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The number of publicly traded companies in the United States is decreasing. Jamie Dimon, one of the world's most influential business leaders, is concerned.
At its peak in 1996, there were 7,300 publicly traded companies in the United States. Currently, that number is approximately 4,300.
It's not that there are 40% fewer companies in America than there were 30 years ago, it's that they are increasingly staying private and largely outside of public scrutiny.
“Total value should have increased dramatically, not decreased,” JPMorgan Chase CEO Dimon said in Monday's annual shareholder letter.
PE boom: The onus of shrinking public markets lies with private equity, or funds that raise money from investors to buy or invest in companies.
When a PE fund acquires a public company, the company is taken private. If you buy a company that's not yet public, it stays that way. This means these funds have full control over themselves and can encourage you to grow your profits as quickly as possible for a quick sale in the future.
The number of U.S. privately held companies backed by PE firms has grown from 1,900 to 11,200 over the past 20 years, according to JPMorgan data.
Publicly traded companies are subject to regulatory oversight and disclosure requirements that help ensure transparency and maintain investor confidence. Matthew Kennedy, head of data and content at Renaissance Capital, said the decline in publicly traded companies could reduce overall market transparency and investor confidence.
Additionally, PE-owned companies can obscure ownership, what the company actually does, and its benefits from the public and regulators.
Of course, Mr. Dimon's company makes huge profits from taking companies public, so he's not necessarily an impartial observer. But Dimon said his concerns are broader than JPMorgan's profits, arguing that if trends continue, our understanding of the U.S. economy could become even more cloudy.
“This trend is serious,” Dimon warned Monday. “We need to seriously consider: Is this the outcome we want?”
Dimon said Monday that tougher reporting requirements, rising litigation costs, costly regulation, overbearing board governance, shareholder activism, increased public scrutiny and “unrelenting pressure on quarterly profits” ” could be pushing companies away from public markets.
These quarterly reports are as follows: Earnings season begins in earnest this Friday, when JPMorgan Chase & Co. releases its first quarter results of the year. Dimon doesn't care about the fanfare.
But we rarely know what goes on behind the scenes of these operations.
“There are very positive aspects to the detailed and disciplined quarterly financial and operating reporting,” he said in a note Monday. “However, corporate CEOs and boards of directors should resist undue pressure for quarterly profits, and it is clearly their fault for not doing so.”
Mr. Dimon said companies that “disappoint” with quarterly results face criticism, and that new or junior CEOs in particular can be under pressure after receiving a bad report. This can lead to companies resorting to accounting tricks or ignoring what's best for the company in the long run to boost quarterly numbers, he said.
Companies can be more aggressive, selling more products cheaper at the end of a quarter, or cutting back on certain investments that may be great but may result in accounting losses in the first year or two. “They may take short-term actions to increase profits, such as developing new accounting methods,” he wrote.
“Once these shortcuts begin, everyone in the company understands that it's okay to 'stretch' to hit the numbers. This could put you on the treadmill and ruin you,” he said.
General meeting of shareholders: Mr. Dimon had strong words for activist investors who use shareholder meetings to wage campaigns to influence corporate behavior.
He cited the “spiral of frivolity” at annual shareholder meetings as one of the reasons why being a listed company is less desirable. He said the event “has evolved into a showcase for competing groups, primarily special interest groups.”
Shareholder activism has been a controversial topic in corporate governance for some time, but has been on the rise in recent years. In 2023, 982 companies were targeted by activist campaigns around the world. That's a 4% increase from a year ago and the highest level since 2019, according to the Harvard Law School Corporate Governance Forum.
A growing number of U.S. companies are identifying activism as a risk in corporate disclosure, the forum found. In 2023, more than 23% of Russell 3000 companies (an index often used as a proxy for the overall U.S. market) disclosed shareholder activism as a risk in their annual reports, up from about 21% a year earlier. .
The rise of proxy voting advisors: Institutional investors, who hold shares in many companies, are challenged to evaluate each company themselves, so they rely on proxy advisors (firms that scrutinize company data) to guide their votes on corporate decisions.
But in the U.S., Dimon essentially says, “there are two primary proxy advisors. One is called Institutional Shareholder Services (ISS) and the second is called Glass Lewis.” writing. ISS is owned by the German company Deutsche Börse, and Glass Lewis is owned by his Canadian private equity firm, Peloton Capital.
“I question whether corporate governance in the United States should be determined by for-profit international institutions that may have their own strong feelings about what constitutes good corporate governance,” Dimon said. he wrote. “While asset managers and institutional investors have a fiduciary responsibility to make their own decisions, it is becoming increasingly clear that proxy advisors have undue influence.”
An ISS spokesperson said in a statement to CNN that the company's benchmarking policy recommended opposition to about 13% of all payroll proposals at the top 3,000 U.S. companies, but only two did not receive majority support. %. “Clearly, investors are deciding for themselves how to vote,” he said.
“With regard to our independence, ISS and Deutsche Börse adopted a policy of non-interference in 2021,” he added.
Glass Lewis did not immediately respond to CNN's request for comment.
TL;DR: It is easier and potentially more profitable to remain private than to go public.
According to a recent Wells Fargo analysis, over the past 25 years, private equity investments have consistently outperformed global stocks, bonds, and small-cap stocks by a wide margin.
Now, Daimon is sounding the alarm. He warned on Monday that the problem would get worse if changes were not made soon.
Trump Media & Technology Group stock continues to fall rapidly, my colleague Matt Egan reports.
The Truth Social owner fell another 8% on Monday, in a brutal week that wiped out a third of its share price.
The decline reduced former President Donald Trump's stake in the controversial company to about $2.9 billion. This is a significant decrease from its peak of $5.2 billion, based on its high closing price of $66.22 on March 27, the day after it went public.
President Trump owns an overwhelming 78.8 million shares of Trump Media, which was founded in 2021. The company's plans to merge with a shell company and go public had been held up for years by regulatory and legal scrutiny.
When Trump Media finally went public late last month, experts immediately warned that Wall Street was significantly overvaluing the company based on traditional fundamental metrics like revenue and users.
Last week, Trump Media revealed that it lost $58 million last year on very meager revenue of just $4.1 million. By comparison, Twitter (now known as X) generated more than 100 times more revenue ($665 million) in 2013, ahead of its initial public offering in November of the same year.
As of the first day of trading, Trump Media was valued at $11 billion. This is nearly double the valuation Reddit achieved after its IPO in March. Even though Reddit generated about 200 times more revenue.
Despite recent losses, shares of the blank check company it merged with Trump Media have more than doubled this year.
Please see here for the detail.
The US government is giving the world's largest semiconductor chip maker $6.6 billion to help build three factories in Arizona as part of President Joe Biden's efforts to secure supplies of advanced chips. Colleagues Sam Fossum and Anna Cuban reported that they plan to donate.
The White House on Monday announced a non-binding agreement with Taiwan Semiconductor Manufacturing Company (TSMC) to finance a Phoenix-based manufacturing plant, or “fab,” in addition to about $5 billion in government loans. announced that it had concluded. .
“The United States invented these chips, but over time, our production capacity went from nearly 40% of the world's capacity to nearly 10%, and we didn't have a single chip that was cutting edge,” Biden said in a statement. ” he said. “(It) exposes us to significant economic and national security vulnerabilities.”
In addition to the two previously announced U.S. factories, the Taiwanese chipmaker, which makes an estimated 90% of the world's most advanced chips, on Monday built a third factory, bringing its total investment in Arizona to $65 billion. It was announced that it would be more than that.
TSMC stock closed up more than 1% on Monday.
Please see here for the detail.
