CEOs debate the merits of private vs. public

Chief Executive, The, April-May, 2006

CORPORATE LEADERS grew more confident in March, but they are sharply divided on the merits of managing publicly traded vs. privately held companies.

The CEO Confidence Index increased by 3.1 points to 175.6. The Index currently stands a mere 6.8 points below its highest level of 182.4 back in January of this year.

This month's rise in confidence was fueled mainly by the Employment Confidence Index, which rose by 4.5 points to 189.7. Said one respondent by email, "Business is booming and we are having a hard time finding employees."

One potentially worrisome trend, however, is that the gap between Current Conditions and Future Conditions reached the highest level ever, some 66.9 points (see chart, left). That suggests there could be negative surprises one-quarter out.

But the hottest debate among the 193 respondents was in response to a question about whether they prefer to run public or private companies--91 percent said "private" (see chart, right). That's a lopsided number, but the logic of the argument was more nuanced. Some readers argued that public company CEOs have to make trade-offs and compromises, forcing them to concentrate on short-term earnings rather than longer-term strategies. "This reduces the potential for significantly greater long-term earnings and results in much smaller but smoother earnings growth," argued one respondent.

Like-minded readers agreed. "Having run both public and private companies, the public company took 30 to 40 percent more of our time to deal with compliance agency requirements and analysts communication," one reader chimed in.

Others, however, begged to differ. "Public scrutiny and the public marketplace provide a healthy discipline for leaders--they tighten our thinking," said Marshall Morton, president of Media General in Richmond, Va. "These are far more effective disciplinarians than Sarbanes-Oxley or the SEC."

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Privately held companies may have lagged in embracing better governance models. "The main problem in the private sector is that so many companies still do not aggressively pursue governance models that would help them become higher performing organizations," one respondent argued. "Too few independent directors and independent thinkers are vested with governance responsibilities."

Clearly, this is one debate that's not going away.

THE NUMBERS

Would you prefer to run your company publicly or privately?

Private  91%
Public    9%

Note: Table made from pie chart.