Journey to the Opening Bell – An IPO Is As Much About Culture As Performance

A security persuthern-Indian city of Hyderabad

Facebook recently announced that it is going public, in a move which would constitute one of the biggest offerings and tech initial public offerings in history, estimated to reach $5 billion. While dwarfing the $1.67 billion raised by Google in 2004, this news can only remind us of the buzz that surrounded Google, turning it into one of the fastest growing companies and most attractive places to work at. All this ado about Facebook cannot but get us thinking about IPOs in our region, which have been relatively few and far between compared to most developed and emerging economies. Surely there are several challenges that stand in the way of regional companies wishing to go public, ranging from unfavorable regulatory and market conditions to lack of investor confidence in such times of political upheaval.

However, there are several areas that a company can work on to prepare the grounds internally and thus improve its chances of carrying out a successful IPO.

It is true that no one can predict the volatility of the stock market or the investors’ mood; however, it has become widely acknowledged that communication is key to any successful organizational change, especially when it involves going public.

A well-established corporate culture is crucial to successful organizations. In fact, a corporate culture that all employees identify with is an enabler of their alignment around the company’s purpose, strategy and goals; it enhances productivity and increases their pride and sense of belonging to the organization.

Part of the family

But having a solid and well-established corporate culture becomes much more critical when a company ventures into an IPO. This is because when a company goes public, it is moving from being privately managed to becoming publicly transparent and accountable, thus welcoming a new stakeholder to its family: the shareholders. The way business is managed changes and thus requires the company to adopt new management processes that reflect best leadership and management practices. This places employees under scrutiny and pressure; they feel vulnerable and are reluctant to change. Clearly, all these adjustments put a strain on the corporate culture, which would need to be solid and resilient to smoothly navigate the bumpy road of an IPO. As a very recent example of this, Zynga, the world’s largest social gaming company behind the popular Farmville Facebook game, decided to go public and succeeded in raising $1 Billion when it first traded on NASDAQ in December 2011. However, the company’s shares went down by 5 percent soon after the launch and upon announcing first quarter results that were more or less in line with expectations the stock fell nearly 18 percent. One of the reasons according to experts was the company’s corporate culture. Employees describe the corporate culture as intense and data-driven, where objectives and key results are the basis for employee and staff evaluation, and where performance data are used to calculate hard work, thus creating an atmosphere of competition and even all-out war between colleagues and departments.

However, even having a strong corporate culture in place is not a sufficient guarantee that employees will remain on board during and after the IPO. Efforts should be put on internal communication to reassure employees that the change in the way business is conducted and the addition of new business partners does not imply that their performance will be questioned or that the company will no longer value them. Communication efforts should strive to make employees feel proud of being part of the IPO adventure; they should feel part of a family rather than pawns manipulated by top management. Google understood that the reason behind its success is in attracting top notch professionals and young minds, and as such, its IPO letter started by “Our employees, who have named themselves Googlers, are everything,” putting the emphasis on the idea that going public will not change their corporate culture but rather reinforce it.

Returning to the Arab region, we note the large number of companies that have yet to institutionalize their corporate cultures, let alone establish strong and solid ones which could withstand the strains of an IPO. With a vast majority of companies being family-owned businesses, family feuding, nepotism and emotions remain at the center of management practices. Non-family employees many times feel like outsiders and thus lose the motivation and desire to work, never mind getting into a long process of an IPO that will bring new stakeholders on board and make the family members richer. There is no secret ingredient in the recipe of a strong corporate culture. However, there are key drivers that any organization should have in order to build or reinforce a distinctive yet common corporate culture; this should start by gathering all employees around the same mission, vision and values of the company and establishing a two-way communication whereby leadership would make sure to listen to concerns, address doubts and acknowledge achievements.

Weaving a tale

The second success factor that can go a long way in helping ensure a smooth IPO is elaborating a story or narrative around the company, one that would go beyond business and profit to emphasize its achievements, namely in terms of  how it touches the lives of its various stakeholders. Who can forget the story of Facebook that has been turned into an award-winning movie? It would be a generalization to say that behind every successful company that went public is the story of a young student with a genius idea who tried to make it happen from his bedroom.

However, Steve Jobs, Larry Page, Sergey Brin and now Mark Zuckerberg are the first names that come to mind, when we think of successful companies that went public. In fact, the common ground between them is that all these high-listed companies were first start-ups whose founders wanted to make the lives of people easier through a certain service or product. Sometimes these stories might be far from reality, such as the story of e-bay founder Pierre Omidyar who started the e-shop concept following a discussion with his wife about how to acquire PEZ-dispensers. The anecdote might not be true; however, it succeeded in attracting potential investors, increasing familiarity with the company, allowing the public to relate to its founder, while downplaying the fact that he was already a multi-millionaire when he created the company.

As such, it is important to create a story around the company, whether it is centered on its founding and evolution, its services and products, or the noble cause that it espouses, as it will help generate considerable brand awareness and often loyalty, allowing stakeholders to identify with it and providing it with significant communication mileage. But most importantly, a story helps establish an emotional bond and paint a human side to a company, particularly at a time when the schism between the corporate world and the rest of society is growing wider. A feel-good, inspiring story encourages people to often unconsciously root for the company over others, providing it with a competitive edge that can translate into a solid goodwill bank that might shield it in times of crises and positively impact its bottom line.

When we think about IPOs, the first thing that comes to mind is a number in billions, a ringing opening bell at Wall Street, and a success story of entrepreneurship. This entrenched image could very well be duplicated in the Middle East, especially since the region is now becoming an investment hub with many countries well on their way in carrying out capital market reforms and instituting regulations that are in line with international practices. With communication as a pivotal enabler behind the success of any IPO, regional companies should start by cementing their corporate cultures and creating an inspirational story behind their success. Who knows, the next Facebook or Google might just be around the corner.

About The Author

A Veteran of Media and Advertising Industry in the Region.


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