Three years after the enactment of the Sarbanes-Oxley Act, questions are mounting about unintended consequences for hundreds of U.S. firms
By Doug Campbell
Mars Inc. may be the third-largest privately held company in the United States, according to Forbes, but it hasn't told the public much about itself. The family that has owned the McLean, Va.-based company since 1911 is notorious for being tight-lipped. Given the fact that Mars doesn't have to adhere to disclosure and regulatory requirements like Sarbanes-Oxley, the firm may have few reasons to change.
Everyone knows Mars' products: candy bars like Snickers and Twix, Pedigree pet food, and Uncle Ben's rice. But a phone call to the company's headquarters to ask why it has remained private and how big it is yielded little information beyond the following boilerplate response from a spokeswoman:
"Mars Inc. is a privately held company that produces some of the world's leading confectionery, food, pet care, beverage, electronics products, and now health food, and operates in more than 65 countries. Headquartered in McLean, Va., Mars Inc. employs more than 7,000 associates in the United States and 39,000 associates worldwide with 15 manufacturing facilities nationally and more than 100 manufacturing facilities globally. The company's global sales exceed $18 billion annually."
This information will not exactly shock competitors like Hershey Co. and Cadbury Schweppes, both of which are traded on the New York Stock Exchange. That may be part of the appeal for Mars to stay out of public equity markets — private firms can keep some basic information off-limits to competitors. By comparison, public firms must air mounds of data about their operational results and properties in regular filings with the Securities and Exchange Commission.
To be sure, competitors probably have educated guesses about the scope of Mars' operations and financial performance. But they can't simply call up Mars' 10-K filing with the SEC to learn, for example, how much the CEO earned in base salary last year or how much the company spent on advertising. For Hershey, those numbers are readily available: $1 million and $138 million, respectively.
While private firms can be more, well, private about themselves, they give up certain advantages to their public counterparts. Their cost of capital is generally higher, and they lack publicly tradable shares to use in buying other companies or to hand out to employees.