Subtle differences
Don Solman is CFO of James Richardson & Sons, Limited, a family-run corporation based in Winnipeg, Canada that owns businesses in sectors including agriculture, financial services, real estate and oil and gas. He explains that the obligations listed companies in Canada are subjected to – which largely mirror those in the US and the UK – are subtly different to those faced by private businesses.
“With public companies, a lot of time is taken up dealing with statutory requirements,” he says. “The fact that we, as private companies, are not subjected to the same requirements does not abdicate us in any way from good corporate governance. However, we are not subjected to the same level of form-filling.”
Alaaeldin Shousha, Director, Finance and IT at Saudi Arabia-based Sunbulah Group (a privately owned food manufacturing company), agrees that there is no abdication of good corporate governance in a well-run private business. Indeed, he maintains that demands on the CFO of a private company only differ marginally from those that their counterpart in a public organization has to deal with, and gives short shrift to any suggestion that the role of a public company CFO is more about compliance with legislation.
“In my case, I don’t really see any difference,” he says. “Other than publishing financial and investor information on government and company websites, we have the same IFRS reporting requirements.”
But is there a danger that private companies that disclose less financial information risk therefore being perceived as less open or trustworthy than listed businesses?
“I would have agreed with this statement before 2017,” says Shousha. “However, all companies, listed and private, are now required to follow IFRS reporting and international auditing standards, with very minor exceptions.”
In Sunbulah Group’s case, the preference is to issue quarterly financial statements – despite the additional cost and the fact that they are in no way mandatory. Shousha explains that regular quarterly reports show how different sectors of the business are performing. He argues that this level of transparency has helped to establish trust with debtors and made it easier to secure extended credit terms.
“Following the best practice of corporate governance engenders the trust of investors and debtors in the group. This also allows us to be viewed as a solid and well-established partner in our joint ventures, both inside and outside the Kingdom,” he stresses.
Shareholder relationships
As for shareholder pressures, Solman insists they still exist for private firms, and to some extent are greater than for public companies. “The nature of a private company means I look in the shareholders’ eyes on a regular basis,” he says. “In a public company, those shareholders are ‘faceless’ and nowhere near as engaged in the business.” In short, with a private company the relationship tends to be far more open and immediate.
There is also flexibility for private companies in not always having to appease the short-term demands of public shareholders. Solman makes the point that a private company could make a business decision or transaction that might not be beneficial in terms of earnings per share until a later time. A move of such foresight might not be so easy for a listed firm. He adds: “As a private company, we don’t have to think about sending a story to the market to ensure our share price moves in a certain way.”
And not only is decision-making less pressured, it is also typically more direct. Private companies are nimble in terms of making operational and growth strategy decisions without needing widespread shareholder approval. “I can walk into the CEO’s office with an idea, which, if approved, I can implement immediately,” says Solman. “Not only can we act quickly, but our competition doesn’t know what our plans are, since we don’t have to share any information with the public.”
This ability to keep certain information in-house is something Shousha also mentions. “We enjoy the confidentiality of internal records by not announcing the board of directors’ decisions and resolutions to the outside world,” he says.
By way of example, he points to a recent board resolution that was required to make an offer for a rival business. Unlike a listed company, which would have had to make its takeover intentions public via a stock exchange announcement, the Sunbulah board were able to keep their plans under wraps. “Public companies are obliged to provide such data,” Shousha adds, “and this information could then be used by others who might then hunt the deal.”
The benefit to private companies of these rules, as Solman points out, is that they are able to analyze reports released by their publicly owned counterparts – but this doesn’t apply the other way around. “Essentially, it means we often know more about them than they know about us,” he says.