I defy anyone to open the financial pages of a newspaper, or watch any business-type news broadcast, and not read or hear the words ‘private equity.’ It is without doubt the hottest topic around right now. It’s not really difficult to understand why, and everyone has a theory on the reasons public companies are falling over themselves to go private.
January, however, saw a very interesting perspective from someone who knows more about it than most of the people. Jim Clark, founder of Netscape and until recently chairman of Shutterfly, quit the role because he feels the SEC and Sarbanes-Oxley have, in effect, nullified his effectiveness as a board member.
With the candor and humor for which he is well known, Clark, a 30 percent owner of Shutterfly, wrote a letter to the CEO and other board members (see page 9) explaining how, under current rules, he feels his hands are tied and that all he’s able to take on are ‘liability and constraints.’ The loss of Clark, a successful and innovative businessman, is significant for a company like Shutterfly, and there’s no doubt it will struggle to find someone of his caliber and experience as a replacement.
It’s not difficult to see why Clark is frustrated. He’s spent a lifetime building businesses and is now ideally placed to help guide other firms, but he is restricted from doing so if he has an ownership stake. Others in his position choose to take complete control and buy their companies out. At least then they can be effective board members.
For some reason, there seems to be the idea that owners make bad managers. This is odd considering the number of activist investors who love nothing more than protesting, ‘We are owners of the business and we deserve a board seat.’ Surely a person who owns a significant number of shares will be working in the best interests of shareholders, considering he or she is one? Don’t be too surprised if you see some private equity interest in Shutterfly at some stage in the not-so-distant future.
A similar story, though from a different perspective, is playing out at Cablevision. The Dolan family, with slightly more than 70 percent of voting shares, has made another attempt to take the company private. The board rejected the offer, which tipped the scales at $8.9 billion but was deemed ‘inadequate.’ The rejection was hailed as a victory for the concept of the public company by some leading newspapers, but we should be careful about reading too much into it. The board didn’t say it’s against going private, and though the Dolans say they won’t up the offer, it wouldn’t be the first time they change their minds.
As long as the current governance thinking marginalizes owners as board members, we can expect to see a lot more companies disappearing from stock market trading screens.