We’re now down to just 78 public companies headquartered in Minnesota, a drop of eight in the last year alone — and down 100 over the past 25 years. Back in 1992 when the Star Tribune started ranking the top 100 Minnesota public companies, a company had to win a competition to be included. Now, every public company in Minnesota, no matter how tiny, is guaranteed to pick up a participation ribbon every year.
Medical-device companies, which once were our state’s strength, are leading the decline. When Vascular Solutions, the company I founded, completed its initial public offering in 2000, we became one of 36 public medical-device companies headquartered in Minnesota. In February, after I sold Vascular Solutions to Pennsylvania-based Teleflex, only nine remained, and just three of those are profitable.
This isn’t just a Minnesota phenomenon. Nationally, the number of public companies peaked at 7,500 in July 1998. In the last 20 years, that number has dropped by more than half. With the number of IPOs down 65 percent over the last two years to the lowest number since 2009, and with only one IPO completed in Minnesota since 2015, this decline is certain to continue.
What’s the cause? The simple answer isn’t the correct one. It isn’t that the financial markets have dried up. With market valuations at an all-time high and small companies outperforming the broader market, demand for public company stocks vastly outstrips supply.
Instead, it’s the costs of being a public company that have continued to increase, making it more attractive to sell to a larger company or stay private. From Sarbanes-Oxley expenses to increasing legal fees and compliance requirements, the minimum annual costs of being a public company now easily exceed $1 million. For a small company, that can be the difference between a profit and a loss.
In addition, the intangible costs of being a public company are increasingly unattractive. Every quarterly financial result, every compensation decision and every bump in the road is magnified by being public.
A hiccup becomes fodder for a rapacious group of attorneys that specialize in shaking down publicly traded companies under the high-minded guise of “shareholders’ interests.”
Recently, even the federal government has gotten into the act, as I experienced in my own five-year misguided criminal prosecution by the Justice Department. That’s the reason I decided to sell Vascular Solutions and exit the public company stage — I didn’t want to be faced with managing a second false criminal indictment as a public company CEO.
Why should we care? What difference does it make if we have fewer public companies headquartered in Minnesota?
Nothing against private ownership, and there are exceptions like Cargill, but Minnesota’s growth has been fueled by locally based public companies and their headquarters’ jobs and corporate taxes. These public companies have received investments from our local mutual funds and retirement accounts which, in turn, has resulted in many Minnesotans, including employees of our public companies, receiving the financial returns that only a public company can generate. The health of our local service provider community of lawyers and accountants also is directly tied to the number of our local public companies.
Can anything be done to stop our decline in local public companies?
Unfortunately, I don’t see any magic solutions. There are, however, a number of incremental steps we can take, and none of these require the government to spend more of our money.
First, we can stop treating every public company as if it were IBM. Too many governance regulations apply to every public company without regard to size. Allowing small public companies to utilize more abbreviated rules in compliance and governance would lower their costs and lessen the difficulty of being public.
Similarly, our current one-size-fits-all approach to investment bankers could be tailored more to size. Many of the small stockbrokers that raised money for our local public companies in the past have disappeared, and the few who remain are governed by the same SEC regulations that apply to JPMorgan. Allowing small investment bankers to face less onerous compliance rules would allow more small local public companies to be created and grow.
Next, we should work to decriminalize our regulatory state. Far too many commercial regulations impose criminal liability on managers for nothing more than an employee mistake. While these regulations apply similarly to private and public companies, their explosion in recent years has made life in the public arena uncomfortable, driving companies to the relative anonymity of private ownership and large conglomerates.
Finally, we can stop the love/hate relationship with public companies. Public companies should neither be financially supported nor financially punished by our government for what they do — hire employees and make money.
When Vascular Solutions undertook an expansion of our Maple Grove facilities in 2014, we were encouraged to apply for a job-creation grant with Minnesota DEED. Seeing free money for our shareholders, we decided to apply.
But when we were falsely indicted during that application process, the DEED commissioner canceled our hearing and made a public comment that turned an insignificant financial application into a negative AP NewsBreak for our public company. Having learned our lesson, we never again applied for any government financial support, and we succeeded as a business nonetheless.
While these suggestions will not result in a baby boom of public companies, they would be a good start to reversing our declining trend. We better get started soon, because we don’t have 100 public companies left to lose in the next 25 years.
Howard Root is the recently retired CEO of Vascular Solutions, Inc. and author of “Cardiac Arrest: Five Heart-Stopping Years as a CEO on the Feds’ Hit-List.”