Top tips for newly public companies and employees

3 key considerations for newly public companies wanting to help employees make the most of the performance outcomes they work so hard to support.

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Many times there’s a lot of excitement when a company goes public, and not just in the markets: It’s a time of change and new possibilities for the people who have poured their hearts and souls into taking a business to the next level. 

The transition from private to public can be confusing under the best of circumstances and can even become a major source of frustration for key talent. It is critical for HR leaders to communicate early and often about the process. Suddenly, employees must navigate a legal and regulatory maze, confusing terminology, and new choices that can have a big impact on their long-term financial outlook. Adding another wrinkle to the landscape, direct public offerings (DPOs) are rising in popularity and raising new areas of confusion for employees and HR leaders to tackle.

Last year, according to Stock Analysis, “2020 IPOs,” report  480 companies went public through initial public offerings (IPOs)—topping the prior record of 397 in 2000. The report also showed 2021 has already seen 431 (977% more than this time last year). With so many high-profile companies going public, there are a few key considerations newly public companies should keep in mind to help employees make the most of the performance outcomes they work so hard to support. To keep things simple, focus on three key ideas.

Will there be a lock up? 

There are several paths a company can take when going public. While an IPO remains the traditional route (where investment banks underwrite the sale of shares to raise new capital for the company), companies can also choose to take the route of a DPO: listing existing shares directly on an exchange, perhaps working with an investment bank as a financial advisor, but raising no new capital. 

There are many reasons to go one way or the other, but one important difference is that IPOs have lock-up periods—a specific time window (typically 90–180 days) after the company goes public when employees are prohibited from trading their company’s stock or may only sell a certain percentage of shares. (Another method of going public, the special purpose acquisition company (SPAC), can include a lock-up period of up to a year.) If you’re conducting an IPO and you haven’t prepared employees for this restriction, you’re potentially setting them up for confusion at best and disappointment at worst.

With any IPO, you will want employees to be comfortable sitting through what could be a volatile few months—especially when the markets are eagerly anticipating your company’s newly available shares. Especially during the first days and weeks of trading, newly listed companies are likely to see relatively wide swings in their stock prices.  

Material non-public information (MNPI)

Most people know you can get into serious hot water for “insider trading,” but not everyone knows what it really means. When a private company goes public, employees need a full understanding of what insider trading entails and how they can steer clear of any potential pitfalls. 

Employees of public companies are considered insiders if they possess material non-public information (MNPI). Fortunately, there is a very commonsense way to think about MNPI: If you have any information a typical investor would want to know when deciding whether to trade the company’s stock, then you’re likely an insider and should not trade. 

Companies can help employees understand and properly manage MNPI risks through ongoing education, compliance trainings, and clear guidance. Being able to confidently identify MNPI helps protect employees, the company, and the public from the serious repercussions of insider trading.

Get used to blackouts

Because public companies play such a significant role in the economy, they are governed by different rules of the road than private companies. A prime example is that the US Securities and Exchange Commission (SEC) requires public companies to disclose certain information, including company earnings reports, to help protect investors and level the playing field when it comes to access to information. 

These reporting requirements directly affect employees who own shares. For example, employees are restricted from trading company stock during the “blackout periods” leading up to an earnings release. Again, the logic here is to help prevent insider trading by anyone with MNPI—which can harm investors and even damage the wider economy. 

Since employees can’t sell their shares around earnings reports, they need to be prepared to hang tight and comply with the rules in their individual financial planning. 

Connect all the dots

Identifying the right stock plan provider is also a key step in the process. Overnight, administrative and regulatory requirements introduce new challenges for companies, and working with a proven stock plan provider can offer additional guidance that may be needed to effectively administer plans. This also means delivering a comprehensive and intimate education program to equity holders before, during, and after IPO.

Offering employees a stake in a public company—and the means to understand how to use it—can create a deep sense of connection and ownership. Participating in a company’s “story” by owning its stock can be a powerful reward and a wealth builder, but employees will need support from their employers at key moments in the private-to-public process. 

Most importantly, employees need to know that their company is also investing in them as they become public shareholders. This requires planning and engagement before, during, and after this complex but exciting process. 

Craig Rubino is Executive Director of Global Learning & Development at Morgan Stanley at Work.

Disclosures: This article does not constitute or form part of any offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or recommendation to participate in any trading strategy. This article has been prepared for informational purposes only. The information and data in the article has been obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of the information or data from sources outside of Morgan Stanley.