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"Tenured shareholder voting power, meaning that a shareholder’s votes would be proportionately weighted by the length of time the shares have been held" I wond

• nickparker 9y ago
  Nowhere near a lawyer here, but: Would it be possible to contractually obligate any entities holding these stocks to also adopt tenured shareholder voting power? Doing so would certainly improve the loophole situation, though I suspect it doesn't fix it entirely... Things probably get weird when you nest tenure effects.
  • qubex 9y ago
    I don’t see how that could work generally. Sure, it might be possible to enforce by-laws when making a sale/purchase (but extra obligations would inevitably drive down the sale price), but what of situations in which collateral shares are foreclosed upon, they are inherited, or other non-voluntary transfers of ownership? What if one day they ended up even temporarily in the hands of a government (for example, the Italian government’s property and assets cannot by law by encumbered in such a manner). What then? The chain is broken.
    • kbenson 9y ago
      > for example, the Italian government’s property and assets cannot by law by encumbered in such a manner Well, depending on the country the LTSE is based in, and whether that law is honored through some trade agreement signed into law in that country, I imagine what the Italian government thinks about the issue is moot. > what of situations in which collateral shares are foreclosed upon, they are inherited, or other non-voluntary transfers of ownership? I'm wondering if they have or are considering a grace period where if the shares are reacquired within that period the voting rights remain the same. I imagine they definitely wouldn't want the rights transferred in the case of foreclosure. Inheritance is an interesting one, but then again, it's only a problem if you take the view that your assets should all be transferred to your relatives on death. As with inheritance taxes, there are competing incentives. Maybe shares under a certain quantity could transfer over with voting weight intact, or maybe they should just lose half their time-based voting weight (or just have the time halved, which might still leave them in the top tier of voting weight). There's lots of ways to structure it to achieve certain goals. I'm sure some would see new case law made.
      • qubex 9y ago
        I’m going to harp on the Italian case (not because I am Italian and think it is the centre of the world, but because it illustrates just how broad one’s rules need to be to be dependable). I am an Italian citizen. Say I own shares on the LTSE. Say I also owe the Italian government some back taxes, and that the government moves to expropriate my assets to cover my liability. My LTSE shares are now the property of the Italian government and have been shorn of whatever by-laws they might have had attached. The government then proceeds to auction off the components of my esistiate to the highest bidder, who purchases the shares without any obligation regarding his duties and structure. This is why in general (in the mathematical sense, meaning ”in all cases”) the scheme you posit is not iron-clad. Probably it will work in most circumstances but that’s a lesser level of certainty that offers no guarantees whatsoever.
        • evgen 9y ago
          The contracts for share ownership can simply proscribe the conditions that trigger change of ownership for purposes of tenure. In such a case it would not matter if you sold the shares, gifted them, had them siezed, or offered them in a lottery -- change of ownership resets the tenure clock. In your example case, as soon as the shares were seized then for purposes of tenure they were sold by you to the Italian government to cover your debts.
    • nickparker 9y ago
      OK right, you can't restrict ownership. Would it be legal to simply grant extra rights to owners who adhere to the LTSE's rules? Ie, one share carries 1 'point' of voting power, unless the owner is an individual or an entity which adheres to the LTSE rules, in which case the share carries 1 + kt points of voting power. If an entity outside the LTSE holds some shares, that's fine. They just extract very little value from them compared to an entity within the LTSE, increasing the value of all other shares outstanding and creating a strong incentive for that entity to sell back into LTSE.
• erikpukinskis 9y ago
  Doesn’t that still achieve the goal? No one is dumping the shares on news cycles.
  • pavel_lishin 9y ago
    The shares of holding companies would end up being the ones getting dumped.
    • erikpukinskis 9y ago
      How does that affect the held shares?
• jerf 9y ago
  It seems like sufficiently clever lawyering ought to be able to prevent this, by tying the voting power to the entity that has the right to obtain the benefits of the stock price going up. At the very least this prevents the LLC hack.
  • eries 9y ago
    Nice to see someone thinking past the obvious loopholes. Our rules are a little more complicated than this, but you’re on the right track.
  • runeks 9y ago
    > […] by tying the voting power to the entity that has the right to obtain the benefits of the stock price going up. If I own shares in a holding company, which owns shares in an LTSE-company, don’t I have this right? If not me, who else?
    • maaaats 9y ago
      That's the point. And as a new investor, your power would be less than that of the holding company.
  • lozenge 9y ago
    In this case, I would have voting power for each of the thousands of companies in my pension plan.
• nostrademons 9y ago
  It makes me wonder if we'll see a Gresham's Law effect as well. A financial services company creates a new fund ABC which exists solely to hold shares of LTSE company XYZ. Its fundamentals should be completely coupled with XYZ, except for the voting rights and restrictions on trading. ABC is then listed as an ETF, with no restrictions on trading, and weights votes on XYZ based on number of shares with no tenure restriction. Because new holders of ABC have more rights than holders of XYZ, all new trading would occur in ABC. The LTSE serves its purpose of incentivizing long-term ownership of XYZ, but it's a pyrrhic victory: whenever an XYZ shareholder wants liquidity, rather than sell, they could borrow shares of ABC with their XYZ shares held as collateral (by definition, they have the same fundamentals) and short-sell the ABC. Or if they truly want out, they sell their XYZ shares to ABC (no other buyer would be interested, if they can get the same ownership claim with fewer restrictions by buying ABC directly), which then issues new shares on the normal public markets to maintain the peg. Either way, owners of XYZ are still incentivized to care about the short-term price movements of XYZ (through its ABC proxy) on the public markets, because they can achieve liquidity by proxy.
• phkahler 9y ago
  Your concern is only the tip of the iceberg. Any set of rules will be gamed. The only way I can think of (and it can probably be gamed) that would really put the long term into the executives mind is to have most of their compensation based on the value of the company a few years after they're done. But given the existence of options and shorting stocks and any number of ways to mitigate risk or make money that don't depend on positive outcome for the average investor, anything can be gamed. With a shift to long term outcomes, one could do any number of things that are short term bad to line their pockets and claim the benefit is further down the road. The problem isn't really about short or long term goals - does Amazon or Tesla give a rats ass about profit next quarter? No, and IMHO one of those is a solid company while both have high valuations. In some cases I think the answer is to strip investors of control. They are the ones allegedly pushing short term profits at the expense of the long term. But what is ownership if not a form of control? Another thought I keep coming back to is dividends. A proper investment gives returns without having to sell your stake. Lets provide incentives for companies to share profit rather than pump stock prices, then everyone can get excited about the right things. This has its downside too in cases where growth may require reinvestment. Perhaps forcing dividend payments for all cash equivalents above some threshold? I dunno, there are a lot of ways to approach this and none of them are good for all companies.
  • IgorPartola 9y ago
    I read somewhere about splitting control and ownership, but really you can’t. You either own a thing or you don’t. Time shares notwithstanding. I do like dividend paying stock, but is that not a form of short term thinking? “May me my dividend this quarter, I don’t care when happens next year!”
    • dweekly 9y ago
      Re: splitting control and ownership, don't non-voting GOOG shares exhibit exactly this split as one example?
    • phkahler 9y ago
      Dividends are the most reasonable way to get a return on investment. If you want to buy low and sell high, you're playing the greater fool game - why would anyone buy if you think it's time to sell. How should a company stock be priced? It's based on earnings, or in other words the ability to pay dividends. P/E ratio or price to earnings is a direct measure of the ability to pay dividends whether they pay them or not. At a PE of 20, the company could pay a 5 percent dividend. At a PE of 100 your stock purchase is misguided - you either expect the earnings to increase dramatically which would make the price more reasonable, or you expect someone else's investment decision to be more unreasonable than yours.
• markvdb 9y ago
  Individual beneficial ownership as a criterium would widen your definition only somewhat. Plus you could give corporate shareholders non-voting shares I guess.
  • salty_biscuits 9y ago
    What does a bike race have to do with it :)
• felipeko 9y ago
  Having more control would be valuable, and thus, more expensive. You will have to pay more in order to have more control, while you could pay less and earn the same. It appears to me that it will, at least, make more expensive to think short term than long term, and that is the intended incentive of this stock exchange (as you could as well just buy more shares if you want more control).
• csdreamer7 9y ago
  > I suppose one way to prevent this loophole is to grant voting power only to individuals, and not entities, but that would screw over index-funds, mutual-funds, foundations, non-profit-endowments etc etc. Why not just block organizations that sell such a service as above be denied the benefit from increasing voting shares? Why ban all organizations instead of the ones trying to game it?
• uiri 9y ago
  Grant voting power only to individuals or to entities which follow the same voting power rules. This recursively enforces the rule. A holding company like that would confer at most the same voting power as trading XYZ directly, but most likely strictly less voting power in XYZ. A mutual fund which has only held XYZ for a short time would confer little voting power even to shareholders which have held it the longest.
• wodenokoto 9y ago
  You don't buy shares in the holding company, you'll buy shares in the shares.
• tomatocracy 9y ago
  Probably not for the general case. Voting rights are almost irrelevant to the average shareholder in public equity (including institutional holders unless they have large blocks). If they truly disagree with management, they'll just sell instead and put their money elsewhere. It's both less work and less risky than trying to force change - management can ultimately simply say "feel free to vote us out if you disagree" knowing that that is extremely unlikely to ever happen because it's so incredibly rare that a large enough group of shareholders in a listed company feel strongly enough to go down that route. Large institutional blocks will probably be structured this way because the cost of doing so is low so "why wouldn't you?". In fact there are companies out there where this is already the case as they have similar rules in their constitutional documents and the large blocks do indeed work that way. There are actually many examples of companies where some shareholders are disenfranchised in one way or another (e.g. family ownership with special rights, minority listings, this type of scheme, 51% "Russian Dolls" holding companies, etc etc). Generally where I've seen these type of rules they serve to strengthen management against shareholders and entrenches the agency conflict to the detriment of the company's value over the long term. Realistically, in a more typical listed company with a diverse shareholder base the only realistic option shareholders have is to force management out. The irony is that this rule acts to stop this from happening or slow it down and insulate management from that threat (further entrenching the agency conflict between shareholders and management). Investors who are in the business of more actively engaging with management and strategy tend to do so away from public markets because it's not really that great a strategy unless you can gain significant control in terms of %age stake - so Private Equity, VC, family ownership, etc mostly tend not to be things that happen in publicly listed companies.