ASU Dean Shares Corporate Governance Remarks at Professors Seminar

By Jonathan Higuera
January 10, 2007

Tempe, Ariz. -- Public companies going private could be a threat to the U.S. economy if it goes too far, said Robert Mittelstaedt, the dean of the W. P. Carey School of Business at Arizona State University.

Speaking to a group of business journalism educators attending a four-day seminar at ASU's Tempus campus on business journalism, Mittelstaedt told the fellows that public companies have boosted the lives of millions of U.S. workers and retirees through jobs, retirement plans and generally rising stock value.

The value of companies that have gone private has almost tripled since 2004, which at some point could hurt the vibrancy of public markets, he noted.

Part of the reason they are going private is because since the federal Sarbanes-Oxley law took effect in 2002, the actions of executive managers have become much more heavily scrutinized. Chief executive officers now face greater pressures from shareholders, its corporate board and federal regulators, he noted.

"There has been a power shift in the boardroom," said Mittelstaedt, who also serves on two corporate boards. "I detest Sarbanes-Oxley but it has changed the way we treat CEOs."

His talk generally focused on corporate governance and the role it plays in a company's operations.

"When you imagine what board members do, there is a belief they come in and make blue-sky decisions," he said. "But there are times when they are down there with the management team making nitty gritty operational decisions."

Sarbanes-Oxley, which came about as the result of corporate scandals, has forced corporate board members to be more vigilant and involved in a company's strategies and operations, he acknowledged, but it has come with a price. Companies now spend much more time on accounting procedures, and for some it has become overly burdensome.

"As a company, you have to get reasonable regulation but not so stringent that it drives off capital," he told fellows.

The business journalism seminar was conceived and organized by the Donald W. Reynolds National Center for Business Journalism to improve the quantity and quality of business journalism courses offered at the nation's college and universities and give educators more resources to teach such courses.

Another reason public companies are going private is because private equity firms are so flush with cash they are able to buy companies, squeeze value out of them and in some cases take them public again.

"What some private equity firms are doing is loading on debt to the company and then unloading debt on the public, he said. "That may be more dangerous than Sarbanes-Oxley."

As for the growing controversy over executive compensation, typified by the $210 million former Home Depot CEO Robert Nardelli received, corporate boards "have to become smarter" about negotiating compensation packages.

"It gets negotiated on the front end and they have to realize there are times when it just doesn't turn out to be what you thought."

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism