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November 19, 2006 Circumventing Corporate Governance By Going Private
An article in Saturday's Wall Street Journal, titled 'On Going Private: Investors Beware' highlights how the corporate executives who play a critical role in advising boards to take companies private often stand to gain substantially. The main reason being that private equity firms can "shower executives" with incentives that kick in when the company returns to the public market. In other words, as we crack down on back dating, executive compensation, and corporate perks in the public market we are creating a personal incentive (in some cases) for executives to help take companies private. The private market doesn't publish the size of your compensation package and in many cases allows you to use the corporate jet to fly to Disneyland. The more we crack down on the public market, the more we encourage companies to go private and with significant dollars chasing these deals the larger the "hidden private equity bubble". In the end, are we truly solving corporate governance problems or hiding them from the public eye? When you think about it, private equity investors are actually managing the same dollars that would be invested in the public company market if not for corporate governance.
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