With a seismic shift towards the concentration of corporate ownership in the hands of institutional investors and the private ownership of companies, corporate boards and management are facing unprecedented shareholder and societal demands. Through the Future of the Corporation Project, which draws on the world-class resources and faculty of Columbia University, the Millstein Center seeks to delineate what that future corporation should look like, proposing a new, forward-looking narrative on the purpose and governance of the corporate form.
The Project includes ongoing discrete, but related and dependent, research projects that each stand as its own line of inquiry and add to the body of knowledge in corporate law, governance and finance. Collectively, they begin to build a needed body of research that defines and reflects the evolution of the corporation and the context in which businesses function, from the social and political to the financial and economic.
The Rise of Private Markets and the Decline of Public Equity
Capital formation in the United States is currently undergoing a significant transition with largely unexplored consequences for the ownership and control of American business, as well as for the future of the public equity markets.
Although public equity markets remain vast and important, capital for business formation and growth is increasingly being raised privately from a relatively new set of institutional investors (most importantly, venture capital and private equity funds). As a result, ownership and control over American business has shifted from participants in public markets to participants in the private markets.
This Future of the Corporation sub-initiative seeks to systematically study this transition towards the private capital markets, the institutional and governance arrangements which govern the businesses funded there, and their implications for law and regulation. This initiative will unfold through a multiyear process, starting with a series of initial “round-table” discussions, with the aim of developing a comprehensive agenda for follow-on research.
February 2019 White Paper
Inaugural Roundtable and White Paper
At the inaugural roundtable on October 26, 2018, the Millstein Center convened 30 participants from academia, regulatory agencies, and private equity and venture capital firms to formulate the initial research agenda. (See the day’s agenda here.)
The Millstein Center’s February 2019 white paper, Private Ownership at a Public Crossroads: Studying the Rapidly Evolving World of Corporate Ownership, outlines the path forward following the initial round-table and identifies topics for further research.
Private Ownership at a Public Crossroads Roundtable at TPG - October 11, 2019 | San Francisco, CA
To continue this conversation, the Millstein Center convened a roundtable at TPG Capital's offices in San Francisco to explore the following questions among a small group of academics, practitioners and regulators:
- Factors driving the public/private decision: Is it necessarily “good” or “bad” to have more public companies? Are there barriers preventing or discouraging issuers from accessing the public markets, and if so, what are they? What factors are driving whether a company stays private or goes public? Will increased regulation of the private markets change the calculus? Will (and should) innovations like the Long-Term Stock Exchange gain traction and urge more companies to go public? What about the use of dual-class shares and multi-tiered capital structures?
- Private vs. public company governance structures: How do ownership and governance structures differ between public companies and private companies? Could the private governance model lend itself to improved governance for public companies, and are there aspects of the public governance model that will inform choices for private company governance? Is there a role for regulation in making these choices?
- Changes in the structure of private equity and venture capital financing:What is different about “seed” vs. “venture funding,” and how much does such funding specialization improve efficiency and benefit investors and funding recipients? How have changes within private equity allowing for increased liquidity affected companies’ decision to stay private or go public?
Public Aspects of Private Equity - November 19, 2019 | New York, NY
We were joined by Chris Cozzone (Principal, Bain Capital Double Impact), Donna Hitscherich (Senior Lecturer in the Discipline of Business and Director, Private Equity Program), and Emily Mendell (Managing Director, Membership, Events & Communications at the Institutional Limited Partners Association) in a discussion moderated by Aamir A. Rehman (Senior Fellow, Richman Center).
Private equity (PE) plays an important role in investment markets and the broader economy. Private equity funds—managed by general partners, or GPs—take stakes in companies, exercise control, and actively seek to improve the performance of their portfolio companies. They do so in pursuit of financial returns for their investors (limited partners, or LPs) higher than the returns available in public markets. PE has become a key engine of investment markets, seeking absolute return while driving performance and efficiency in portfolio companies. PE is by definition private, and its activities are generally opaque.
This event explored the public aspects of private equity, including questions such as:
- What public impact does private equity have?
- What ESG (environmental, social, and governance) considerations, if any, should GPs consider in their activities? Does the involvement of public institutions as LPs affect the social responsibilities of a fund?
- Are there trade-offs between financial return and ESG considerations?
- What actions do LPs take to align the activities of the funds in which they invest with their own ESG commitments and values? How do these actions compare across asset classes?
- How are pioneer asset managers navigating these complex issues? What best practices can they offer?
- What role, if any, should public institutions—for example, pension funds and endowments—play in seeking public good as LPs in private equity funds?
The event was co-sponsored alonside the Richard Paul Richman Center for Business, Law, and Public Policy, in partnership with the Private Equity Program.
The Incentives Behind Public And Private Offerings In The U.S. And Brazil - November 20, 2019 | New York, NY
The Millstein Center and CLS Brazil hosted a panel discussion on “The Incentives Behind Public and Private Offerings in the U.S. and Brazil” on Wednesday, November 20th from 6:30-8pm at Columbia Law School's Jerome Greene Hall (435 West 116th Street), Room 107.
The panel featured:
- Professor Eric Talley: Isidor and Seville Sulzbacher Professor of Law; Co-Director, Millstein Center
- Jim Millstein: Co-Chairman, Guggenheim Securities; Advisory Board, Millstein Center; Chief Restructuring Officer, U.S. Department of the Treasury (2009-2011); Founder and CEO, Millstein & Co.
- Dov Rawet: former head of the Office of Securities Registration, Brazilian Securities and Exchange Commission (CVM); Compliance Department, Leste Group
- Alan Bannister: Partner at Gibson, Dunn & Crutcher, New York office (Capital Markets, Global Finance and Securities Regulation and Corporate Governance Practice Group)
The panelists provided valuable insights on the challenges that drive corporations’ decision of whether to go public. The agenda included hot topics such as information disclosure, costs, liability, underpricing, and regulatory compliance. The debate took a comparative approach, highlighting differences between U.S. and Brazilian legal, regulatory, and business frameworks.
Additional Rise of the Private Markets Research
Additional topics identified in the white paper, which we will continue explore as part of the Project, include:
- Tracing ownership chains in the private markets: What do the chains of ownership look like in the private company sector?
- Data access and collection:
- Produce a meta-summary of data sources that are currently available for the private markets that will be updated over time.
- Design a collaborative data network that will include input from public pension funds, private equity funds, family offices, endowments, and others.
- Regulatory and policy issues, including access and disclosure: What are the potential benefits of opening up private capital markets to retail investors? Would they outweigh the costs? Are they needed for the effective functioning of capital markets?