By Younas Chaudhary
As a child, I saw firsthand how partnerships can fail. In the 1960s, in our remote village in Pakistan, my father decided to buy a tractor to cultivate his land, and he asked his four brothers if they would join as investors. He wanted to increase the efficiency of his agricultural production and teach the villagers how to migrate from ancient farming techniques, enjoy a higher yield, and secure a greater return on investment. But my uncles opposed the idea and started bickering with him. Eventually, a big fight ensued, and my father was forced to move out of the village to a nearby city.
Watching my close relatives fight over a good cause, which would have transformed their lives for the better, taught me to be fiercely independent. Never again would I place my business destiny in the hands of others—even others whose interests were supposedly aligned with my own.
Later, in the late 1970s and early 1980s, I maintained this independent streak when my brother and I started our oil and gas business in Kansas. My brother wanted to take our business ventures public by drawing in outside investors, but I wanted to keep the company private. We parted ways amicably after a year because of our opposing business philosophies.
As my private, family business grew in the 1990s and 2000s, several investment firms approached me and expressed interest in turning my oil and gas company into a public company. They saw that I had a good track record, with low-decline mature assets and production in multiple areas, and offered generous stock options, high compensation, and a seat on the board. An IPO would have given me the opportunity to substantially grow my company and even buy out a few of my competitors. But despite these alluring possibilities, I firmly stood by my decision to keep the company private and run it as a family business.
And there were good reasons for this. Some of my company’s greatest strengths included exercising effective cost control, eliminating wasteful spending, and maintaining a focused leadership team.
If I had taken the company public, I would have spent substantial funds and other resources on regulatory requirements such as audits, shareholder meetings, reporting, and board management. I firmly believed that these bureaucratic chores would hinder my independence and quick decision-making ability, which I cherish as being of utmost importance.
I simply did not want to attend ceremonial events and live beholden to stakeholders, directors, and managing board members. And, I was concerned about the colossal waste of money—shareholder money—that would be required to host lavish board meetings and quarterly celebrations. I was convinced that I could better invest that time and money by focusing on building my private business according to my vision, without worrying about what the board would have me do.
In short, running a public company in partnership with outside investors was not my cup of tea. Moreover, I had got burnt earlier in the 1980s on a partnership deal with investors in Wichita, Kansas, where I was managing properties for them and owned a small slice of the shares. When oil prices fell, the investors ganged up against me and threatened to file a lawsuit, which forced me to buy them out—which fortunately turned into a good deal when oil prices recovered. That incident taught me that oil prices are volatile and unpredictable, and investors will be happy when oil prices are up but will blame the operator (rather than the global oil market) when prices are down.
Meanwhile, I grew more comfortable running a private business dealing with financial institutions, rather than investment firms seeking an IPO. I found that working with banks was a straightforward process, as they had a vested interest in my company’s success. Besides, I did not have to waste time with needless meetings and conference calls but could instead focus my energies and investments on hands-on, ground-level problem solving on the company’s properties.
Somehow, I did not fit the mold of a suit-and-tie type sitting in an air-conditioned office giving out orders without seeing what was happening on the ground. By staying private, I could get a better sense of what was happening in the field every day. I could spend more time on the ground with oilfield workers, engineers, geologists, landman, and our crews—which is where the product comes from.
The greatest joy of staying private is the ability to make quick decisions without waiting for approval from board members and without reading copious meeting notes.
Today, if I want to drill a new oil well, I just need to get details about the costs vs. the anticipated payout and cashflow. And if the investment looks good and I have available cash, I can tell my team to start the work and within a few days we can start spudding a well. If mine were a public company, I would have to seek permission from the board, work through a maze of papers and bottlenecks, meetings and memos, and deal with vigilante shareholders who may oppose certain ideas. This would potentially waste weeks or even months, when now I can get things done in days.
So, here are some benefits of staying private based on my personal experience:
1. You can control your destiny without seeking approval from anyone.
2. You can manage costs stringently based on your views and your relationship with money.
3. You can set a broader vision for your company without wasting time deliberating on mission statements, corporate values, highly paid advisors, and slick websites.
4. You can execute a long-term strategy for your business without worrying about quick, short-term quarterly results purely for the shareholders’ benefit.
5. You can take proactive decisions quickly without votes and the consent of highly paid board members.
6. You can spend more time on the field, making prudent decisions with your staff, rather than fretting over disclosure requirements, activist investors, and hostile takeovers.
7. As a private, family business, you can build an orderly succession plan involving your family members without seeking anyone’s permission. This is also a more logical and prudent way to leave your legacy.
You can read more by purchasing my best-selling memoir “From Dirt Roads to Black Gold.” Note that 100 percent of the proceeds from the sale of this book will help people in need through my foundation, the YBC Foundation.
The views, thoughts, and opinions expressed in this article are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. Further, I make no warranty regarding the accuracy or effectiveness of my recommendations, and readers are advised to consult other advisors as well as their own judgments in making business decisions.