What do you make of the decline in the number of publicly traded companies in this country right now? What does it portend for markets and what does it portend for the country?
Taraporevala: So I worry about this quite a bit. The big shift that has changed that whole dynamic is putting more of the onus upon the individual. Now [individual investors are] the CIO and [they] don’t have the ability often to invest in private equity or private credit or even venture capital. So you really are being precluded from streams of value creation. I call it the de-democratization— that’s sort of how I think about it—of investing. That’s a social problem in addition to lots of other social and societal problems that are building up and have built up over a long period of time.
Why is it happening? Why are people more resistant to coming to market these days? Is it regulation, is it they don’t want to deal with everything that we’ve been talking about—plus Washington—or is there something else going on?
Taraporevala: I think regulation’s part of it. I think obviously the fact that there is an alternative is part of it. But I do think just the pressures of being a public company, and I don’t want to just pick at regulation, but broadly the overall cost and burden of being a public company has gone up a lot. That definitely has put a damper. I do think in some ways there are parts of staying private that are pretty attractive, and some positive in terms of alignment of incentives, etc.
The good news is it may be more of an issue in the U.S. and some developed markets than it is in the whole world. The soundbite on developed markets and new company creation and public company creation can sound like the whole world, whereas that’s not always the case in emerging markets.
Kumar: Eventually the one thing you learn when you’re learning finance is when you take private money, there’s an exit strategy. What’s the exit strategy and when is it going to happen? We were taught that exit strategy is going to be going IPO. Now it’s selling to another hedge fund or another private equity firm but eventually, that may or may not run out. We don’t know because of the growth of the private markets.
Talking to directors for the next year, what’s the message that you’d like to be sending?
Kumar: I would say really the conversations we’re having all start with strategy. It’s all tied to your business. It’s all tied to where you’re going. For us, that should be an easy conversation with board members because that’s what they focus on and that’s what they’re supposed to focus on. Even when it comes to board composition or governance, it’s not a side topic. I can’t even evaluate board composition without understanding what’s the strategy, what are the skills required to oversee that strategy?
It’s really about understanding strategy and ensuring governance and compensation are supporting or incentivizing to achieve the strategy and that you’re considering the environmental and social risk, the sustainability risks and opportunities, and incorporating that into your strategy.
Taraporevala: It’s strategy and execution, right? A lot of these factors we’re talking about are the difference. I was a strategy consultant for 14 years so I think I know a thing or two about strategy. If all that happens is it looks beautiful in a PowerPoint presentation, it’s not worth anything.
Culture is such an important part of the many companies that have similar strategies. Some are winning, some are not. Some are creating value for our investors, some are not. That’s all the stuff we are talking about here that either makes it a winning executed strategy—or an interesting PowerPoint.