March 23, 2007
PUBLIC INVASION OF PRIVACY
I present a pleasant view of a tropical beach becaue I am about to broach the subject of private vs. public ownership of corporations. Whoa!! whoa!! Drop the mouse and/or razor blade! Stare at the pretty picture to the right if you feel it'll calm you, but this might be interesting.
In very short order, this is the difference between a public corporation and a private one:
A public corporation is like a democracy, where any person who owns a share in the company can have his say. They'll be ignored of course, until they can garner enough votes to make a difference on the corporate board, but even the tiniest voters can be a pain in the ass to management. Also, the management of public companies are rewarded the most when they give the voters what they want: smooth, uncomplicated, unvarying earnings growth. When they vary from this scheme, management is severely punished.
Voters/shareholders are a fickle lot.The costs associated with this are pretty high.
Management has to spend a good portion of its time making every portion of its financial transactions visible and understandable to outsiders. They also have to incur legal fees every time some individual or group of investors feels they've been misled and lost money in a company's stock. In short: shareholders are a whiny bunch of pissant second-guessers who are nothing but trouble.
A private company is like a medieval fiefdom. The ownership class may consist of one or a number of individuals. One may even buy into ownership class in the privately-held fiefdom. But business is conducted as ownership sees fit. There is no public voice though. If you don't like the way things are going, you can be invited to take your money and get the hell out--don't forget to leave your profits at the door. Free from the clamoring voices of jackass shareholders who know as much about your business as they do about their rotisserie baseball leagues, you can carefully plan for longterm investment and success, especially with all the savings you've accrued from not having to deal with public ownership.
This is only interesting because it's one of those instance where you'll see dyed-in-the-wool free marketeer capitalists swiveling their heads, not sure which way they should turn. On the one hand you've got the public force of numerous decision makers dictating "the market" decision on whether one should do this or that according to your share price. On the other hand, you've got individual profit-minded businessmen making the decisions that they feel is in their (as owners) best interest, without the meddling of know-nothing jackasses and detestable government regulators.
The intersting thing is that one is not clearly more beneficial than the other. The higher the costs a government may place on a public corporation, the more attractive it may be to go private. The costs of being private, however, is that one cuts one's company off from the market-intelligence of a million sources, carping or otherwise.
The reason I brought all this up is that two papers whose editorials are usually bent at the same angles went in different directions this morning.
The Wall Street Journal's article is (Bah! article is only availble via subscription) here. It's in favor of the beauty of market ownership to create a self-sustaining and self-regualting model of profitability. This opinion piece at The Sun goes the other way by praising a billionare who runs his company exactly as he wants it.
NB: One would think that one model is more disposed to criminality than the other. A publicly-owned corporate executive with his profits tied to a stock price so he can cash in on options may be incentivized to falsify or distort financial statements. A private, or controlling, owner can decide to loot a company's resources through extravagance or other malfeasance because there is no external check on his actions with any weight. I can say with no authority but a hint of suspicion that the uber-meta-market regulates ALL OF THIS so that privately conducted chicanery and publicly held jackassery inform the greater world of their benfits and costs. The result is the result. That's the market as one big world correction.
Anyway, all this has been in the news lately, so this has been a Lexiphane.com heads up.
Tagged: finance, private, publicPosted by Lexiphane at March 23, 2007 12:17 AM
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