In the previous post CEO Jim Goodnight explained why he won’t take SAS Institute public. He believes that:
There is no trust anymore in public companies. I think it’s an excellent time to be private.
And this article in the CEO Refresher by Steve Kayser backs him up. IPO’s are a bad idea for many reasons including that:
- Being a private company, you are not under pressure to grow by merging or acquiring companies to meet shareholder expectations.
- Section 404 of the 2002 Sarbanes Oxley Legislation (which governs how public companies report their finances) is 180 words. Yet estimates of costs for publicly traded companies to comply are between $10 billion to $20 billion ? yes, $10 billion to $20 billion, or approximately $55 million to $111 million per word.
- Senior management now, instead of concentrating on planning a future, building a business, filling customer needs, creating jobs and becoming a valuable cog in the economic engine of prosperity, is tasked with design, implementation, assessment, controls and auditing results.
- Public ownership can make any unique culture difficult to sustain if one bad quarter forces you to lay off 20% of your workforce, or the market drives pressure for meeting certain results regardless of their long-term implications
I can definitely see the lure of the IPO. The massive amounts of money. The chance to grow the organization quickly. The ability to cash in on your initial investment and hard work. The validation of seeing your company highly valued on the stock exchange. So it’s good of Goodnight and Kayser to remind us of the downside.
One company did manage to go public and keep their identity: Google. When they announced their IPO, founders Brinn and Page made it very clear that they would continue to run the company their way. They promised to go on treating their employees extremely well and making long-term decisions rather than living from quarter to quarter. If investors didn’t care for that, they were kindly requested to take their money elsewhere. Google being Google, investors flocked to buy the stock anyway – less famous companies might not get away with this model.