Archives for posts with tag: private equity funds

The Wall Street Journal recently had an article titled, “Do CEOs of Family Owned Businesses Work Less?”

The article referenced a study by several major universities of 356 chief executives around the world. They concluded that family owned business leaders work about 8% fewer hours than those in public firms. The study was solely about hours worked, not how effective a given CEO was in their job.

Having worked half my career for a family-owned firm and half for public ones, I will offer some thoughts on this topic. In my forthcoming book, The Business Zoo, I often compare and contrast smaller, private firms and larger, public firms on a variety of topics. For example, I compare their approach to many people issues including rewards and incentives, as well as their approach to mergers and deals. But this topic of work hours is new to me.

Private or family CEOs:  I have found that Founders of firms often work and live their business full-time. It is their passion and they have trouble distinguishing between their work and personal lives. A friend gave me a retirement gift of an ancient Chinese saying called “Master in the Art of Living”. It basically says that those who are happiest and luckiest make no distinction between work or play, but simply pursue their vision of excellence in all they do. That is how I would characterize the Founders of many businesses and their work hours know little bounds as well. Don Brown, the private owner of Donn Corp. was like this. He could call you at any time with some new idea. All of his direct reports met with him on most Saturday mornings from nine to noon. Then he fed everyone a catered steak lunch! The article did mention that Founders’ hours might be much different than the typical second or third generation in a family firm. In those situations, the money is already been made or is guaranteed versus the uncertainty and drive the founder may had shown. There is an old saying which is often true: Fortunes are made and lost in three generations!

Private equity companies CEOs: When private equity firms like KKR or Apollo buy an operating firm, they usually grant the CEO and their staff the opportunity to make a lot of money through stock ownership. Sometimes there are time periods to vest the ownership or incentives if the firm performs even better than forecast. These CEOs, I have observed, work very long hours. Like Founders of private firms, they have a lot of skin in the game.

Public company CEOs:. I have found this group to work less than their private company equivalents. In my two large, public firms, by Friday afternoon, the senior executive area was very, very quiet. This was especially true in the better weather when golf was a major distraction for many. In the winter, Fridays could be quiet as well as some executives had second homes in Florida or somewhere warm. Sometimes customer calls had to be made on the way to that warmer locale. Both my old firms had, from time to time, corporate aircraft. An article a couple of years ago stated that official corporate aircraft logs often revealed that up to a third of all flights were to or from an area where the CEO or other very senior people had a second home. Hmm.

So for what it is worth, I believe that Founders of family owned private companies and CEOs of private equity firm companies, work more hours than many public firm CEOs! The Wall Street Journal article and the university survey may have had too narrow of a scope.

The more interesting factor affecting hours worked may be the amount of equity ownership the CEO has, whether its a private or public firm. Most large, public firm leaders own very little stock and often paid very little for what they do own. I would exclude Founders like Steven Jobs of Apple who often still own substantial amounts of their firms. I believe the more real investment someone has in a company, especially a financial investment, the harder and longer hours that CEO will work to protect what they have and to grow it even larger. Nothing wrong with capitalism here!

Two separate, but somehow linked recent events reminded me of how our current, improving financial times are merely part of a never ending cycle. The mortgage crisis led to tight or non-existent bank credit to atone for our too free, lending years. Now the stock market, and even housing, seem to signal a return to a better economy just ahead. Which brings me to:

“Debt Makes Comeback in Buyouts” Wall St. Journal 6/13/13

You may have not noticed or paid much attention to this one. A software developer, no one ever heard of,  is being taken private by Bain Capital and another firm. The purchase price is almost $7 billion consisting of $1.25 billion of cash and the remainder in debt. This is less than 20% cash and far less than the 40% cash that lenders required only a year ago. In fact, to find this low level of cash in a deal like this, you would have to go back to 2007-8 before the financial crisis. Now Bain Capital and other large private equity funds often get treated much better than the average corporation or individual, but this is still a major swing in lending standards in a short time. I hope that deal works better than my sister Sally’s favorite example of H-P buying the UK software firm, Autonomy, for some $15 billion and then writing off most of their purchase price as a loss!

“Regulators Review Lending Standards” Wall St. Journal 6/13/13

This separate article stated that Banks have finally loosened their lending standards, as the economy is slowly improving. More than half the banks surveyed said they have eased the loan covenants or loan tests that borrowers must comply with, such as the ratio of interest costs to earnings. Again, in a recovering economy, you expect this to occur. But besides easier loan tests, banks have increased the terms of loan agreements while lending to many companies at all-time-low rates. The combination of these factors, if there is another economic slowdown, not even a recession, could be very problematic. And you thought we solved all the banks’ problems the last time?

I mentioned a cycle at the beginning. An old boss of mine, Tony, used to say that cycles swing back and forth like a pendulum. Bank lending goes in a cycle just like the economy and just like everything else. And even though only large private equity firms or large corporations are currently benefitting from this easier credit trend, you can bet it will soon be credit card issuers and even mortgage lenders before too long. And then somewhere down the road, there will be another financial crisis and everyone will demand that our government solve their problem. Again. Good luck with that!