532  Corporate Portfolio Strategy Private-equity firms don’t have the time or skills to run their portfolio companies from day to day, but the higher-performing private-equity firms do govern these companies very differently from the way exchange-listed companies are governed. This is a key source of their outperformance. Typi- cally, the private-equity firms introduce a stronger performance culture and make quick management changes when necessary. They encourage managers to abandon any sacred cows, and they give managers leeway to focus on a longer horizon, say five years, rather than the typical one-year horizon for a listed company. Moreover, the boards of private-equity companies spend three times as many days on their roles as do those at public companies. Private- equity firms’ boards spend most of their time on strategy and performance management, rather than compliance and risk avoidance, where boards of public companies typically focus.4 Better Insight and Foresight Companies that act on their insight into how a market and industry will evolve to expand existing businesses or develop new ones can be better owners be- cause they capitalize on innovative ideas. One example is Alibaba, China’s leading online marketplace. Its leaders realized that lack of trust between buy- ers and sellers was a barrier to the growth of online marketplaces in China. So in 2004, five years after Alibaba’s founding, the company launched Alipay, an escrow service to facilitate online transactions. A buyer deposits money with Alipay for the purchase of goods. Once the goods are shipped and are found acceptable, Alipay releases the funds to the seller. Alipay provides services not only to Alibaba’s online businesses but also to thousands of other merchants. In 2011, Alipay was spun off into a stand-alone company. Or consider Amazon Web Services (AWS). As the largest e-commerce com- pany in the world, Amazon had developed unique skills running distributed computing systems. In 2006, Amazon officially launched AWS and, using its unique skills, sold cloud computing services to companies, governments, and individuals. By 2012, its revenues were estimated to be $1.8 billion (Amazon didn’t disclose AWS’s results as a separate unit until 2015). In 2018, AWS gen- erated $25 billion of revenues and $7.3 billion of operating profits. Distinctive Access to Critical Stakeholders Distinctive access to talent, capital, government, suppliers, and customers primarily benefits companies in some Asian and emerging markets. Several factors complicate running companies in emerging markets: relatively small 4 V. Acharya, C. Kehoe, and M. Reyner, “The Voice of Experience: Public versus Private Equity,” McKinsey on Finance (Spring 2009): 16–20. The Best-Owner Life Cycle  533 pools of managerial talent from which to hire, undeveloped capital markets, and governments that are heavily involved in business as customers, suppli- ers, and regulators. In such markets, large-scale diversified conglomerates, such as Tata and Reliance in India and Samsung and Hyundai in South Korea, can be better owners of many businesses because they are more attractive employers, al- lowing them to skim off the best talent. Regarding capital, many emerging countries still need to build up their infrastructures; such projects typically re- quire large amounts of capital that smaller companies can’t raise. Companies also often need government approval to purchase land and to build factories, as well as government assurances that there will be sufficient infrastructure to get products to and from factories and sufficient electricity to keep them operating. Large conglomerates typically have the resources and relationships needed to navigate the maze of government regulations and to ensure rela- tively smooth operations. In more developed markets, access to talent and capital is rarely an issue. In fact, in the United States, smaller, high-growth companies are often more attractive to talent than larger companies. Moreover, capital is read- ily available in these markets, even for small businesses. Finally, with some exceptions, clout with the government rarely provides an advantage, given the arm’s-length government procurement processes more common in these countries. The Best-Owner Life Cycle The definition of best owner isn’t static, and best owners themselves will change over time as a business’s circumstances change. Thus, a business’s best owner could at different times be a larger company, a private-equity firm, a government, a sovereign wealth fund, a family, the business’s customers, its employees, or shareholders whenever a business becomes an independent public company listed on a stock exchange. Furthermore, the parties vying to become best owners are continually evolving in different ways in different parts of the world. In the United States, most large companies are either listed or owned by private-equity funds. They tend to go public earlier than companies elsewhere, so they rarely involve the second generation of a founding family. In Europe, government ownership also plays an important role. In Asia and South America, large companies are often controlled for several generations by members of their founding families, and family relationships also create ownership links between differ- ent businesses. Capital markets in these regions aren’t as well developed, so founders are more concerned about ensuring that their firms stay true to their legacy after the founders have retired.