Recently, Electronic Arts (EA), a once publicly traded company, agreed to a deal that will make it go private Once this transition happens, EA will no longer have to publish quarterly earnings that allow shareholders to decide whether they want to keep investing in the company and instead will have to answer primarily to its new owners. This shift gives EA new flexibility, as without the constant pressure to outperform last quarter's profits, they are now able to focus on long-term goals and take more creative risks. However, it also means there will be less public accountability from sacrificing parts of the company solely for profit. The buyout deal was bought at a deficit and financed with debt, which could push the new owners to demand faster profits, potentially by cutting smaller teams or canceling innovative projects. This makes me ask, do you think companies thrive more when under the public scrutiny and short-term pressure to keep increasing profits via quarterly reports, or when they have the freedom to make long-term riskier decisions. Does going private always allow for full innovation, or does it shift the pressure from coming from public stakeholders to private owners?
You make an important argument regarding the tradeoffs between public accountability and private freedom. I think that becoming private allows a firm like EA to focus on long-term creative objectives without the continual burden of quarterly profitability reports. This might encourage innovation since executives can make strategic decisions that may not provide immediate financial results but will boost the company's vision and brand over time. However, as you mentioned, this freedom may come at a cost. When buyouts are financed with debt, the new private owners frequently expect higher profitability to service the debt. In those circumstances, the pressure does not go away; it merely changes from public shareholders to private investors, which can still constrain innovation and drive cost-cutting measures. Finally, I believe that the success of a private transition is determined by the new owners' goal and ideals. Going private can foster innovation and long-term strategy if the company's focus is on sustainable growth rather than short-term profit recovery. However, if the focus is solely financial, the absence of public oversight may make the firm more vulnerable to decisions that favor profits above innovation.
Going private can be a good thing for a company like EA that you mentioned because it gives them more freedom to focus on their long-term goals rather than worrying about the quarterly profits they have to post. Without that pressure, they can take more creative risks and start investing in new ideas that could take a long time to pay off but will lead to better and more innovative games. At the same time, the pressure doesn't completely go away. Instead of having to please public shareholders, they have to answer to private investors could still want quick results. That could mean cutting smaller teams or canceling projects that seem too risky. Overall, I think going private gives companies more creative liberties but it's dependent on what the new owners want, if long-term success, it's a smart move, if profit, it can hurt innovation.
I personally think that going private is the best for a company because it gives them a bit more freedom in how they want to run certain their business, which comes from the fact that there are less people that the company needs to answer to instead of having to worry about the large number of shareholders. Even if the partners are silent there is still power, which means it is more difficult to please a large amount of people. The goal of everyone is to get rich and if they see that the stock is taking a hit, most stockholders will back out and remove their funding. While a private company is forced to find their own funding and ensure they are within that range to complete their project. It can be limiting as this company is forced to work as the new owners require because they are now the higher power, but there is still a lot more freedom. It may work for the benefit of a company to transition between public and private as needed to have a better business because one or the other may benefit them more at a certain time. I think with anything something being absolute is never possible, no matter what happens even if a company goes private that does not mean it will always have freedom to run as they please. Also, pressure is ever present because either way the company is under scrutiny to perform in a certain way.
Going private can definitely liberate a company like EA from short-term shareholders' expectations, however, I think it also has great potential to inspire greater innovation. Typically, when companies remain public, innovation is focused on incremental, market-safe improvements to drive steady profits. However, when a company goes private, the opportunity is created for experimental innovation that can redefine markets, albeit with higher risk. This does ultimately depend on the type of private ownership. For example, EA's buyout is led by a private equity firm focused on restructuring and swift returns, such freedom might not be generated. In the meantime, if the new owners are visionaries who value creativity over short-term margins, EA could experience a creative renaissance similar to LEGO when it went private.
Thus, I wonder if innovation depends more on who owns the company or how leadership utilizes the freedom of ownership? And can private ownership truly remove financial pressures, or does it simply redefine what risks are "acceptable"?
I believe that being a private company does generally allow for far more freedom for the company as others have said. However, as you pointed out, when transitioning from public to private, the buyers will finance that buy with debt which may lead to just as bad of a situation of pursuing short term profits over longer term investments. It ultimately depends on the goals and temperament of the owner or owners, on how much the company will be able to pursue long term innovation. I think this post brings up a great point about how even though generally, people think of private companies as more focused on long-term as they don't have to answer to shareholders and constantly improve share value or dividends, this may not be true. A private company that was recently bought, like your example EA going from a public company to private or even from a private ownership to another private ownership purchase, could mean the same thing for the company that was just bought as the owners seek to recoup their investment as fast as possible. Ultimately, a private ownership could be just as short-sighted and profit driven if not worse, due to the lack of oversight as any public company.
I think private would be preferable, as it allows the direction of the company to be defined by the company and its higher ups rather than let the public steer the direction of the company. I believe that having the public weigh in on important matters may cause the company to lose sight of its original goals. Of course its every company's goal to make money, whether thats through providing services or products, but some companies may wish to take a more qualitative approach to what they're offering to the market where the opening up to the public may push for a more quantitative approach for their revenue stream.
