Public vs. Private

First of all, I'd like to apologize for not posting in quite awhile. It's been a hectic couple of weeks trying to get the semester finished up. As soon as all of the finals were done, I found myself smack dab in the middle of the holidays. While the posts have been few and far between over the last couple of weeks, I'll try to catch up quickly. I haven't been writing much, but, as always, I've been thinking about good topics and trying to educate myself (a never ending practice) on what is going on in the business world. I'm also excited about the comment left by the anonymous commenter. I'm planning a response soon, so keep an eye out...

Today's post deals with an interesting topic that I read about in Fortune a couple of weeks ago. There was a good article in the magazine that talked about CEO's and the different ways in which they manage private companies as opposed to public ones. The gist of the article was that CEO's that manage privately held companies operate differently because they can make decisions that a CEO of a public company might not have the latitude to make (i.e. investing in the company which may show a short term loss in favor of a long term gain). These private CEO's say that they can focus on running their companies more because they do not have to deal with distractions (i.e. dealing with shareholders, etc...). Since the ultimate goal of a privately held company is to go public with an IPO in a set amount of time, private CEO's also argue that by having a set timeline, it is easier to set goals for the organization. They contend that since timelines can be nebulous for public companies (i.e. "create value for shareholders" as opposed to "take company public in 5 years") it is harder to create goals and benchmark performance.

On the surface, these arguments seem valid. These private CEO's have a point. They are able to make decisions that a public CEO might not be able to make. After all, we can all guess that a public CEO making an investment in the company that may show a short term loss will probably hurt the stock. However, isn't it the responsibility of the CEO to articulate his strategy? He (or She) should be telling the stockholders why he is doing what he is doing. Also, would decisions like these really hurt that much? A good CEO should point to a well followed strategy as well as an increase in the company's book value if he wishes to spend money on something like a new facility. While book value might not be as sexy as beating analyst estimates for a certain quarter, no one is going to turn their back on a company that is in growth mode.

I can agree that private CEO's don't have to deal with shareholders. This is probably beneficial because companies that are usually acquired by private equity companies usually have some issues and are in need of some sort of turnaround or liquidation or some other modification to the business model. A private CEO's time is probably better spent on these things, but I highly doubt that there is much difference in allocation of time between a public and private CEO.

I saved my biggest gripe about this article for last. Private CEO's love to say that they enjoy managing a privately held company and would rather not manage a publicly held company. But isn't the goal of a privately held company to go public at some point? I mean an IPO is how the big money private equity guys cash out. So, once this privately held company goes public, you now have a CEO who specializes in running privately held companies in charge of a publicly traded organization. You've effectively placed a specialist in a position for which he is neither needed nor qualified, nor wants to be in. Now I'm not saying that these guys can't manage a public company. Some of these people are the best managers in the world, but you have someone suddenly playing by different rules; rules by which they have somewhat shunned in the first place. Just like "turnaround" CEO's leave after the job is done, does a "private" CEO move on after the company goes public? What would that do to the stock? I mean if you have a company float an IPO and then the CEO resigns 6 months into the deal, what is that going to do to the price of the stock? We all know that a CEO resignation isn't a good thing and will probably kill the stock price. However, since the private equity guys have long since cashed out, they probably don't care. Is this akin to screwing the little guy shareholder? Who knows? I'm starting to sound like an activist shareholder now... Anyways, this little trend should be interesting to watch play out. An interesting guy to keep an eye on would be David Calhoun. He was in line for the GE CEO spot (but lost to Immelt) and has now since gone on to a private equity firm (of which he owns a share). I'm sure that Mr. Calhoun will end up as the CEO of a private company sometime in the near future. Let's see how this plays out...