In last month’s Newsletter, we discussed the importance of Boards seeking remuneration recommendations in respect of the quantum and structure of key management personnel remuneration. With the increasing number of listings on the ASX, we turn now to the relevant considerations within the context of private equity taking one of their portfolio companies public.
Trying to identify, manage and balance the interests of all relevant stakeholders presents particularly acute challenges in the context of a private equity listing. Existing shareholders are seeking to maximise their proceeds from exit, new shareholders are assessing the value and overall attractiveness of the potential investment and changes to the Board’s composition are inevitable.
Given the increasing complexity of listing processes, a horde of advisors are often engaged; financial, legal, tax and accounting advisors; for the transaction and often also separately, and additionally, for management.
Remuneration advisors are increasingly engaged either at the formative stages of the proposed listing, once the due diligence committee has been established and/or following the company’s listing. What is critical during the entire listing process is transparency in any advice being provided and identification, acknowledgement and effective management of any perceived and actual conflicts of interest.
In this context, it is imperative that the Board seeks advice in respect of remuneration matters concerning the key management personnel of the company having regard to the legislative framework specifically enacted to facilitate transparency and better management of any attendant conflicts of interest.
Whether it is during the pre-IPO phase or once the company enters the public markets, remuneration recommendations should be sought. This means any advice provided in respect of the quantum or structure of key management personnel remuneration is required to be disclosed. The cost of such advice will also be required to be disclosed, along with the nature and cost of any other advice provided by the relevant advisor.
Most importantly, the provision of remuneration recommendations requires strict guidelines to be followed in respect of the engagement of the advisor, dealings with the Board and access to and input from management. The advisor is also required to formally declare that no undue influence has been applied by management in respect of the remuneration advice provided.
The seeking of remuneration recommendations is especially critical given the increasing stakes retained by existing shareholders at listing. Whilst existing shareholders often remain invested in the company (albeit with reduced stakes), Board and management changes are common.
In this environment of change and evolution, it is imperative that maximum transparency and effective identification and management of any perceived or actual conflicts of interest are maintained in respect of key management personnel remuneration. Both existing and new shareholders want management to continue to be incentivised and deliver on performance, whilst having maximum confidence that appropriate and fair reward will result from such effort.