Annual and quarterly reports to the SEC only represent a portion of the public disclosure required by public companies. Unlike a private business, public companies now put the capital and resources of many public shareholders at risk–not just the small group of founders who may have initiated and succeeded on an idea. This idea of public shareholder accountability forces company management to operate their business differently than they would had the company remained private. In a discussion with a potential client the other day, I was told:
I want to go public, but going public makes me uncomfortable because of the disclosure. It puts some of my proprietary data on how we operate in the hands of all of our competitors. It may not be a significant downside to all companies, but it is for us.
When it comes to reporting, public companies are required to not only disclose all audited financial statements, but they’ll also need to reveal and disclose marketing methods. This includes indication of the areas where the company is having the greatest success (whether had through the internet, retail sales, direct sales, etc.). The amount and type of data available to competitors and others who may want to get an idea on the operations of the business can be a big worry for company operators.
This is certainly a downside for being public, but it’s not a killer for companies that want to go public from private. However, many companies before yours have survived the disclosure of such information and the onslaught of attempts at copycatting that inevitably follow. Seldom are important details disclosed, like the prices charged for products/services, cost of materials, employee compensation and other key components of the business governed by market forces.
A couple of good public examples would be Wal-Mart or Southwest Airlines. Any typical business student could probably tell you all the competitive advantages of these two companies over the competition, but copying them would be much more difficult than most people realize. It’s just one way in which public disclosures are actually not as bad as some people think. It’s the small price a company must pay to have access to the public market.