What Dell's Attempt to Go Private Says About the Public Markets
The news that Dell wants to back out of the public markets could be a bellwether signal. Why?
The number of publicly-held U.S. companies is shrinking fast--Dunkin' Donuts and Toys"R"Us have already led the way. According to Cornell's Lynn Stouth, between 1997 and 2008 the number of companies listed on public exchanges declined from 8,823 to 5,401. So Dell is by no means the first. But it is the biggest technology company to run for the cover afforded by privacy.
What's the problem with the public markets? Some will whine about Sarbanes-Oxley and the increased burden of reporting commitments, but I think that's a red herring. More serious is the desire many leaders have to run their companies for the long-term; to make serious strategic decisions that could play out over years, not quarters; to invest in innovation that won't necessarily deliver an immediate return; to escape the increasingly-heightened rhetoric that promises revolution on a dime.
Many of the finest entrepreneurs I know already run private companies and firmly intend to keep them that way. They value the clarity (and honesty) of tying growth to revenue. It means you feel tightly coupled to customers for the simple reason that, if they don't like what you're doing, no money comes in. They appreciate that discipline and--it's an important and--they did not go into business just to increase their private wealth anyway. The irony is that they are building the kinds of companies serious investors would love to invest in.
Compare that with Facebook, a public offering that was a joke. It was obvious Zuckerberg didn't want to go public, that he has no intention of running "his" business for shareholders, and any investor who ignored those obvious warning signs has been feeling pretty sore (even if the stock price recently hit a $32-dollar high). Zuckerberg gained private wealth at the expense of his business and his investors. And while regulations required him to go public, doing so was not his only option in response to the large number of investors the company had acquired.
When I was running technology companies, I believed--along with many of my peers--that going public was like crossing the finishing line. It meant, in some obscure sense, that you'd "won." Many still think that way. But in her book, The Shareholder Value Myth, Lynn Stout argues with passionate clarity that the way public markets are currently run is dumb and detrimental. There is no legal requirement that says leaders of public companies must run their businesses purely for investors' quick return. But many CEOs believe there is--or use that myth as an excuse for their own rapacious management style.
While going private won't, in and of itself, solve all of Dell's woes, it could help the company focus on what matters. Trying to align a bunch of shareholders with wildly different and incompatible interests isn't what should come first in any business. I hope Dell's departure from the public markets accelerates the debate, and the much-needed changes that the public markets have put off for far too long.
Margaret Heffernan is an entrepreneur and author. She has been chief executive of InfoMation Corporation, ZineZone Corporation, and iCAST Corporation. In 2014, she published her fourth book, A Bigger Prize: How We Can Do Better Than the Competition.