Public Companies' Public Enemies


Apparently it's becoming nearly unbearably inconvenient to be a public company. The spotlight's on management. They're required to disclose things, some of which they really may not want to be exposed. Hey, shareholders might even revolt and -- gasp -- vote against management and directors, vote against policies, vote against pay. Some might even demand more disclosure on topics that they find material.

Oh, the humanity. How horrifying that issuing stock to the public might actually include being required to acknowledge the public who bought those shares. These days, public companies' managements might not necessarily enjoy some of the public shamings going on. They might even feel like they have public enemies.

Public displays
Reuters' Felix Salmon recently penned a thought-provoking piece on "why going public sucks." One of the more interesting things Salmon highlighted was a quote by Marc Andreessen, known for his founding of legendary browser company and '90s IPO Netscape:

Basically, it was very easy to be a public company in the '90s. Then the dot-com crash hits, then Enron and WorldCom hit. Then there's this huge amount of retaliation against public companies in the form of Sarbanes-Oxley and RegFD and ISS and all these sort of bizarre governance things that have all added up to make it just be incredibly difficult to be public today.

There's plenty of irony in a man talking about "bizarre governance things" when he's currently serving on the board of directors at Hewlett-Packard (NYS: HPQ) , one of the best-known duds in the annals of current corporate governance.

Of course, many corporate managements and directors fight tooth and nail against "bizarre governance things" of all types since they give shareholders power and voice.

Facebook's (NAS: FB) recent debacle of an IPO was shareholder unfriendly right out of the gate; its dual-class stock structure gave young CEO Mark Zuckerberg the majority vote, rendering shareholder votes pretty toothless. Google (NAS: GOOG) recently moved to enact a triple-class stock structure, weirdly following in the footsteps of social gaming company Zynga (NAS: ZNGA) .

Meanwhile, what exactly are you calling bizarre, buddy? Majority voting could be called a "bizarre governance thing," but the truth is, many companies for years rejected calls for majority voting, instead opting for a voting policy that is truly bizarre: plurality voting, where a director can be elected with a single vote.

Although nearly 80% of S&P 500 companies have come around to majority voting, until recently activists were still going after Apple (NAS: AAPL) to step away from its plurality voting policy. It was an awfully modern company to have such an antiquated policy.

While Steve Jobs may have been a design visionary and marketing genius, he was not a fan of "bizarre governance things." Corporate governance expert and GovernanceMetrics International's Nell Minow has described Apple's board as serial offenders.

Although Steve Jobs is now deceased, in October The Wall Street Journal had this to say: "For years, the company's directors operated in the long shadow of Apple's co-founder. Board members stretched the standards of corporate governance to maintain his privacy and authority."

Apple's recent adoption of the long-wished-for majority voting rule could be a step in the right direction for the company.

Just "bizarre" enough to work
Salmon's piece switches emphasis away from governance and to the idea that the very notion of being public means opening the company up to public scrutiny. He's right to bring up the point that the public market demands and even requires constant information so that it can give "a second-by-second verdict on what it thinks of your performance."

Salmon also points out that upon going public, "people stop thinking of them as companies, and start thinking about them as stocks."

The aforementioned thoughts give us things to think about as investors. Salmon's description of the short-term, speculative, trading mentality is absolutely legitimate. The way many investors view stocks is the antithesis of taking an ownership interest in an actual company (and my use of the word "interest" has double meaning -- we should most certainly be interested in what our companies actually do).

For so long, so many investors had gotten so far away from the idea of any long-term ownership sentiment that of course corporate managements have started to automatically view shareholders as unimportant and shareholder-friendly policies as simply "bizarre."

I have a funny feeling that business interests and managements have rejected calls for better policies as long as publicly held corporations have existed. And as long as investors didn't care what went on beyond stock price, I'm sure any kind of change has always seemed weird or even dangerous.

Remember, before the Great Depression, the Securities Act of 1933, and the Securities Exchange Act of 1934, investors weren't even necessarily given very reliable information since there were no clear rules about disclosure. I'll bet business leaders back then thought it was the end of the world. Obviously, it wasn't, and any true long-term investor appreciates the information disclosed in SEC filings now.

When companies desire access to the capital provided in the public market, their managements should realize what they must sacrifice for that option instead of complaining that shareholders want "bizarre" things that help protect their own interests.

Meanwhile, we investors need to work on acting more like long-term shareholders than gamblers.

It would be nice if we could all make this deal. When it comes to the long-term health of American companies, shareholders, and all parties involved, public companies no longer viewing everyone else as public enemies might be just "bizarre" enough to work.

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Editor's Note: A previous version of this article failed to note that Apple rescinded its plurality voting policy this year. The Motley Fool regrets the error.

Check back atFool.comevery Wednesday and Friday for Alyce Lomax's column on environmental, social, and governance issues.

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Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Apple, Facebook, and Google. Motley Fool newsletter services have recommended buying shares of Facebook, Google, and Apple, as well as creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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