Is it better that companies be
publicly or privately held? Such a question is of such magnitude that glossy,
simplistic answers should be eschewed. This is not to say that the answer is
situational in nature. Rather, it is more likely that each comes with pluses
and minuses from the perspective of an economic system as a whole. As business “leaders”
give their advice, it is important to keep in mind whether any personal or
institutional conflicts of interest exist and thus could warp the space itself
of the advice. Yes, I am intimating Einstein’s theory of general relativity
here. Rather than provide an answer without having studied the matter
sufficiently, I will provide a way to look at the advice given by Jamie Dimon,
CEO of JPMorgan Chase.
In 1996, the number of publicly
traded companies in the U.S. peaked at 7,300; less than 30 years later, that
number stood at 4,300.[1]
Companies were increasingly staying private. Jamie Dimon was not happy. “The
total should have grown dramatically, not shrunk,” he wrote in his 2024 shareholder
letter.[2]
Private equity funds were behind the trend of taking or keeping a company
private. Although it is true that such institutional investors can “boost their
profits as quickly as possible for a quick sale down the line,”[3]
it is also true that private companies do not face stakeholder pressure to
maximize quarterly profit reports. Neither system is perfect, but the orientation
of the managements of publicly traded companies to their respective quarterly
earnings reports is legion.
For his part, Dimon wrote, “This
trend is serious.”[4] He
pointed to “intensified reporting requirements, high litigation expenses costly
regulations, overbearing board governance, shareholder activism, heightened
public scrutiny and ‘the relentless pressure of quarterly earnings’” as reasons
why a publicly traded company might go private.[5]
If these factors are so onerous, perhaps
being privately-held is better, economically speaking. Nevertheless, Dimon was
concerned. But rather than assume that his warning is the result of business
expertise, we should be prudent by noting that “Dimon’s company, of course,
makes a huge amount of money from taking companies public, so he’s not exactly
an impartial observer.”[6]
So even though “Dimon said his concerns are broader than JPMorgan’s bottom
line,” we should not be so naïve as to take him at his word.
To be credible societally, business CEO seeking to be a business leader
on the societal stage cannot simply advise that which is in one’s company’s
financial interests. If it is, then unless the CEO has enough reputational
capital on the societal stage from having given advice for the good of the
economy at the expense of one’s own firm’s interests, then the public is wise
to be skeptical.
The gravitational pull on his analysis (from his orb, JPMorgan) can be detected from his statements on the quarterly earnings reporting of publicly traded companies. “There is something very positive about detailed and disciplined quarterly financial and operating reporting,” he wrote in his statement to shareholders. Is it to be supposed that managements of privately held companies owned by institutional investors face no pressure to maintain accurate accounting? It seems to me that making quarterly reports public would only increase a management’s orientation to quarterly performance at the expense of long-term profitability—excessively so. Yet Dimon only notes that CEOs and boards of directors of publicly traded companies “should resist the undue pressure of quarterly earnings, and it is clearly somewhat their fault when they don’t.”[7] Any financial person on Wall street would easily dismiss any moral sway of “should resist” and admit to us that Dimon’s reliance on ethical responsibility would only be dead on arrival on the street. Dimon’s straw-man assurance that moral suasion is sufficient to eliminate excessive focus on quarterly profits of publicly traded companies is evidence of his bias in favor of publicly traded companies doubtless because JPMorgan makes money in taking companies public.
In other words, in extolling the benefits of that system of business while nearly dismissing its major weakness with an inadequate fix, the gravitational pull on Dimon can be detected. Not owning up to it only deepens a CEO’s lack of reputational capital societally. It would have been much better had he owned up to the bias in his view and claimed that there was still some merit to some of his points than try to hide his real agenda.
See: More on business ethics at JPMorgan Chase.
2. Ibid.
3. Ibid.
4. Ibid.
6. Ibid.
7. Ibid.
