Publicly Traded vs. Private Companies

I have always been interested in learning more about fundamental difference between public and private companies. As second quarter of BGI rolled around, we were picking companies to investigate. Initially, my group selected a company that we thought was publicly held. It was not, which made our task of analyzing their financials nearly impossible. At the same time, I work for a company that is proud to be private. One of the first things I heard during new hire orientation was that “we do not have an exit strategy”…in other words, selling out was not on the table.

With public vs. private swirling in my head, I have been picking up on this difference in the news, and trying to figure out what role this distinction plays in how a company moves forward with sustainability.

This week, I heard a report on NPR regarding how a shareholder at Starbucks was outraged at the possible impact the company support of DOMA (the Defense of Marriage Act that supports same-sex marriage) had on it’s earnings. According to this shareholder, his profitability as an investor was tarnished by this “people” driven corporate value made public. Now, there is no conclusive evidence that this public support of homosexuality actually did have a direct impact on the stock price, but it made me think about the implications of other sustainability metrics, and how large (typically publicly held) companies can realistically move these items forward with shareholder opinion.

As we learned from Bob Willard, companies can be sorted into five stages of integrating sustainability into their daily operations. These range from the earliest and most reactive stage of pre-compliance, to the purpose driven sustainability companies that embody these values from the top-down and inside-out. I would say that Starbucks in relatively proactive in their sustainability goals, somewhere between stages 3 and 4 on Bob Willard’s diagram below.

As Starbucks (and other publicly traded companies) push towards more sustainable operations, they will be balancing the triple bottom line: people, planet and profit. In this delicate balance, where do owner/leader values fit in? We have learned from many examples (such as Ben & Jerry’s, Bob’s Red Mill) that when an owner founds a company with balancing these elements first, they are more likely to be in Stage 5, where these values permeate the company and all decisions. It seems possible that a company could move towards Stage 5 as they move up the ladder, but is it possible to achieve as a publicly traded company? I expect that this public vs. private ownership has much to do with a company’s ability to achieve top tier sustainable operations.

Why would this distinction be important? The example from Starbucks is a great one. Clearly the leadership values differ from some of those within their large group of shareholders. Since a key mechanism of publicly traded companies is responding to shareholder pressure, it sounds realistic that sustainability measures and values (of which “people issues” are a large part in the case of same-sex support) would be more likely to cave to shareholder values if they do not align with corporate values. This leaves an opening for influential decisions to be driven by outside people, potentially driving a company on a course different from it’s core values. I found it powerful that the Starbucks CEO responded to shareholders disapproval of company support for marriage equality can invest somewhere else. Schultz stated, “if you feel, respectfully, that you can get a higher return than the 38 percent you got last year, it’s a free country. You can sell your shares of Starbucks and buy shares in another company. Thank you very much.” It will take leaders with this personal drive to lead these publicly traded companies towards a value based, sustainable future.

I do make an assumption here, that companies will or do value sustainability, and are trying to push that agenda forward. For the purpose of this article, sustainability (people, planet and profit in balance) is the value proposition that I am hoping companies will protect. Clearly, not all companies value these things, but likely face challenges to whatever their value set when shareholders become involved once a public company.

In contrast to this is the company that I work for, which is privately held, and pursues direction based on the core values of our leadership team and CEO. These values have evolved over time, and are driving further and further to defining how we will embody sustainability in the future. Our mission has actually changed in the past two years to more specifically call out considerations for protecting the planet, a clause that had been missing in the past. 

We are not subject to shareholder input and responding to our values impacting profitability. Everyone with a stake in the company (as either an owner or employee) is reminded constantly that we answer to no one but ourselves and I believe that this will give us, and other private companies, more leverage to move the needle on a sustainable business future.

Over the course of the week, I considered the differences further, and came up with a possibility that perhaps the publicly traded companies may have an advantage as public perception continues to evolve. Public pressure can be incredibly powerful and could end up being the final push that move lagging companies to incorporate sustainable goals into their operations. Ultimately, I believe it is a societal value shift that needs to happen, and public and private companies will have their own paths to evolve with this shift.