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MISSISSIPPI 100 — Some private companies prefer tansparency, others — not so much

By BECKY GILLETTE

Why are private companies so private? While many public companies and lots of small businesses court publicity with everything from regular Facebook posts to press releases and major media events, other companies are more reticent when it attracting attention.

Cecile Edwards, a professor of law at the Mississippi College School of Law, said private companies have the same rights to privacy that people have.

“Private companies are considered persons under the law,” Edwards said. “Because of that, just like you and I don’t have to share our personal data, they don’t have to either. A lot of business people are private. Most of the private companies here are run by families or original founders who tend to not want attention about their personal matters. It is not because they are hiding anything. It is because of that natural tendency we have to keep our business private and away from the eyes of the public.”

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Public companies, of course, because they access public funds are required by the Securities and Exchange Commission to disclose a tremendous amount of their information. But even then, there is some information they are not required to disclose publicly such as the names of their shareholders.

While being private means a company doesn’t have access to public funding, there are plenty of good reasons to stay private if you have access to capital elsewhere.

“The large, large private companies may be successful enough that they don’t have to access public funds,” Edwards said. “They can finance their business operations from banks if they have enough business and assets to qualify for a loan, or from the wealth of the business. If you have a large enough income stream and contracts to support the business, then finding financing outside the public market is possible.”

A big factor for many private companies is that the cost of going public is prohibitive for smaller entities.

“The cost of going public is huge, and it is not just a one-time charge,” Edwards said. “In recent years, there have also not been as many Initial Public Offerings simply because the market is not back to the height it was earlier. After the Great Recession, the ability of companies to entice investors in a new IPOs is not as easy. The market is sort of volatile. We are not in a nice bull market. It has risen and fallen back a little recently. It isn’t the best time to seek public financing.”

The SEC estimates that the average cost of achieving initial regulatory compliance for an initial public offering is $2.5 million, with compliance costs about $1.5 million per year after that.

Securities and Exchange Commission regulations impose high costs on companies seeking to access the public securities markets, said David Burton, an economic consultant with the Heritage Foundation, a large conservative think tank.

“These costs are prohibitively high for small and medium-sized companies and impede their ability to access the capital needed to grow, innovate, and create jobs,” Burton said.

“Reasonable mandatory disclosure by public companies promotes capital formation and the efficient allocation of capital. However, both Regulation S-K and Regulation S-X, which govern public company disclosure, should be revised to reduce compliance costs by better scaling disclosure requirements and eliminating requirements that do little or nothing to protect investors.”

Another issue regarding how a private company deals with media is the type of ownership. It is different when a company is owned by a private individual or family, and a company owned by its shareholders.

“We are owned by the members,” said Sara Peterson, corporate communications manager, Southern Mississippi Electric Power Association (SMEPA). “We like to be public with all of our information because we feel it is the right of members to know about everything going on in our organization. For example, we want to keep them informed about environmental regulations so they know why we do the things that we do, and how these regulations might impact their power bill in the future. We like members to be well educated about what is going on so they can make informed decisions.”

But even a member-owned private business like SMEPA doesn’t disclose everything. Peterson said there are some business operations like contracts that are guarded by confidentiality clauses.

About Becky Gillette