The Class of '83 went public during the last hot IPO market, and its members claim things have worked out just fine.
IT WAS ONE OF THE HOTTEST months in the hottest year in he history of initial public offerings -- June 1983. Tad Witkowicz took Artel Communications Corp. public, and now, three years later, he tells us he'd do it all again. So wound Joseph Mooibroek of American Medical Electronics Inc. And Donald Steen of Medical Care International Inc. And Nigel Webb of Damon Biotech Inc.
In fact, so would the overwhelming majority of chief executive officers of the 64 companies that made their public debuts in June 1983, according to an INC. survey. As a group, hhey are as enthusiastic about being public as so many private companies are about remaining private. Do they have complaints? Of course. Headaches? A bunch. What they lack, though, is the self-righteous smugness of some of their still-private peers who are quoted in the article above.
If putting themselves and their companies "under the thumb of Wall Street" was going to work out badly for any group, it would have been the Class of '83. They went public at a time when the lure of easy cash seemed irresistible, when investors and investment bankers were reaching for fruit not yet ripe. To any young business with a tech- or an -onics in its name, investors were saying, "Take our money, please."
About 680 companies did take the public's money that year -- more businesses than had gone public in any previous year. They raised some $12.5 billion, which was also an annual record until it was surpassed this fall. Were they unwise? Have they compromised their entrepreneurial virtue? Sold their souls? Lost their creative edge? Are they sorry now?
Not to hear them tell it. In fact, it's surprising how comfortably most of these companies seem to have accommodated themselves to the Big Three Bugaboos of Public Ownership: the loss of founder control, the financial reporting demands, and the dreaded shareholder pressure for short-term profit performance. "It's all been boringly simple," says Harold S. Schwenk Jr., co-founder of BGS Systems Inc., in Waltham, Mass. "Maybe the biggest surprise is that there have been no surprises."
Take control, for instance. Not one of the founding CEOs I checked in with complained about losing it. On the contrary, several see going public as a way of keeping control. Gabriel Raviv, president and co-founder of Bio-logic Systems Corp., in Northbrook, Ill., says he had a choice: he could either sell some portion of the company to venture capitalists, or he could take it public. He went public, he said, in order to distribute control "among many small shareholders, not one or two strong individuals."
That was much the same explanation I got from Tad Witkowicz, who desperately wanted to keep Artel from the clutches of "vulture capitalists," with their well-deserved reputation for dictating company policies and tossing aside company founders when the going gets a little rough. Unfortunately, since we talked, things have not worked out so well for Witkowicz. In September, his board of directors removed him as president and chairman. Although Witkowicz won't comment on the change, his experience proves the general point that there is always a risk of giving up control when you turn to somebody else for capital, whether the company is public or private.
Another common fear about going public concerns the reporting requirements. Not a single one of the CEOs I contacted complained -- or not much, anyway -- about providing financial information to stockholders and the Securities and Exchange Commission. "Filing reports," says Joseph Mooibroek, president of American Medical Electronics Inc., in Dallas, "isn't really a big deal. The 10-K is a major event, but it only comes up once a year."
Some, in fact, see the reporting requirements as a plus. "Our numbers are out there," Bio-logic's Raviv says, "which means our customers feel better about doing business with us. There's nothing we can hide. I think it helped us with the bank when we went for an industrial revenue bond to build our headquarters." And Nigel Webb, vice-chairman of Damon Biotech, in Needham Heights, Mass., argues that having the company's financial results talked about in analysts' reports and the financial press gives it higher visibility in its industry and therefore higher credibility -- "even though it's just a perception thing."
Short-term performance pressure is an issue. "There is far too much pressure to pay attention to quarterly results," Witkowicz complained to me before his ouster.But most CEOs I talked to said that Wall Street analysts can only put pressure on a CEO; they can't dictate decisions.Raviv says he has followed his game plan without pressure."We always low-ball our numbers to analysts," he says, "and we tell them we're going to have hiccups, but we don't know when. . . . There may be some pressure to do short-term things, but we've managed to stay out of that."
Granted, it might be a bit awkward for the president of a public company to criticize his stockholders or the analysts who help set the price for his stock. But I take on face value the assertion of CEOs such as Donald Steen of Medical Care International Inc., in Dallas, when he says, "We're not letting our being public influence the way we run the company."
So, yes, being public has its costs. But there are costs associated with getting a loan, too, whether it's from the bank or from Uncle Harry. Both will want to know what you intend to do with the money. Both will want progress reports. And both are going to charge you interest. The difference is that the bank is just a bank, but Uncle Harry is your mother's brother.
The bank or Uncle Harry? Public or private? City mouse or country mouse? We're talking lifestyles here, not moral choices. But in the debate as it is cast by the cheerleaders of privatization, the two kinds of issues get confused.
Privately held companies are not, as Warren Braun, of ComSonics Inc., seems to suggest, any better equipped nor any more likely than publicly held companies to be generous to employees. Braun has transferred ComSonics stock to his workers, but he could have done the same had the company been public. In fact, if ComSonics were public, employees could turn their stock into cash at the market price anytime they want. In a private firm, they don't have that option.
