MANAGEMENT
TEAM
As the chief executive, you will manage
less and lead more. Part of your
role has been, and continues to be, fulfilling
that age-old piece of advice: surround
yourself with people better
than you. A strong management team
is now more important than ever.
Creating and leading a highly functional
team is the most rewarding
experience a chief executive can have.
was announced on 18 June – excessive
easing will undermine the monetary
policy discipline that has been a hallmark
of his tenure.
What India also doesn’t need is a
compliant governor who will only
weaken the central bank’s independence.
Rajan’s successor needs to have
the courage to eschew the quick-fixes
beloved of politicians and champion
lasting solutions.
That said, the wheels of reform are
already in motion. Many of Rajan’s
most important achievements – a
credible Monetary Policy Committee,
inflation-targeting and the overhaul
of bankruptcy rules – are backed by
legislation and have Modi’s support.
This will help ensure policy continuity.
Those who have been linked to the
Building complete trust, working in
full cooperation, and being all aligned
behind clear and coherent objectives
feels like magic. Don’t take that precious
equilibrium for granted, as it is
your biggest asset.
COMPANY CULTURE DOES NOT HAVE
TO CHANGE
When you employ 500 people,
employees fondly recall a time when
there were only 100, when everyone
knew each other and when decisions
could be made in minutes. When you
have 2,000 employees, people will
reminisce about how good and cosy
things were when you were “only”
500.
The IPO usually signals a new period
of growth, and a strong chief
executive can ensure that the company
remains nimble, by keeping everyone
informed and empowered. But
this will require effort, focus, and
time on your part. Communicate even
more, ensure the organisation’s structure
doesn’t hinder staff, and build
company traditions and habits that
unite your team.
ENJOY IT
Becoming a public chief executive
comes, of course, with great responsibilities,
but it is the most thrilling
adventure a person can have. You have
set the company on a terrific path.
You have given it financial power and
access to markets. You have given it a
visibility that it never enjoyed before.
You have given it the opportunity to
acquire businesses if you so wished.
Enjoy every moment.
Congratulations for making your
company part of this exclusive club,
and good luck for the many years
ahead.
India risks squandering its hard-won gains
if it abandons monetary policy discipline
Adrian
Lim
job include: Reserve Bank of India
deputy governor Urjit Patel; former
deputy governors Rakesh Mohan and
Subir Gokarn; the government’s chief
economic adviser Arvind
Subramanian; economic affairs secretary
Shaktikanta Das; vice chairman
of the NITI Aayog, an economic think
tank, Arvind Panagariya; and State
Bank of India chair Arundhati
Bhattacharya.
Whoever is selected, however, will
face a potential early test amid growing
doubts about the global recovery.
While India’s capital markets are relatively
insulated, the country relies on
foreign investment and isn’t immune
from the forces constraining global
growth.
Rajan, a former IMF high-flier,
grasped this instinctively. His
successor may be more of a New Delhi
insider, but he or she must strive to be
outward-looking. Otherwise the country
risks squandering its hard-won
gains.
£ Adrian Lim is senior investment
manager at Aberdeen Asset
Management.
DEBATE
Q: As May pushes
cash payouts for
households,
would sharing the
proceeds of shale
turbocharge the
dash for gas?
Michael
Hulme
YES
Sharing the proceeds of shale with
individual households as well as local
councils will help kick-start the process,
yes. The driver of shale development in
the US was the existence of mineral
rights – simply put, the ownership of
what lies under the ground by the owner
of the property or land. That doesn’t
exist in the UK, as the Exchequer owns
the rights to oil and gas and other
minerals below ground. However, if
royalties were payable which provided a
meaningful share to the landowner, the
council, and the exchequer, then that
would help bring all parties together
through mutual financial interest. In the
US, royalties for landowners often
represent around 15 per cent or more of
total revenues from the sale of gas, with
local taxes often adding a further 7-8 per
cent to that amount. Royalties or
stakeholder payments of as little as 5-10
per cent in the UK could help provide the
right financial incentives that localities
need to cut through the red tape and get
fracking!
£ Michael Hulme is head of commodities
at Carmignac.
Jonathan
Robinson
NO
This policy change is not enough to kickstart
a shale gas boom. Opposition to
shale gas in the communities where it
has been proposed runs deep, and many
are likely to perceive this as a bribe to
buy their support. There are several
practical challenges. Because payments
are made on production royalties, if gas
flows are weak, residents would get a
much lower payment than expected.
Even if flow rates are high, it could take
five years for volume production to be
reached, so residents would be
committing themselves to a property for
at least five years, a potential challenge
in the mobile UK property market. What
of the impact on house prices? Certainly,
in the south east of England, a £10,000
payment is nothing if you feel the value
of your house could decline by much
more. Finally, this could be very divisive
for local communities, pitting against
each other those who want (or need) the
money and those who are strongly
opposed.
£ Jonathan Robinson is principal
consultant at Frost & Sullivan.