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Corporate leaders have a fiduciary responsibility to act like greedy assholes. We have to understand that. It's required by the SEC and the law. Corporations

by fnid2 16y ago

Corporate leaders have a fiduciary responsibility to act like greedy assholes. We have to understand that. It's required by the SEC and the law. Corporations must grow. They must increase their share price. They must continue to do more and more and more to get more money or they die. If you aren't growing you are dead. That's the problem with our system. But this system violates the laws of nature. Organisms in nature don't continue to grow forever. Those that don't stop growing eventually collapse under their own weight. That's exactly what is happening to our corporations -- and our society. We have to create a new system, whereby corporations -- organizations -- are rewarded for their stability, for their consistency. For their remaining the same for a long time. Small businesses can do this. At some point, the small business owner can say, "I have enough." But corporate leaders cannot say, "Our corporation is big enough." If they say that, they are fired. If you go public, you have to grow forever until your corporation collapses -- or is broken up by regulators. There is only one destination for public companies -- destruction, either through collapse or regulatory fragmentation.

CamperBob 16y ago
Corporations must grow. They must increase their share price. They must continue to do more and more and more to get more money or they die. If you aren't growing you are dead. True, although do they have to do that by trying to decrease service at every opportunity, and by trying to enter markets outside their core competencies? There's nothing wrong with being a big dumb pipe. For a cable carrier or telco, trying to do anything else will either divide the company against itself, or pit the company against its own customers. It could be argued that by trying to grow into inappropriate areas, the carriers are contravening their fiduciary duty.
- fnid2 16y ago
  Telecom is a red ocean. Too many providers and too few customers. To grow, they have to extract more out of their customers, provide less costly services (increasing margins) or venture into areas outside that red ocean. But blue oceans are uncharted territory. They are scary and risky and require a level of creativity that exists in few telecom companies. Most telecoms are so big that to grow at a rate above 1% would require massive opportunity. It's much easier to charge 1% more to all their customers or include a hidden fee or provide 1% less bandwidth. They've done that to an equilibrium now and breaking the deadlock with their competitors is destructive to their own organization. They can't cut costs because they don't have the margins. They can't raise rates because customers will go to a cheaper alternative. They can't reduce services because the FCC comes down on them. Remember what happened to comcast when they tried to treat bit torrent differently? It seemed reasonable to me. If the FCC wants to turn the internet into a transportation system, then they will need the equivalent of a weigh station, because the heavy trucks cause more damage to the roads.
  - anigbrowl 16y ago
    Ah, but the trucks are the same size and weight. There are just different numbers of trucks delivering different things. UPS, Fedex, and DHL all offer commercial delivery services. DHL is much smaller than the others (and so they have fewer trucks), but all pay the same prices per truck at weigh stations and for vehicle licensing. If they were data companies, UPS and Fedex would have more and larger servers (sorting and storage facilities) than DHL, but their packets (trucks) are treated the same way on the open road.
kevinh 16y ago
This point of view always bothers me because it's not really true. Yes, one of the primary duties board members have is to increase the wealth of the shareholders, but it does not equate to purely performing greedy moves. Look at the case of Dodge v. Ford Motor Company. Here's an excerpt from the decision made (emphasis mine): "A business corporation is organized and carried on primarily for the profit of the share-holders. The powers of the directors are to be employed for that end. We are not, however, persuaded that we should interfere with the proposed expansion of the Ford Motor Company. In view of the fact that the selling price of products may be increased at any time, the ultimate results of the larger business cannot be certainly estimated. The judges are not business experts." Yes, they are primarily in it to make money for their shareholders. However, it's nearly impossible to tell the effects of many decisions on the company's bottom line, and moves that increase the company's image in the eyes of the general populace can certainly be argued to have effects that increase the financial well-being of the company. There's something called the business judgment rule that's applied in cases such as this. The board members must act in good faith, act in the best interests of the corporation, act on an informed basis, not be wasteful, and not involve self-interest. This gives a great deal of wiggle room because, as the judge said in Dodge v. Ford Motor Co., "judges are not business experts." A move like eschewing moves away from net neutrality is arguably (which is all it needs to be) a move done in good faith to increase the bottom line of the company, especially since it builds goodwill with consumers.
- fnid2 16y ago
  A move like eschewing moves away from net neutrality is arguably (which is all it needs to be) a move done in good faith to increase the bottom line of the company It could be argued that it violates the property rights of the corporation. Almost every restaurant has a sign that says, "We reserve the right to refuse service to anyone." The telecoms built those wires. They installed the switches. It seems wrong to me to tell them how they must allow traffic to flow over them. Existing transportation companies aren't hounded by the Department of transportation because they charge more for a 12 cubic foot container than they charge for a 1 cubic foot container. If a railroad wants to charge one company more than another company they can do that. If they want to limit the amount of goods they transport, they can do that. They can refuse to transport certain kinds of goods as well. Grains, liquids, explosives... Or charge a different rate... How is the internet, where the packages are full of 1's and zeros different?
tbrownaw 16y ago
It seems to me that acting like greedy assholes to the point that the regulators step in, would actually be failing at maximizing shareholder value. I believe also that paying dividends would be an alternative to having a pyramidal share price.
- fnid2 16y ago
  You could say they are greedy assholes, or you could say they are trying to maximize the revenue potential of their investment. Software companies do it all the time. Oracle charges Salesforce more for its database than it charges a university and it gives it way for free to some organizations. Essentially, net neutrality is saying that the telecoms don't have the right to choose how to charge for their product. If the FCC is saying the internet is a right everyone should enjoy at the same rate, why don't they create a public wireless grid? People argue against that saying the government will control our traffic, but essentially that's what they are arguing for here as well. They want the FCC to control the internet, but keep it private in such a way that limits the corporation's ability to profit. I'd be angry if the FCC came in and told me what I could charge for my SaaS or my consulting hours. Why is it different for the telecoms?
  - Kadin 16y ago
    > Why is it different for the telecoms? Because the telecoms have gotten tons of help from the public, via the government, over the years. At the Federal level, the cable and satellite companies got the original anti-circumvention laws that led to the DMCA. They also get to be exempt from a lot of state level regulation that they might not like, in exchange for the far friendlier FCC. And at the local level, telcos get to use public rights of way and often have monopoly grants. They're in no way comparable to a small entrepreneur. They're like a company that's been given (or bought) permission to operate a toll road. In exchange for being allowed to make money, they need to charge everyone the same tolls and the amount of the tolls that they charge is going to be subject to regulation. As for why the government doesn't just build and operate the infrastructure itself ... if the telcos keep it up, that may just be what happens. Critical infrastructure has been a frequent target, historically, for nationalization when the owners of that infrastructure are perceived to be rent-seeking to excess. The public tolerance for toll roads evaporated in the 1880s [1] and they were almost entirely stamped out by the Progressives; the telecommunication operators of today would do well to keep that in mind. [1] http://eh.net/encyclopedia/article/Klein.Majewski.Turnpikes http://eh.net/encyclopedia/article/Klein.Majewski.Turnpikes
anigbrowl 16y ago
Corporate leaders have a fiduciary responsibility to act like greedy assholes. We have to understand that. It's required by the SEC and the law. Well, specifically it's directors who have that duty, and (naturally) they select managers whose views further their own. Of course, in recent years there have been examples of tension between managers and shareholders in the US (unrelated to the financial crisis), where shareholders' powers to change policy 'from the floor' are relatively limited. Some argue, too, that directors' fiduciary responsibilities need to be rethought in terms of long-term sustainability and stability rather than in purely expansionary terms. There's an interesting discussion of these issues here: http://blogs.law.harvard.edu/corpgov/2009/11/17/shareholders-part-of-the-solution-or-part-of-the-problem/ http://blogs.law.harvard.edu/corpgov/2009/11/17/shareholders... And on a slightly tangential note, a cautionary tale about a company that went bust within weeks of its IPO, and how the arguments of the firm's attorney and directors found short shrift in court: http://ssrn.com/abstract=1567657 http://ssrn.com/abstract=1567657

by fnid2 16y ago

CamperBob 16y ago

Corporations must grow. They must increase their share price. They must continue to do more and more and more to get more money or they die. If you aren't growing you are dead. True, although do they have to do that by trying to decrease service at every opportunity, and by trying to enter markets outside their core competencies? There's nothing wrong with being a big dumb pipe. For a cable carrier or telco, trying to do anything else will either divide the company against itself, or pit the company against its own customers. It could be argued that by trying to grow into inappropriate areas, the carriers are contravening their fiduciary duty.

fnid2 16y ago
Telecom is a red ocean. Too many providers and too few customers. To grow, they have to extract more out of their customers, provide less costly services (increasing margins) or venture into areas outside that red ocean. But blue oceans are uncharted territory. They are scary and risky and require a level of creativity that exists in few telecom companies. Most telecoms are so big that to grow at a rate above 1% would require massive opportunity. It's much easier to charge 1% more to all their customers or include a hidden fee or provide 1% less bandwidth. They've done that to an equilibrium now and breaking the deadlock with their competitors is destructive to their own organization. They can't cut costs because they don't have the margins. They can't raise rates because customers will go to a cheaper alternative. They can't reduce services because the FCC comes down on them. Remember what happened to comcast when they tried to treat bit torrent differently? It seemed reasonable to me. If the FCC wants to turn the internet into a transportation system, then they will need the equivalent of a weigh station, because the heavy trucks cause more damage to the roads.
- anigbrowl 16y ago
  Ah, but the trucks are the same size and weight. There are just different numbers of trucks delivering different things. UPS, Fedex, and DHL all offer commercial delivery services. DHL is much smaller than the others (and so they have fewer trucks), but all pay the same prices per truck at weigh stations and for vehicle licensing. If they were data companies, UPS and Fedex would have more and larger servers (sorting and storage facilities) than DHL, but their packets (trucks) are treated the same way on the open road.

kevinh 16y ago

This point of view always bothers me because it's not really true. Yes, one of the primary duties board members have is to increase the wealth of the shareholders, but it does not equate to purely performing greedy moves. Look at the case of Dodge v. Ford Motor Company. Here's an excerpt from the decision made (emphasis mine): "A business corporation is organized and carried on primarily for the profit of the share-holders. The powers of the directors are to be employed for that end. We are not, however, persuaded that we should interfere with the proposed expansion of the Ford Motor Company. In view of the fact that the selling price of products may be increased at any time, the ultimate results of the larger business cannot be certainly estimated. The judges are not business experts." Yes, they are primarily in it to make money for their shareholders. However, it's nearly impossible to tell the effects of many decisions on the company's bottom line, and moves that increase the company's image in the eyes of the general populace can certainly be argued to have effects that increase the financial well-being of the company. There's something called the business judgment rule that's applied in cases such as this. The board members must act in good faith, act in the best interests of the corporation, act on an informed basis, not be wasteful, and not involve self-interest. This gives a great deal of wiggle room because, as the judge said in Dodge v. Ford Motor Co., "judges are not business experts." A move like eschewing moves away from net neutrality is arguably (which is all it needs to be) a move done in good faith to increase the bottom line of the company, especially since it builds goodwill with consumers.

fnid2 16y ago
A move like eschewing moves away from net neutrality is arguably (which is all it needs to be) a move done in good faith to increase the bottom line of the company It could be argued that it violates the property rights of the corporation. Almost every restaurant has a sign that says, "We reserve the right to refuse service to anyone." The telecoms built those wires. They installed the switches. It seems wrong to me to tell them how they must allow traffic to flow over them. Existing transportation companies aren't hounded by the Department of transportation because they charge more for a 12 cubic foot container than they charge for a 1 cubic foot container. If a railroad wants to charge one company more than another company they can do that. If they want to limit the amount of goods they transport, they can do that. They can refuse to transport certain kinds of goods as well. Grains, liquids, explosives... Or charge a different rate... How is the internet, where the packages are full of 1's and zeros different?

tbrownaw 16y ago

It seems to me that acting like greedy assholes to the point that the regulators step in, would actually be failing at maximizing shareholder value. I believe also that paying dividends would be an alternative to having a pyramidal share price.

fnid2 16y ago
You could say they are greedy assholes, or you could say they are trying to maximize the revenue potential of their investment. Software companies do it all the time. Oracle charges Salesforce more for its database than it charges a university and it gives it way for free to some organizations. Essentially, net neutrality is saying that the telecoms don't have the right to choose how to charge for their product. If the FCC is saying the internet is a right everyone should enjoy at the same rate, why don't they create a public wireless grid? People argue against that saying the government will control our traffic, but essentially that's what they are arguing for here as well. They want the FCC to control the internet, but keep it private in such a way that limits the corporation's ability to profit. I'd be angry if the FCC came in and told me what I could charge for my SaaS or my consulting hours. Why is it different for the telecoms?
- Kadin 16y ago
  > Why is it different for the telecoms? Because the telecoms have gotten tons of help from the public, via the government, over the years. At the Federal level, the cable and satellite companies got the original anti-circumvention laws that led to the DMCA. They also get to be exempt from a lot of state level regulation that they might not like, in exchange for the far friendlier FCC. And at the local level, telcos get to use public rights of way and often have monopoly grants. They're in no way comparable to a small entrepreneur. They're like a company that's been given (or bought) permission to operate a toll road. In exchange for being allowed to make money, they need to charge everyone the same tolls and the amount of the tolls that they charge is going to be subject to regulation. As for why the government doesn't just build and operate the infrastructure itself ... if the telcos keep it up, that may just be what happens. Critical infrastructure has been a frequent target, historically, for nationalization when the owners of that infrastructure are perceived to be rent-seeking to excess. The public tolerance for toll roads evaporated in the 1880s [1] and they were almost entirely stamped out by the Progressives; the telecommunication operators of today would do well to keep that in mind. [1] http://eh.net/encyclopedia/article/Klein.Majewski.Turnpikes http://eh.net/encyclopedia/article/Klein.Majewski.Turnpikes

anigbrowl 16y ago

Corporate leaders have a fiduciary responsibility to act like greedy assholes. We have to understand that. It's required by the SEC and the law. Well, specifically it's directors who have that duty, and (naturally) they select managers whose views further their own. Of course, in recent years there have been examples of tension between managers and shareholders in the US (unrelated to the financial crisis), where shareholders' powers to change policy 'from the floor' are relatively limited. Some argue, too, that directors' fiduciary responsibilities need to be rethought in terms of long-term sustainability and stability rather than in purely expansionary terms. There's an interesting discussion of these issues here: http://blogs.law.harvard.edu/corpgov/2009/11/17/shareholders-part-of-the-solution-or-part-of-the-problem/ http://blogs.law.harvard.edu/corpgov/2009/11/17/shareholders... And on a slightly tangential note, a cautionary tale about a company that went bust within weeks of its IPO, and how the arguments of the firm's attorney and directors found short shrift in court: http://ssrn.com/abstract=1567657 http://ssrn.com/abstract=1567657