Greenberg: Is Wall St. Its Own Worst Enemy?

When the New York Stock Exchange agreed to sell itself to Germany’s Deutsche Boerse, I was waiting for somebody to blame the move on Sarbanes Oxley – the tough regulation from 2002 designed to combat accounting fraud.

Ex-Wall Street Journal Publisher Gordon Crovitz came close today in a Journal op-ed that companies like Facebook and Twitter “prefer to remain private to avoid the regulatory burdens of going public, depriving all but the wealthiest Americans of the chance to invest in them.”

I think something else is at work: Unless they genuinely need the cash, a growing number of companies appear to have decided they don’t need or want to play Wall Street’s games.

Some of the best companies in this country, such as agricultural giant Cargill or genius retail concepts like Crate & Barrel and the Container Store, choose to remain private.

I remember years ago asking Crate & Barrel founder Gordon Segal why he never went public. He told me he preferred to open stores when and where he wanted—not for the sake of creating growth to meet or beat Wall Street expectations.

Once public, unless they have the spine of Berkshire Hathaway’s Warren Buffett, most execs run their businesses for the sake of quarterly earnings per share, giving lip service to long-term results. The reason is obvious: They’re managing for the stock price rather than the business.

Much of this, I would argue, dates back to the 1990s, when Wall Street became fixated on Silicon Valley. As a journalist in San Francisco at the time—home of the new breed of fast-money boutique investment banks—I had a front-seat seat to witness the Golden Era of tech IPOs. Anything that wasn’t nailed down went public.

It was quantity over quality, with the one post-deal quarterly goal: Meeting or beating The Street.

It was that reckless mentality, spreading upstream to the likes of Enron and Worldcom, which gave rise to the regulations that are now being blamed for the NYSE’s fall.

Oh and by the way: I would argue it was more than tougher regulations, it was the booming world economy that steered companies to stock exchanges other than the U.S. markets.

Back at home, the truth may simply be: Wall Street got out of hand. In theory stocks should reflect the underlying business. In practice it has become the other way around.

The smart money has finally figured that out.

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