Kempner: Disappearing public companies? Federal regulator concerned


Where did half our nation’s public companies go?

If you’ve got a hankering to invest your life savings, it might look as if you have plenty of options, some good and some unnerving.

There are stocks, bonds, real estate, gold, and even some cryptocurrency markets that concern regulators.

But the number of publicly traded companies has dropped by half since the mid 1990s.

We’re talking about some of the companies that put the capital “C” in Capitalism, from Walmart, Amazon and Bank of America to smaller players such as two in Georgia that became publicly traded earlier this year: GreenSky, which connects consumers with short-term financing for purchases, and Cardlytics, which runs bank rewards programs and crunches data for marketing.

The decline concerns Jay Clayton, the chairman of the U.S. Securities and Exchange Commission.

“If you want to invest in the future growth of America, your opportunities to do so in the public market are not what they were 20 years ago,” he told me.

The businesses didn’t vanish: fewer new public ones were created as existing ones were merged, shuttered or delisted (whether because of troubles or because they were purposefully taken private). But remaining public companies are generally larger.

Clayton and the other SEC commissioners recently visited Atlanta to show they really want insights from Main Street investors, including some near Peachtree Street. Such a meeting - including all five commissioners - is rare outside D.C.

So I took the opportunity to ask Clayton about the future of investing.

Among the SEC’s duties is overseeing filings by 4,300 exchange-listed public companies worth something like $30 trillion. Those figures don’t make it sound as if we’re starving for investment options.

But Clayton told me that Main Street investors are being boxed out of one important avenue to build wealth as more companies rely on funding through private markets aimed “predominantly for our very well-heeled investors.”

He also stressed the advantages to investors having extra protections with public companies that are required to provide audited financial statements and detailed disclosures about risks.

Going public can help businesses access a jolt of money to fund business growth and reward founders and early shareholders.

Cardlytics made the leap as it expands, having already won work with big advertisers, restaurants, retailers and financial institutions, co-founder Lynne Laube said in an emailed statement. “Being a public company gives us the resources we need to serve our new partners and advertisers incredibly well.”

GreenSky, meanwhile, already had access to big money without having to go public. It raised $550 million from institutional investors over 11 years as a private company.

Leaders, though, concluded they could more easily attract and retain top workers if they could reward them with public company stock, Vice Chairman Gerry Benjamin told me.

GreenSky’s offering raised about $1 billion.

“We could have raised as much money quicker privately than through the public process,” Benjamin said.

That kind of access to private dollars is one reason some companies haven’t felt as much pressure to go public. At the same time, public companies are gobbling up each other, reducing the pool. (AT&T recently won some clearance to swallow Time Warner, the parent of Turner Broadcasting, which could affect thousands of Atlantans.)

And it’s likely that some smaller companies aren’t going public because they can’t stomach the hassles and regulatory costs, some of which stem from the Sarbanes-Oxley Act. Congress put the law in place to better protect investors after a series of corporate scandals. But the pullback in public companies began even before the act was created.

Clayton seems particularly concerned about a decline in smaller public companies. If businesses wait to go public later in their life cycle — after they’ve already experienced some of their most dramatic growth — investors will have missed out on some of the biggest upside. (And, I imagine, some of the greatest risk.)

The chairman told me that addressing a single cause won’t lead to a big increase in public companies. Still, he’s itching for regulatory changes.

He talked about moving away from “one-size-fits-all” regulations. He suggested, for example, that a biotech company with a single product might not need to report the same way as giant, multifaceted companies like Google or Facebook.

In the meantime, he sees other trends affecting American investors.

One is a sharp growth in their international investments, now something like $9 trillion. Some of that money is going to parts of the world that don’t have the same regulatory rigor as the U.S., he said.

Other shifts are on the way for fixed-income markets, he said, as governments raise rates and cut back or halt buying government securities.

And then there are cryptocurrencies — digital currencies such as bitcoin — that have captured the attention of people, including several I spoke with at a recent SEC gathering in Atlanta.

Initial coin offerings (ICOs) involving cryptocurrencies are often portrayed as ways to raise money for a project and offer potential investment returns based on the efforts of third parties. Some are scams.

“The amount of fraud we see in the ICO spaces turns my stomach,” Clayton told me, “and we are trying to crack down on it.”

Some token and cryptocurrency exchanges worry him.

“The opportunities to manipulate the prices on those exchanges and otherwise commit fraud is – and I can’t emphasize this enough - substantially higher than on traditional exchanges.”



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