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Does it Pay to Go Public?

IPORecently, a client pointed me in the direction of a very interesting Inc. article about the case for staying private. The author is the CEO of a privately held, family-controlled tech business, one that has name cache. He notes that being a public company is expensive and time consuming. He also believes that “the most critical benefit of staying private is the facilitation of a true focus on long-term goals.”

It’s not hard to argue that Wall Street is increasingly focused on short-term results, but does that mean that management teams need to adopt the same mindset? Maybe it’s a naïve belief, but some would say that if the stock market is working as it should, a company’s share price will reflect the company’s true value over the long-term.

The New York Stock Exchange predicts a busy year for IPOs in 2014, with about 150 to 200 new issues expected. Reuters points to first quarter IPO activity of $47.2 billion, a nearly doubling from this time last year and “the strongest annual start for global IPOs since 2010.”

Clearly, there are CEOs who still believe in taking their companies public, many in the technology sector. Perhaps they are in it for a large personal pay day, but perhaps they realize that it could be easier and less expensive to raise capital to realize their growth plans. Or perhaps, their Fortune 500 client base requires audited financials as a condition for doing business together.

The decision to go public is not an easy one, and it’s a decision that every company must weigh very carefully. If you’re contemplating an IPO to become like Hooli, the fictional tech company featured in the new HBO series “Silicon Valley,” it may not be the right move. But if you’re doing it to build something that can have a lasting impact, it might just be. Just make sure you surround yourself with good advisors to ensure a smooth process.

– Laurie Berman, lberman@pondel.com

Wage Disparity Rages On

Women's salaries are still lower on average than men's

Women’s salaries are still lower on average than men in the same career

A recent study by GMI Ratings showed a $215,000 disparity between the salaries of male and female CFOs.
 
CFO Magazine noted that the study looked at several factors that impact CFO pay, including company size, market cap, age and tenure in the position.  Total average compensation for the men, including salary, bonus, and stock awards, was $1.54 million versus $1.32 million for women.
 
Why do women earn less?  Is gender discrimination at play?  One of the study’s authors surmised that, “It is possible that women are more likely than men to advance through promotion from within a single company.  Many firms tend to pay more when making outside hires, which could lower women’s compensation levels.”  The report also cited possible shorter work histories for women, even when they are the same age as men, because they are more likely to interrupt their careers to raise children.
 
SteveTobak, a consultant and contributor to CBS, has some ideas of his own.  He believes that, among other things, women and men may not negotiate in the same way and that compensation is a complex discussion at the CFO level. He also noted that women and men may not be similarly motivated by the same factors, with women weighing non-compensation factors such as work flexibility, security and benefits more heavily than men.
 
Based on 2010 census data, Bloomberg recently reported that the six jobs with the largest gender gap in pay are in the financial sector, with women earning 55 to 62 cents for every $1 made by men.  However, it appears the gender gap is starting to close with the median-pay disparity for all occupations at 77 cents for every $1 earned by men, an improvement from 61 cents during the last 50 years.
 
Whatever the reason for the inequality, the debate about why it exists rages on.  While on the surface it certainly seems that men and women should be paid the same for the same job function, there are clearly many factors at play.
 
If you’re a woman who wants to earn more than your male counterpart on Wall Street, Bloomberg recommends (tongue in cheek, of course) that you set up a shoe-shine stand in Lower Manhattan. Female personal care and service workers earn $1.02 for every $1 made by their male colleagues. Go figure.

 

Laurie Berman, lberman@pondel.com
 
 

Greed: Good or Evil?

Cover of Wall Street (20th Anniversary Edition)

Economists persuasively argue that greed encourages effort, discovery, invention – it motivates us to take risks, come up with new products, enter new markets and make enterprises more efficient. Soon after the memorable line, “Greed is Good, Greed is Right, Greed Works,” was uttered in the movie “Wall Street,” much was and continues to be written about the economic and psychological impact of greed.
 
Evolution may have programmed us to be greedy, since greed keeps us motivated to achieve a genuine state of happiness, according to Jay Phelan, an economist, biologist, and co-author of Mean Genes.  Echoing that thought, some psychologists say greed is the only consistent human motivation.
 
Today, however, increasing numbers of mental-health professionals are saying that greed is not nearly as good for people as it is for economies.  Some have begun warning that greed is beginning to overwhelm conscience, reason, compassion and family bonds.  Psychologist David Farrugia sees greed as a mistaken, empty and shortsighted goal that contains many seeds of destruction.  In his article, Selfishness, Greed, and Counseling, Farrugia says, “a chronic orientation toward greed has been shown to result in inflexibility and diminished reality testing.”
 
This likely explains the brazenness of Bernie Madoff, Raj Rajaratan and, now, the seven defendants recently charged in the U.S. District Court in Manhattan by Federal authorities with securities fraud involving insider trading.
 
SEC Enforcement Director Robert Khuzami said, “These are not low-level employees succumbing to temptation by seizing a chance opportunity, [but] …. sophisticated players who built a corrupt network to systematically and methodically obtain and exploit illegal inside information again and again.”
 
Bottom line:  While greed may indeed drive us in ways that have positive effects on behavior, it also has proven to wreak havoc and shatter lives.

 

PondelWilkinson, investor@pondel.com