Are operating “standards” really helping public companies?

by

achievement-18134_640
A topic that I hear come up quite a bit is how private equity funds are able to amplify shareholder returns at a strikingly faster pace than public companies. Some folks ask how; others are just fascinated by their ability to drive these returns. Those that think it is because they excessively leverage or inflate company performance for an exorbitant IPO price are missing the critical points that are actually making these companies perform more optimally than public companies. Even with a different political landscape, there are still quite a few ideas that can be applied from private to public companies. Here are some questions you should ask yourself to see if you can create these changes within your organization?
  • Do we have the right capital structure in place? Is there an opportunity to increase our debt-to-equity ratio to help reduce our cost of capital? I am not suggesting that you should raise your levels of debt to the amounts of another company, but it’s likely you can increase it from where you are today.
  • Have we exploited all options for cost reduction? There is always room for improvement, and if you believe you have exhausted all opportunities, it’s time to have an external set of eyes perform an assessment to determine how to lean out or improve further.
  • Can we invest in other areas (e.g., M&A, new products) that would expand our revenues and/or improve our market positioning? Can we divest any non-core businesses? No, I am not suggesting that you just buy any profitable company that exists, but rather perform some due diligence to determine what, or whom, aligns with your plans. For instance, a recent announcement was made that Novartis would pay ~$16B for GlaxoSmithKline’s (GSKs) oncology business, and sell its own vaccine business to GSK for upwards of $7.1B. So, Novartis takes a bit of a hit to their top-line to create better margins and improve position in the consumer healthcare sector. Sounds like a strategic move to me.
  • Do we pay executives and board members for performance and ensure that their compensation is commensurate with the value they bring? Are penalties in place for lack of performance? Think of it this way, why should the company pay someone, including you, for poor performance? An option could be to concentrate rewards to the select few stellar executives instead of a broad, consistent application to all executives. Those who directly impact increased shareholder value receive the benefit. Give board members less monetary compensation and more equity, forcing them to create value to get their return.
  • Is our board focused? Do they have the extensive experience and capabilities needed to drive our strategic vision? Do they have industry expertise, bring unique values to the table and do they have the correct financial incentives keeping them focused? Public companies tend to have larger boards due to the audit, governance and compensation committees. But, aside from independence reasons, why not retain board members who know the business? Or better yet, when faced with issues bring in a senior advisor who is a nonrecurring expense to support overcoming the challenge.
Normalizing this a bit, I go back to operating expenses and managing debt. I personally do not agree with or like that some private equity firms leverage their companies to a point of distress, however I can’t argue that successful firms leverage to enable success while also maintaining a focus on earnings before interest, taxes, depreciation and amortization (EBITDA) to drive higher returns and a potentially quicker exit.
With that, stay tuned for a future blog where I plan to discuss an approach by which you can look into your organization via a lens that considers how some private equity companies measure their operating performance…

READ MORE

The Magic of Mortals

The Magic of Mortals

Daily we wake up to new developments in automation, Artificial Intelligence (AI), and Machine Learning (ML). Across sectors and industries, automated solutions prove highly successful in surpassing the capacity of the human brain for certain tasks, improving...

read more
Leveling Up: How to Hone Your Skills at Home

Leveling Up: How to Hone Your Skills at Home

Leaders have been trying to crack the code on talent development for years. Recent studies have shown, however, that strength-focused leadership [read: intentionally elevating the qualities that already come naturally to us] is the clear winner for developing talent...

read more
Fake Case Study: Jack of all trades vs. Master of One

Fake Case Study: Jack of all trades vs. Master of One

  Listen to any earnings call or executive presentation and you will likely hear the terms “top line” and “bottom line.” These are words used to describe a business’s performance. According to Investopedia, the words are defined as follows: Top line refers to the...

read more
Your Personality Is Showing

Your Personality Is Showing

There I was, minding my own business one evening, digging into my organization's SEO performance (as one does), when I came across something interesting. Search terms related to "MBTI" — or the Myers-Briggs Type Indicator, developed by Katherine Cook Briggs and Isabel...

read more
Lessons From a Change Manager Who Hates Change

Lessons From a Change Manager Who Hates Change

Hello. My name is Monique, and I’m a change manager who hates change.   After years of receiving “consulting therapy” from various mentors, I am now able to say these words out loud and proudly. But for a long time, it felt more like an admission of guilt. I mean, who...

read more
Creativity as a Cure

Creativity as a Cure

The topic of creative solutioning has been front and center these days as we talk more and more about organizational adaptability in the face of dynamic and uncertain times. For example, I recently read about a project that got me thinking about specific priorities...

read more
Thought Ensemble, a Pariveda Company — Why Now?

Thought Ensemble, a Pariveda Company — Why Now?

Big news over here as we close out the year - we have been acquired by Pariveda, a 750-person consulting firm in 12 markets across North America! We are now “Thought Ensemble, a Pariveda Company” and I’ll be serving as the Managing Vice President continuing to lead...

read more
Thought Ensemble Joins Pariveda Solutions!

Thought Ensemble Joins Pariveda Solutions!

Dallas, December 9, 2021 /PRNewswire/ -- Pariveda, a leader specializing in solving complex technology and business problems, announces the acquisition of Thought Ensemble. With the addition of Thought Ensemble, Pariveda now provides holistic business strategy,...

read more
Thoughts on Colorado’s Equal Pay for Equal Work Act

Thoughts on Colorado’s Equal Pay for Equal Work Act

It was about a year ago that we first started hearing about Colorado’s Equal Pay for Equal Work Act (SB19-085) and I knew it was going to be national news. We’d just gotten past the “Rocky Mountain High” jokes, and our lovely state was trying to break new ground...

read more