Public companies tempted to go private
Heading a public company is like having “a gun to your head”.
Or at least that's what J. Crew Group's chairman and chief executive Millard S. “Mickey” Drexler told BusinessWeek magazine.
More heads of public companies are finding it increasingly difficult to develop their businesses without being heckled by its many shareholders and for various other reasons. This leads to management being extremely tempted by private equity buy-outs, or top management leaving the fishbowl for private firms.
On the other hand, shareholders have the right to meet with management and question their intentions because they are deemed responsible to the public.
There really only seems to be one solution: shareholders should back off and trust management to run the company and believe it will do the job to the best of its ability.
J. Crew's Drexler can attest to the effectiveness of that, saying that he now has “'an ownership that truly cares about long-term shareholder value,' in stark contrast to public investors who obsess over quarterly earnings.”
He has had 11 years of experience turning AnnTaylor Stores and Gap around.
Here's why public firms would consider going private:
First, CEOs spend infinite hours on meetings with analysts, banks and brokerages and talking to major shareholders. All these take time away from managing the business proper.
Second, Business 2.0 magazine writes that “many value-building moves...take time to produce results but their costs appear immediately, thereby penalizing earnings in the short run,” which shareholders will harp on.
Third, while Singapore-listed companies do not face regulations as tough as those in Sarbanes-Oxley, they still face other hassles of being a publicly-listed entity. These include the added risks of shareholder lawsuits and dealing with issues pertaining to the size of the board and who constitutes it.
Another reason for going private is, according to Business 2.0, “the ability to run a business more effectively”. For starters, management would be allowed “take risks that public shareholders won't,” Clayton, Dubilier & Rice CEO Donald J. Gogel tells BusinessWeek.
They will have more freedom to do the tough but necessary things to help the company in the long-term, instead of focussing on quarterly results and meeting yardsticks.
Of course, less scrutiny does not mean shareholders have to lay off management totally.
Stakeholders can and should still play their part when they do not feel the company is performing up to mark, even after being given the leeway and time to do so.
Otherwise, CEOs of public companies should be trusted to run their companies and not have the media, analysts and shareholders breathing down their neck.
If retail investors still do not understand how some decisions are made for long-term benefits and keep hammering management for not meeting numbers every quarter, we might see a lot more “capital and talent exiting the public realm”.
Do you agree with me, or do you think retail investors are still king and management should be absolutely responsible to them?
Serene Lim
Or at least that's what J. Crew Group's chairman and chief executive Millard S. “Mickey” Drexler told BusinessWeek magazine.
More heads of public companies are finding it increasingly difficult to develop their businesses without being heckled by its many shareholders and for various other reasons. This leads to management being extremely tempted by private equity buy-outs, or top management leaving the fishbowl for private firms.
On the other hand, shareholders have the right to meet with management and question their intentions because they are deemed responsible to the public.
There really only seems to be one solution: shareholders should back off and trust management to run the company and believe it will do the job to the best of its ability.
J. Crew's Drexler can attest to the effectiveness of that, saying that he now has “'an ownership that truly cares about long-term shareholder value,' in stark contrast to public investors who obsess over quarterly earnings.”
He has had 11 years of experience turning AnnTaylor Stores and Gap around.
Here's why public firms would consider going private:
First, CEOs spend infinite hours on meetings with analysts, banks and brokerages and talking to major shareholders. All these take time away from managing the business proper.
Second, Business 2.0 magazine writes that “many value-building moves...take time to produce results but their costs appear immediately, thereby penalizing earnings in the short run,” which shareholders will harp on.
Third, while Singapore-listed companies do not face regulations as tough as those in Sarbanes-Oxley, they still face other hassles of being a publicly-listed entity. These include the added risks of shareholder lawsuits and dealing with issues pertaining to the size of the board and who constitutes it.
Another reason for going private is, according to Business 2.0, “the ability to run a business more effectively”. For starters, management would be allowed “take risks that public shareholders won't,” Clayton, Dubilier & Rice CEO Donald J. Gogel tells BusinessWeek.
They will have more freedom to do the tough but necessary things to help the company in the long-term, instead of focussing on quarterly results and meeting yardsticks.
Of course, less scrutiny does not mean shareholders have to lay off management totally.
Stakeholders can and should still play their part when they do not feel the company is performing up to mark, even after being given the leeway and time to do so.
Otherwise, CEOs of public companies should be trusted to run their companies and not have the media, analysts and shareholders breathing down their neck.
If retail investors still do not understand how some decisions are made for long-term benefits and keep hammering management for not meeting numbers every quarter, we might see a lot more “capital and talent exiting the public realm”.
Do you agree with me, or do you think retail investors are still king and management should be absolutely responsible to them?
Serene Lim
Labels: J. Crew, listed, private, public, shareholders
Should companies put shareholders or employees first?
Shareholders often enjoy hearing companies mentioning the words “return to shareholders”. This is especially true for long-term investors (as compared to daily punters) who want good returns on their investment, whether in terms of dividends or higher share prices.
It makes sense, since a public company is at least partially owned by the public.
As quoted in an article on The Motley Fool, “the main reason you exist...is to serve the interests of those who own you”.
But if caught between shareholder and employee wants, to which would you lend your support?
Let us take a look at each group.
If a company put shareholders first, it may be pushed to expand and drive productivity. This would, in turn, drive employees to the max in terms of workload. And at minimum wage too.
They want what makes most economic sense to the company, factoring in growth and expansion.
Now if employees were put first, things would be very different. Management would want to keep good employees by offering them higher wages and reasonable working hours. They would also leave layoffs as an absolute last resort.
An example of a company offering lifetime employment is Nasdaq-listed Lincoln Electric. It pays high wages and sells goods at low selling prices, but also has high productivity. How, you ask, can such a company be profitable?
Well, it can and has to be, since it's been around for about 107 years.
So employees would want to be well taken care of, which, in the minds of shareholders, may not reap as much returns as they'd like.
Of course, one would think this conflict could be mitigated if employees were shareholders as well. After all, they would then be accountable to themselves.
Contrary to that belief, research shows employee ownership may, sometimes, be counterproductive.
According to an article on MIT Sloan Management Review, employees' “interest in the company's future is typically dwarfed by day-to-day concerns, such as ensuring that their jobs remain secure and their wages are paid”.
Such employee shareholders also “tend to to favor low-risk strategies that generate stable cash flows over riskier projects that could generate greater profitability and growth”.
Add to that the inertia of investing in productivity-enhancing equipment which might potentially make their jobs obsolete.
So who should a company put first?
It is probably clichéd, but they should focus on both.
It is not impossible to set up employee-friendly policies and have them work in an environment that will boost shareholder value as well.
Please offer us your take on the matter.
Serene Lim
ArchivesIt makes sense, since a public company is at least partially owned by the public.
As quoted in an article on The Motley Fool, “the main reason you exist...is to serve the interests of those who own you”.
But if caught between shareholder and employee wants, to which would you lend your support?
Let us take a look at each group.
If a company put shareholders first, it may be pushed to expand and drive productivity. This would, in turn, drive employees to the max in terms of workload. And at minimum wage too.
They want what makes most economic sense to the company, factoring in growth and expansion.
Now if employees were put first, things would be very different. Management would want to keep good employees by offering them higher wages and reasonable working hours. They would also leave layoffs as an absolute last resort.
An example of a company offering lifetime employment is Nasdaq-listed Lincoln Electric. It pays high wages and sells goods at low selling prices, but also has high productivity. How, you ask, can such a company be profitable?
Well, it can and has to be, since it's been around for about 107 years.
So employees would want to be well taken care of, which, in the minds of shareholders, may not reap as much returns as they'd like.
Of course, one would think this conflict could be mitigated if employees were shareholders as well. After all, they would then be accountable to themselves.
Contrary to that belief, research shows employee ownership may, sometimes, be counterproductive.
According to an article on MIT Sloan Management Review, employees' “interest in the company's future is typically dwarfed by day-to-day concerns, such as ensuring that their jobs remain secure and their wages are paid”.
Such employee shareholders also “tend to to favor low-risk strategies that generate stable cash flows over riskier projects that could generate greater profitability and growth”.
Add to that the inertia of investing in productivity-enhancing equipment which might potentially make their jobs obsolete.
So who should a company put first?
It is probably clichéd, but they should focus on both.
It is not impossible to set up employee-friendly policies and have them work in an environment that will boost shareholder value as well.
Please offer us your take on the matter.
Serene Lim
Labels: employees, management, shareholders
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