As Companies Go Public, Power Stays Private

from the inside-out dept

As we've noted several times, the tech IPO came back in a big way this year, most recently evidenced by VMWare's meteoric launch out of the gate. While this is good news for companies and their investors, Kevin Kelleher argues that we're seeing a disturbing trend in the way these deals go down. In many instances, the terms of the deal are such that the general public shareholder has little power in the newly-public company, with most voting power concentrated in the hands of a select few insiders. What's more, in many instances, the companies have sold stakes in themselves to certain outside investors at a price below what was available to the public. It's easy to argue that such moves represent greed and a desire to keep the spoils concentrated, but there may be other reasons for these actions. As the rise of private stock exchanges suggests, public shareholders are increasingly seen as a liability, whether it's due to the threat of shareholder lawsuits or activist investors. Kelleher's concern is for the "little guy", as he puts it, but it's not clear that most investors actually care about things like voting rights. As long as investors understand where they're at, and can weigh the risks accordingly, certain trends in governance structure shouldn't be particularly worrisome.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    Matt Bennett, Aug 29th, 2007 @ 10:44am

    Ultimately, the vote that matters most is to Buy or Sell. There's a certain quintessential, irreducible democracy there.

    At the same time, inflated concerns over share price, and the attendant concern over quarterly profits are principle problem with public companies, not that share holders occasionally vote someone out.

     

    reply to this | link to this | view in thread ]

  2.  
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    Anonymous Coward, Aug 29th, 2007 @ 11:06am

    That is not democracy.

    Democracy is not "he who has the most money gets the most votes"

     

    reply to this | link to this | view in thread ]

  3.  
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    comboman, Aug 29th, 2007 @ 11:06am

    As it should be

    If I buy stock in a company, it's because it has made good business decisions thus far and I expect them to make good business decisions in the future. The people to make those decisions shouldn't be shareholders, it should be the people who created the company and brought it this far. If I knew how to make those decisions, I wouldn't be buying stock, I'd be starting my own company.

     

    reply to this | link to this | view in thread ]

  4.  
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    Matt Bennett, Aug 29th, 2007 @ 11:37am

    Re:

    That's a very knee-jerk, shallow reaction.

    Firstly, we're not talking about a Government here, by the people and for the people, we're talking about a company, by the money and for the money. Literally. You may feel that's a bad thing, but then that's another argument, entirely, one I don't really feel the need to participate in.

    Secondly, yes, it's kind of democracy. Those do come in different flavors, y'know. And it has a very literal "put your money where your mouth is" quality to it. If you don't like it, don't participate. Put your money towards beanie babies or something. I'm sure they'll be valuable someday.

     

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  5.  
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    Diggity, Aug 29th, 2007 @ 12:28pm

    Realistic

    If a company makes good decisions and can keep making good decisions then why become public? Answer because they need more cash and don't want to or can't get a loan. Once a person puts out cash they "OWN" read that "OWN!!!" a part of the company. Whether it be a couple percent or 1 millionth of a percent and as a part owner it is there right to dictate where the company is going, and who management should be. Now I do agree with a previous post some people are way to concerned about quarterly profits, it's 3 friggin months i've had an off 3 months only top klobber the next 9 in my personal life leaving off on a very good year and so do companies. That being said thought thats just the way it is, it's not just a how good a company is it's how much demand there is for another person to own your share. As for democracy huh??? This is business the strong survive and your votes=how much money you have. Get Real

     

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  6.  
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    Rickler, Aug 29th, 2007 @ 12:33pm

    It's good they don't go public because if they did they would have to find ways to constantly increase profits instead of just staying stable.

     

    reply to this | link to this | view in thread ]

  7.  
    identicon
    Anonymous Coward, Aug 29th, 2007 @ 12:44pm

    @ Rickler

    What?

     

    reply to this | link to this | view in thread ]

  8.  
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    Anonymous Coward, Aug 29th, 2007 @ 4:30pm

    shareholders a liability?

    Yes they are seen that way, and also seen as prey.

     

    reply to this | link to this | view in thread ]


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