A recent article in Knowledge@Wharton compares the management of public and private companies.
Executives who hone their skills at the helm of private companies tend
to be more driven, more bottom line-oriented and have much more
flexibility than CEOs at publicly owned companies, who are constrained
by their need to balance multiple objectives in a corporate ecosystem.
Those of us that have worked for both types of organizations know the differences can be huge, driven predominantly by the short-term market perspective of public shareholders.
According to Mark Brownlee, associate vice president at Infosys Technologies, CEOs in publicly
traded firms necessarily practice business as more of an "art" compared
to the top executives at privately held entities, where expectations
and results are uncluttered by the corporate "ecosystem." In public
companies, this ecosystem comprises "their trading partners,
shareholders, their public culture and brand, and … far too many
people to answer to," Brownlee said.
At the private companies he has worked with, however, executives
"don’t care about an ecosystem," Brownlee noted. "[They] are much more
isolated and can make more independent decisions. Management teams can
be more like business technologists — they understand the science of
running a business. With a public company, you need to be the face of
the company, dealing with analysts and [having] a constant interaction
with the media. [Private] companies are great places to be because
that’s where you can work with people practicing the science of
business."
Business technologists that understand the science of running a business. Although I agree that’s what goes on in private companies, I disagree that it doesn’t in public companies. There are many great public company leaders, but they are necessarily distracted by the aspects of public company management that Brownlee mentions.
Does size also matter?
Jonathan Hsu, CEO of New York-based 24/7 Real Media, a digital
marketing firm, agreed. The comparison is "pretty stark," Hsu said.
"Running a mid-size company and [being] responsible for everything
makes you tougher than someone entrenched in a large public company."
In any case, perhaps today’s market offers an opportunity to acquire talent.
Still, Brownlee’s point about corporate ecosystems rang true to her.
"The point is that the set of issues a public company CEO has to deal
with is broader than that of a private company," Botelho said.
"Therefore, their balancing act between different objectives is more
complex.She added that firms that take a long-term view — public and
private — use down markets like the current one to grab talent they
otherwise couldn’t afford or attract. "For example, in the last
downtown of 2001, American Express hired a lot of people out of top
strategy consulting firms when those firms were struggling with decline
in demand. We see the same with our clients now — they are actively
looking for strong performers that are ‘poachable.’ In private equity
in particular, it’s typically difficult to attract senior talent from
other firms because of carry (the executive’s financial interest in the
portfolio companies when they sell the company). In times like this,
some of the portfolio companies are starting to struggle, and therefore
carry is not looking as valuable as it did 18 months ago. The challenge
for these companies is to have strong assessment processes to
differentiate truly strong performers from thousands of average
players."
It takes talent to lead both public and private companies. But the real talent also realizes that it takes talent at all levels to make the companies work… not just pairs of hands.
