What responsibility do corporations have to all of their stakeholders?
The Business Roundtable tackled the complex issue with a new Statement on the Purpose of a Corporation on Aug. 19 (the “Statement”). Signed by 181 CEOs from many of the nation’s largest companies, the Statement addresses the growing perception that capitalism is benefitting some disproportionately to the detriment of others.
Notably, the Business Roundtable said corporations should be concerned not only with shareholders, but all of their constituencies – customers, employees, suppliers, and communities. “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country,” the Statement said.
This issue will continue to be discussed in boardrooms across the country, but closer to home in Silicon Valley, what role could the innovation economy play in advancing the Business Roundtable’s call-to-action?
We believe one way could be for private tech growth companies to be more open to providing liquidity to employees whose wealth is locked up in their company.
Corporate sentiment seems to have shifted over the past decade. More companies appear to appreciate the value of allowing employees to sell shares prior to a liquidity event to buy a home, finance an education or pay down student loan debt. That’s particularly important given that companies are tending to stay private longer.
Yet, many other firms in the venture ecosystem seem reluctant to do so. They fear they will lose control of their valuations and cap tables.
That fear may have been a holdover legacy before there was an established alternative investment class and a liquid secondary marketplace.
Since 2009, almost 300 late stage-venture-backed companies have authorized share sales at SharesPost, some of which subsequently had formal exits of an IPO or acquisition. Many of the secondary transactions benefitted a wider array of the workforce, including engineers, marketers, support staff and back-office workers, not just founders and C-suite executives. For instance, a company-sponsored program could allow for liquidity among all the participating employees.
Such programs allowed the companies to remain in control of their shares and investors, and, just as important, strengthened the companies’ corporate culture. We believe that enabling employees to monetize their value creation can be a powerful demonstration of an employer’s commitment to its workforce.
Greater employee loyalty and engagement may also translate into happy and motivated employees that can ultimately become brand champions and create additional shareholder value.
Liquidity programs – either programmatic, company-sponsored initiatives or individual stock sales – can also be a strategic way for private growth companies to compete against public tech companies offering higher salary and bonuses, public company equity, unlimited PTO, attractive healthcare and retirement benefits, and other in-office perks. Unlike many of these other employee benefits, the cost to companies to offer liquidity as an employee benefit can be seen as de minimis.
We believe that all these can be sound business reasons to provide liquidity to employees, but the Business Roundtable’s new vision about the role of corporations adds another dimension to the argument.
Even though employees may contribute greatly to the success of a company, large shareholders generally are the beneficiaries of the wealth created from such success in the private market. Shouldn’t employees, whose passion and intelligence are responsible for a good portion of the wealth creation, be allowed to share in it, as well?
This article does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.
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Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.
Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.
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