June 2012

Being Private Has its Privileges

In an interesting study run by Chief Executive Magazine back in 2006, 90% of CEOs surveyed said they would prefer to run private companies. (click here to read more)

But why?

It turns out that being private has significant strategic benefits.

A case-in-point is State Farm, a mutual insurance company owned by its policyholders, vs. Allstate, a publicly owned and traded insurance company. Similar companies in many ways - products, number of years in business, and both headquartered near Chicago. But State Farm has shown a willingness to make strategic moves that Allstate seems reluctant or slow to make – such as cutting rates, a slower and more methodical approach to releasing news announcements, and a focus on strategically adding new agencies. (click here to read more)

At least part of the reason for this more measured strategic approach is because what makes State Farm’s customers happy also makes their owners happy – since they’re one and the same. Allstate, however, has had to balance the conflict between what makes customers happy (e.g., reducing prices and increasing service) vs. what makes shareholders happy (e.g., raising prices and reducing service and costs to improve profits).

Sometimes it’s good to be private.