In November 2014, Michael Dell wrote in the Wall Street Journal, “Privatization has unleashed the passion of our team members who have the freedom to focus first on innovating for customers in a way that was not always possible when striving to meet the quarterly demands of Wall Street.” This gives a message that in public companies boards or CEOs are restricted from innovating for the long term, but try to keep a consistent trend to satisfy the analysts and investors in the short term.
This view is contrary to promoting a larger capital market with more listed companies. Though there’s an argument that with public scrutiny transparency and governance improves significantly, any idea that a private company can be more creative or innovative is counter intuitive. However, making a State Owned Enterprise (SOE) to be publicly accountable will achieve transparency, good governance and also better results due to better utilization of resources and less government interference. Therefore, a SOE should not be allowed to use the idea of Dell to divert attention on the core issues around governance, conflict of interest, transparency and under utilization of resources.
The Board is responsible for the long term strategy of the company. Composition of the Board will make or break a company. Therefore, the Board has an obligation to ensure the proper mix of knowledge, skills, experience and thinking in the boardroom. This process is managed through good nomination committees in listed companies. However, this benefit does not accrue to SOEs due to state authorities having the right to appoint anyone as a director. Certain public companies with very few significant shareholders may be more innovative in a private enterprise set up, as the few owners can be creative without too much public scrutiny to achieve short term returns. However, SOEs may do well in an environment of rules and regulations followed by listed companies due to their existing below par performance and varied governance issues.