Saturday, June 17, 2006

Don't go public

I read in "Otto The Modest" (BusinessWeek, June 5, 2006) that Michael Otto, CEO of German retailer Otto Group, 'refuses to take his company public partly because he thinks the market encourages shortsighted management.

"We don't have to come up with a good story every quarter for the investors and the press," Otto said in an interview for the story.

How very true! Public companies have a tendency to adopt short-term measures to please Wall Street analysts and meet earnings calls. But sometimes these short-term measures border on the illegal. Since a series of accounting scandals came to light, confidence in the integrity of corporate America has been badly shaken. Some examples:

1. Worldcom admitted that it had inflated its profits by US$3.8 billion between January 2001 and March 2002.
2. Enron's elaborate scam
3. Telecoms company Adelphia Communications restated its profits for two years prior to 2002 and admitted that it didn't have as many cable television subscribers as it claimed.
4. Photocopy giant Xerox misstated four years' worth of profits, resulting in an overstatement of close to US$3 billion.

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