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This is a really naive view of public company obligations. Corporations should always be acting in the interest of shareholder return, full stop. That’s not som

by sp527 9y ago

This is a really naive view of public company obligations. Corporations should always be acting in the interest of shareholder return, full stop. That’s not something PE firms invented. That’s the expectation that has fundamentally driven capital markets from the very outset. What might vary are the anticipated time horizon and distribution profile of returns. What has really changed is how money moves in the markets and particularly the degree of short-termism being expressed by investors. That has a lot to do with the tremendous growth in available securities (related to opportunity cost), the increased efficiency of capital markets, dramatically lower transaction costs, and the general velocity of capital in the system. And of course, it’s just inherently easier to project near term than long term outlook and always will be.

uoaei 9y ago
Show me where in the law does it say "companies are obligated to make their shareholders happy." Your flippant use of the word "should" is all you have to go on so far. If you don't like what they're doing, you are free to divest. This is a free market after all!
- peterbraden 9y ago
  Dodge vs Ford Motor co. : "A business corporation is organized and carried on primarily for the profit of the stockholders" The general reading of the fiduciary duty to shareholders is that directors of corporations are bound to promote the value of the corporation for the benefit of the shareholders.
  - cameldrv 9y ago
    Which was a Michigan supreme court ruling. There have been other later cases which interpreted the duties of the directors and officers more narrowly. Even the Dodge vs. Ford case contained: "courts of equity will not interfere in the management of the directors unless it is clearly made to appear that they are guilty of fraud or misappropriation of the corporate funds, or refuse to declare a dividend when the corporation has a surplus of net profits which it can, without detriment to its business, divide among its stockholders, and when a refusal to do so would amount to such an abuse of discretion as would constitute a fraud, or breach of that good faith which they are bound to exercise towards the stockholders." In AP Smith vs. Barlow, in particular, it was ruled that a corporation can make a charitable donation and not breach its fiduciary duty to it shareholders. The primary means shareholders have to change the direction of the company is to elect a different board of directors. In the case of Tesla, that requires a 2/3 majority, and Elon holds 27% of the stock.
- sp527 9y ago
  What? My point is that the incentive structure driving that expectation is even stronger than any legally-binding requirement could hope to be. Your framing of this issue implied that short-termism is somehow a perversion of capitalism and what I’m trying to explain is that it is in reality a direct consequence of it.
  - uoaei 9y ago
    >it is in reality a direct consequence of it I agree with this. But IMO Tesla and the like are different because they're tapping into something more. People are actually excited about electric cars now, and they're willing to put money toward the goal and let Musk steer his company, taking them along for the ride.

by sp527 9y ago

uoaei 9y ago

Show me where in the law does it say "companies are obligated to make their shareholders happy." Your flippant use of the word "should" is all you have to go on so far. If you don't like what they're doing, you are free to divest. This is a free market after all!

peterbraden 9y ago
Dodge vs Ford Motor co. : "A business corporation is organized and carried on primarily for the profit of the stockholders" The general reading of the fiduciary duty to shareholders is that directors of corporations are bound to promote the value of the corporation for the benefit of the shareholders.
- cameldrv 9y ago
  Which was a Michigan supreme court ruling. There have been other later cases which interpreted the duties of the directors and officers more narrowly. Even the Dodge vs. Ford case contained: "courts of equity will not interfere in the management of the directors unless it is clearly made to appear that they are guilty of fraud or misappropriation of the corporate funds, or refuse to declare a dividend when the corporation has a surplus of net profits which it can, without detriment to its business, divide among its stockholders, and when a refusal to do so would amount to such an abuse of discretion as would constitute a fraud, or breach of that good faith which they are bound to exercise towards the stockholders." In AP Smith vs. Barlow, in particular, it was ruled that a corporation can make a charitable donation and not breach its fiduciary duty to it shareholders. The primary means shareholders have to change the direction of the company is to elect a different board of directors. In the case of Tesla, that requires a 2/3 majority, and Elon holds 27% of the stock.
sp527 9y ago
What? My point is that the incentive structure driving that expectation is even stronger than any legally-binding requirement could hope to be. Your framing of this issue implied that short-termism is somehow a perversion of capitalism and what I’m trying to explain is that it is in reality a direct consequence of it.
- uoaei 9y ago
  >it is in reality a direct consequence of it I agree with this. But IMO Tesla and the like are different because they're tapping into something more. People are actually excited about electric cars now, and they're willing to put money toward the goal and let Musk steer his company, taking them along for the ride.