Saturday, June 10, 2017

Private is the New Public

Matt Levine at Bloomberg continually expresses his view that private markets are the new public markets.  What he means by that is, given the availability of private capital (due to SEC rules and concentrations of private pools of capital in a relatively small number of hands), companies that need capital to expand can access the private markets; they only go for the public markets when private investors are ready to cash out.

Well, as the Case of Uber makes clear, “publicness” can exist in private markets, too.

“Publicness,” a concept first developed by Hillary Sale, refers to the general social obligations a corporation is perceived to have toward the public in terms of transparency and regularity of operations.  Companies that conduct themselves poorly may find themselves pressured to reform by consumers, investors, and regulators, in part because they are viewed as having public obligations almost akin to those of governments.  Prof. Sale explores, for example, the case of JP Morgan Chase and the London Whale scandal.

Uber is a private company, but as its various recent troubles demonstrate (and demonstrate and demonstrate and...),it is increasingly viewed through the lens of publicness – and is responding as though it recognizes, and hopes to meet, those obligations.

 In other words, the public views Uber as having certain duties in terms of ethics and propriety of operations, and Uber is attempting to fulfill those duties.  Uber is a private company that nonetheless has the responsibilities associated with publicness.

In that regard, it is interesting to compare to Mylan, a public company that seems to feel no pressure of “publicness.”  As a recent NYT article makes clear, Mylan has apparently adopted a business model of performing contrition in the face of public approbation, but failing to take any concrete steps to reform its operations.  It will respond to legal obligations (somewhat), but not moral ones.   It’s also picking a very public fight with ISS (and thus, potentially, investors) over ISS’s refusal to allow Mylan to review a draft copy of its recommendations to shareholders, which I assume is a conscious effort to buttress proposed GOP regulation of proxy advisors. (Side note: How much does the GOP want to advertise that Mylan, in particular, agrees with its proposed regulation)?

In other words, Uber – a private company – at least seems to recognize that it has public obligations, while Mylan – a public company – does not.  What accounts for the difference?  Is it that Mylan faces less competition due to the value of its intellectual property?  Uber feels more vulnerable to shareholder demands due to operational losses that require raising new capital?

This is ultimately a question of corporate theory, and as private becomes the new public (and as the federal government retreats from a regulatory role), it will become increasingly important.

http://lawprofessors.typepad.com/business_law/2017/06/private-is-the-new-public.html

Ann Lipton | Permalink

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