Sixth Reason to Go Private: Recruiting

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Oct11

Sixth Reason to Go Private: Recruiting

October 11, 2006

Know More: Investment Banking 2.0, Investment Banking

The sixth reason to go or remain private is to improve recruiting.

The question of public or private impacts recruiting in four areas:

Options: Options are effectively more expensive to grant in public companies because the users of financial statements have more focus on reported earnings per share than private shareholders, who are typically connected to management in one way or another.
Cash Compensation: Remembering that all else equal, private companies tend to be more profitable than public companies because of regulatory expenses avoided, there is more cash for salary and bonus.
Focus: Because recruits in a private company will be subject to less regulatory scrutiny, there is an opportunity to focus more on the mission of the position.
Scandal Aversion: Being a public company creates the risk of scandal because there are so many more rules to follow; failing to follow the regulations can create a scandal. Once a scandal occurs, a public company will receive much more media attention than a private one. Hence, managers who wish to avoid scandal, seek private companies.

Again, the scales lean toward private over public, especially for small companies. As companies get larger and can support more legal and compliance related staff, the benefits of private over public become effectively smaller.

related entries

Life of an Analyst Oct 8, 2007
10 Reasons to Go Private: Summary Nov 14, 2006
10th Reason to Go Private: Golf Nov 13, 2006
9th Reason to Go Private: Strategy Nov 7, 2006
Jim Matheson, Entrepreneur, Congressman Nov 2, 2006

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