Apparently it’s becoming nearly unbearably inconvenient to be a public company.
The spotlight’s on management. They’re required to disclose things, some of which they really may not want to be exposed. Hey, shareholders might even revolt and – gasp – vote against management and directors, vote against policies, vote against pay.
Some might even demand more disclosure on topics that they find material.
Oh, the humanity. How horrifying that issuing stock to the public might actually include being required to acknowledge the public who bought those shares.
These days, public companies’ managements might not necessarily enjoy some of the public shamings going on. They might even feel like they have public enemies.
Reuters’ Felix Salmon recently penned a thought-provoking piece on “why going public sucks”.
One of the more interesting things Salmon highlighted was a quote by Marc Andreessen, known for his founding of legendary browser company and 1990s IPO Netscape:
“Basically, it was pretty easy to be a public company in the ’90s. Then the dot-com crash hits, then Enron and all of a sudden the politicians and corporate regulators started to take a closer look, placing more scrutiny on the management and boards of our public companies. Throw in a greater awareness and interest in shares, via various privatisations and demutualisations and our growing superannuation balances, and public companies moved from the business section to the front pages.”
There’s plenty of irony in a man talking about “bizarre governance things” when he’s currently serving on the board of directors at Hewlett-Packard (NYSE: HPQ), one of the best-known duds in the annals of current corporate governance.
Of course, many corporate managements and directors fight tooth and nail against “bizarre governance things” of all types since they give shareholders power and voice.
Facebook’s (Nasdaq: FB) recent debacle of an IPO was shareholder-unfriendly right out of the gate; its dual-class stock structure gave young CEO Mark Zuckerberg the majority vote, rendering shareholder votes pretty toothless.
Google (Nasdaq: GOOG) recently moved to enact a triple-class stock structure.
Just “bizarre” enough to work
Salmon’s piece switches emphasis away from governance and to the idea that the very notion of being public means opening the company up to public scrutiny.
He’s right to bring up the point that the public market demands and even requires constant information so that it can give “a second-by-second verdict on what it thinks of your performance.”
Salmon also points out that upon going public, “people stop thinking of them as companies, and start thinking about them as stocks.”
The aforementioned thoughts give us things to think about as investors. Salmon’s description of the short-term, speculative, trading mentality is absolutely legitimate.
The way many investors view stocks is the antithesis of taking an ownership interest in an actual company (and my use of the word “interest” has double meaning – we should most certainly be interested in what our companies actually do).
Many investors have gotten so far away from the idea of any long-term ownership sentiment that of course corporate managements have started to automatically view shareholders as unimportant and shareholder-friendly policies as simply “bizarre.”
I have a funny feeling that business interests and managements have rejected calls for better policies as long as publicly held corporations have existed. And as long as investors didn’t care what went on beyond the share price, I’m sure any kind of change has always seemed weird or even dangerous.
Remember, less than a century ago, investors weren’t even necessarily given very reliable information since there were no clear rules about disclosure. I’ll bet business leaders back then thought it was the end of the world. Obviously, it wasn’t, and any true long-term investor appreciates the information disclosed in ASX announcements.
When companies desire access to the capital provided in the public market, their managements should realise what they must sacrifice for that option instead of complaining that shareholders want “bizarre” things that help protect their own interests.
Our companies are facing something of a moment of truth in the ‘two-strikes’ vote that shareholders have on executive pay – and it seems like boards are listening.
Meanwhile, we investors need to work on acting more like long-term shareholders than gamblers.
It would be nice if we could all make this deal. When it comes to the long-term health of our companies, shareholders, and all parties involved, public companies no longer viewing everyone else as public enemies might be just “bizarre” enough to work.
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Alyce Lomax is aMotley Fool in writer. You can follow The Motley Fool on Twitter. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).
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