If the listed company is yesterday’s company, what is tomorrow‘s?

According to the Economist, in the USA there is a growing trend for listed companies to be taken private. If the listed company is yesterday’s company what is tomorrow’s? Apparently there is $1.1tn in ‘dry powder’ with Private Equity looking for the right investment.

 

Will PE be a force for good? It all depends. Some PE deals involve sale-and-leaseback and asset stripping, putting lipstick on a pig-a-poke before offering it again on listed markets to less sophisticated investors.

 

Others do allow a company time away from the pressure on quarterly returns to adapt or reinvent itself.

 

More and more pension funds are putting money into PE. As the risk of pension savings shifts on to the individual saver, there will and there should be funds that open up PE to those outside the super rich.

 

We will need information that will help us tell the difference.

 

That’s where the assessment of the stewardship qualities of different funds will become important. Who are these funds ? What do they stand for? Are they looking for the quick buck or the growth of wealth in healthy and well-led companies?

 

In the UK the new Wates Principles for governance of private companies will increase accountability of the individual enterprises in which PE firms invest. Many of the PE firms themselves will also be covered by a government requirement to report on their purpose, values and approach. (Declaring an Interest I am a member of the group that is advising the FRC on what should be in them).

 

The next logical step may be prompted by the UK’s current review of its investor stewardship code. There appears to be a strong argument for extending the influence of this code so that it covers not only listed companies, but also private companies. In that case we will need to draw on the principles of stewardship, most recently described in the document Better Stewardship. Such principles can be used to rank these Masters of the Universe and assess how far their pursuit of profit is compatible with the public good.

 

One way or another, society needs new tools for assessing which businesses achieve enduring returns while still serving the public good. My hope is that the convergence of governance codes for private companies and more broadly applied stewardship codes for investors could be used for this purpose.

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