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Give Me Liberty or Give Me an IPO?
by Steve Kayser


The Case for Remaining a Private Company

One of the most celebrated events in American business is the initial public offering (IPO). Many see it as a transforming event that:

  • Creates wealth, sometimes almost unbelievable wealth,

  • Ensures a company’s near-term survival, and

  • Paints a company with the aura of elevation into the business big leagues.

Right now, in America there are approximately 17,000 public companies.

So, Why Remain a Private Company?

Why would a company forego all of the glamour, fanfare, and wealth that a well-publicized IPO would generate?

Believe it or not, a myriad of reasons. When compiling reasons not to go public, one stands out above all the others: Freedom:

  • Remaining a private company gives one the freedom to make decisions based on the needs of customers, not the demands of the shareholders.

  • Freedom to make bold business decisions and to create innovation by acting on these bold decisions.

  • Freedom from excessive regulatory burdens and to adjust to changes in the business environment that you may happen more than a few quarters down the road.

  • Freedom to control your own destiny.

Growth - Complexity

To meet revenue or growth expectations, many publicly owned companies are forced to merge or acquire other companies. This leads to a host of complexity issues such as disparate product lines; product, process and employee redundancies; integration; employee layoffs (which severely affect employee morale); and ultimately, while faced inward trying to cope with these issues, customer service suffers greatly.

Simplicity - the Ultimate Sophistication

Leonardo da Vinci once said, “Simplicity is the ultimate sophistication.” So being a private company, you are not under pressure to grow by merging or acquiring companies to meet shareholder expectations.

Sounds simple.

It is.

Regulatory Money Gobbling - an Infinitely Expanding Black Hole

The current legislative environment has also made it less attractive to pursue the public path. The Sarbanes-Oxley (SarBox) legislation, spurred by public accounting scandals and corporate fraud of a few to the deleterious effect of the many, has created a compliance burden that would be prohibitive for many small-to-intermediate-size companies that may have considered going public. Today, those companies would incur an unjustifiable compliance cost (millions of dollars per year) just to keep pace with all of the reporting demanded by the legislation.

Most Expensive Words Ever

Section 404 of the 2002 Sarbanes Oxley Legislation is 180 words. Yet estimates of costs for publicly traded companies to comply are between $10 billion to $20 billion ? yes, $10 billion to $20 billion, or approximately $55 million to $111 million per word.

According to one study, SarBox compliance could cost approximately $1.4 trillion dollars. “The loss in total market value around the most significant rulemaking events amounts to $1.4 trillion,” according to Ivy Xiying Zhang of the William E. Simon Graduate School of Business Administration.

Ouch - for public companies anyway.

A survey by Korn/Ferry International found that Sarbox legislation cost Fortune 1000 companies an average of $5.1 million in compliance expenses last year. Big accounting firms estimate the cost to be an average of $7.8 million dollars.

For small-to-intermediate-size public companies, the law firm Foley & Lardner found that Sarbox has increased the “cost of being public” by 130 percent.

Don’t Focus on the Business - Focus on the BS (Bureaucratic Stuff)

Senior management now, instead of concentrating on planning a future, building a business, filling customer needs, creating jobs and becoming a valuable cog in the economic engine of prosperity, is tasked with design, implementation, assessment, controls and auditing results.

A large part of this work is ultimately controlled through the IT department. Business managers already have enough problems trying to align business goals with IT processes, let alone adding a completely vainglorious, monolithic, ever-expanding, costly and complex system.

How to Efficiently Discourage Bold Decisions

If senior management makes an honest boo-boo (mistake) under Sarbox legislation, they could still be subject to 20 years in prison and as much as $5 million in fines.

Sounds like a great incentive system to me!

Where Do I Sign Up?

This is a most efficient (and effective) way to waste good money, human resources, and future potential (societal and business) ? by throwing it down the ever-expanding regulatory black hole.

Each year government agencies issue approximately 4,000 new regulations.(1) American businesses now pay more than $850 billion (2) in annual regulatory costs and $233 billion in unnecessary or out-of-control legal costs (3) per year.

And now, just for kicks to see how far we can push American business, throw in the highest corporate tax rates among our major competitors.

This is a blueprint for economic disaster.

If the cumbersome regulatory environment continues to increasingly burden business, you will see a drastic downturn in American competitiveness, jobs will be lost, and the economy will be severely battered.

  • Public Company = Sarbanes Oxley

  • Private Company = No Sarbanes Oxley

A Better Way?

How much better would America be if even a small percentage of this wasted time and money on unnecessary costly compliance was spent enhancing innovation, creating jobs, and aiding competitiveness instead of shackling it?

How much better could we be?

My not-so-bold statement is …

Astoundingly Better

I believe customers and employees are better served by investing the money that would be wasted in unnecessary regulatory compliance into R&D, better customer service, better jobs for employees, and most importantly, I believe job creation.

Creating a Unique Culture

Another clear advantage of remaining a private company is that it is much easier to create a unique corporate culture. If you value loyalty, a fair balance between work and family, and community involvement, then you are free as a private company to promote and reward these values.

A Different Kind of Pressure

Public ownership can make any unique culture difficult to sustain if one bad quarter forces you to lay off 20% of your workforce, or the market drives pressure for meeting certain results ? regardless of their long-term implications – and that pressure is passed down the line in the organization.

A Really Big Penny

One penny.

One cent.

A paltry pittance … right?

Ouch … again.

In a publicly owned company, a penny difference in predicted earnings can drop the stock value 10%(4).

Advantages Considered

Of course there are good reasons to go public. Access to capital is clearly a compelling reason to launch an initial public offering, and many great companies have successfully followed this path.

If you are determined to become a very large company, or if creating substantial wealth for your managers and employees is a key objective, going public could make sense.

Disadvantages Considered

Many public offerings have failed because the disadvantages haven’t been fully considered. For example, after an IPO, future successes have to be shared with outsiders. Typically after an IPO, insiders own only 30-49% of the business, and this range sometimes varies wildly, for example, up to 85%.

Smells Like Bad Flounder

Not only do you have to share your successes with outsiders, they may be in the position to take over the company and fire top staff, or even the founder of the company. If you are a "Founder" of a company I suspect this may smell like bad flounder.

You also lose important confidentiality aspects such as technologies and profitability numbers, which competitors could (and do) seize upon and turn around to your detriment.

What’s Really Important

Many of these companies might be here today, perhaps smaller, but thriving, had they considered what is really important:

  • The freedom to innovate without a rigid timetable for a return on investment,

  • The freedom to think long term,

  • The freedom to build a corporate culture that reflects the leadership of the organization, and finally,

  • The freedom to make decisions that make sense, rather than decisions that please the analysts on the quarterly conference call.

The Good, the Bad, and All Things Considered

The flexibility and freedom of remaining private is fundamentally ingrained into a corporate character, culture, and commitment. This redounds to the greater benefit for customers, employees, and the communities in which they live and serve, all around this wonderful world.

So … in the Case of Private vs. Public

My verdict is in.

And …

It’s an IPO-A-NO-GO!


1. The National Archives and Records Foundation

2. Office of Advocacy, U.S. Small Business Administration

3. U.S. Chamber Report on the State of American Business

4. Harold Burson – Greatest Generation of PR Speech, May 17,2005


The Author


Steve Kayser is Public Relations Director, Cincom Systems, Inc. Cincom is a software and services company offering products designed to simplify the management of complex business processes. Steve Kayser relies on two major assets to tell the often complex Cincom story: Cincom's Expert Access epublication and Tom Nies, "the longest-serving CEO in the computer industry." Expert Access is a biweekly email newsletter with over 86,000 subscribers, including Cincom customers, prospects, and the public. Visit for additional information.

Many more articles in Insight & Commentary in The CEO Refresher Archives
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Copyright 2005 by Steve Kayser. All rights reserved.

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