After balance sheet concerns and the overall lackluster macro economic environment, the decision to be a public or private company must now keep executives wondering. Is it worth it to be a pubic company?
Most public companies have a culture of benchmarking and short-sided metrics. They are faced with quarterly grillings at the hands of mostly out-of-touch analysts who are more concerned about modeling next quarter's capital expenditures and whether earnings are off by a penny. I'm not just being cynical either. If you've listened to quarterly calls you get my point. Though some notable CEOs have the mettle to withstand the institutional imperative, most do not. A study by McKinsey & Co. shows that 50% of execs would forgo a positive NPV project rather than miss next quarter's numbers. My guess is if all were truthful it'd be even higher.
Public companies almost universally decide to grant top employees stock options. However, though these carry a tax benefit, the compliance savings of not having to abide by Sarbanes-Oxley (private co's don't have to follow this), would more than offset the tax advantage for most companies. An alternative to public stock options: a combination of cash incentives and private stock offerings. The only issue is they can't bail and sell with the ease of the the public markets. But who wants a short-term marriage anyway?
I would prefer to own a private business. I don't need to know my net worth every day. I'm in it for the long haul and I'd rather sacrifice next year's numbers for a long-term strategy that makes sense. If you're a company that needs constant access to the capital markets, a daily performace scorecard, and thinks high doses of liquid shares should be granted to top talent, stick with the public model. As for me, I prefer my privacy.
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Disclosure: I still think some public companies are awesome.
Image: http://act.psy.cmu.edu/awpt/pictures/graph.gif
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