5 ms·

But the CEO doesn't own the company, the investors do, so why would the CEO be the one to state the goals leaving investors to "take it or leave it"?

neom 8y ago
Because if you don't like my plan you can go find a new CEO. And finding a new CEO is harder than it looks, especially in big business. CEOs should have a lot of leverage with their board, if they don't, they're cooked anyway. I have said to the external shareholders many times that their opinion of putting the business first and my opinion of putting the business first may differ because, unlike the investors, i'm responsible for the internal shareholders as well, and need to balance their views and opinions.
- makmanalp 8y ago
  > finding a new CEO is harder than it looks I support your side of the argument, but why is it the case that finding a CEO is hard? It seems a bit like becoming president: there aren't many people in the pool who have matching previous experience anyway, and it's not even clear if "similar" experience even applies (Does one company resemble the other, even in the same industry? Different stages of growth, corporate structure, business model, region of operation etc), and much of the job seems to be adapting to new conditions. It seems more about the CEO's reputation and network, is that really just it? You pay for the CEO's access to the Old Boy's Club? Wouldn't the company be better served by spreading the role across multiple people, to avoid the stigma of changing CEOs?
  - marcelluspye 8y ago
    >It seems a bit like becoming president I think this is why it is hard. Look at the people who ran for president in 2016. A lot of people want to be president, but most voters see, among a large pool, at most one person they think would fit the bill (and I think in the last election, a lot of people thought no one did). It's really hard to make a choice in such a situation. In the case of presidential elections, it's simply a matter of procedure that one person has to be selected on a specific day. Looking for a CEO? I'm sure the temptation to keep shopping when none of the candidates look ideal is very appealing.
  - neom 8y ago
    Hey thanks for the reply, these are excellent questions. It's hard because usually the person you want is either happily employed because they are good at their job, or retired because they were good at their job. I've been a part of 3 CEO searches for big-ish startups and it wasn't fun. There is also often a fundamental reality difference between the board, the shareholders, the employees and the world. Getting that part out of the way can sometimes in and of itself take 2-4 months depending on the company. Once you've done that, figuring out what the "type" of CEO you need can take some time, do they need public market experience, do they need a network, do they need to be technical, etc. Then you build the list, and then the job of convincing someone to take the job is often equally difficult. Re: spreading the roll across multiple people. This is what a really excellent CEO does anyway, in fact if I don't see this being done it's a massive red flag. In a great company, the CEO only has two jobs: dealing with real emergencies and being accountable to the shareholders. I think one person being held to account is extremely beneficial though, and I don't think it would be a good idea to switch it to committee, I actually think of all the things capitalism gets right, corporate structure is for the most part quite well thought out and works.
    - makmanalp 8y ago
      Hey! Thanks for taking my semi-snarky reply at face value. I appreciated your kind response, and learned a few things. I'll pass on your hello to Glaeser if I ever run into him :-)
  - neom 8y ago
    (ps I see you're at Kennedy, if you happened to know ed glaeser tell him I say hi!)
Accipitriform 8y ago
> But the CEO doesn't own the company, the investors do, so why would the CEO be the one to state the goals leaving investors to "take it or leave it"? Well, one point of the article is that these days 62% of CEO income is equity, so in most cases the CEO is also an "investor". It does seem to me that creates a conflict of interest, in that a short-term plan to increase share price may not be in the long-term interests of the company. Yet, the CEO will likely not be around for the long haul and benefits more from short-term thinking. I'm generally not a fan of Warren, but a good bit of this makes sense to me. I think the most questionable part is: "At least 75% of directors and shareholders would need to approve before a corporation could make any political expenditures". That is just thrown in there with no explanation, and is likely intended to cripple Republicans by not allowing campaign contributions in almost all cases. That is likely the poison pill that will doom this legislation.
fixermark 8y ago
Indeed. Google short-cutted this problem by never giving a controlling majority to the shareholders. It's interesting to me that solution seems unique to only a handful of companies.
deleted 8y ago
[deleted]
snowwrestler 8y ago
It's not clear that investors own a corporation, in the same sense that you own something like a phone or a house. The right of investors to make a claim on the resources of a corporation, or to direct its actions, are quite limited unless the investor is on the board of directors. The corporation has duties to its shareholders--it can't defraud them, for instance--but those duties are actually quite limited. In most cases the remedy for unhappy shareholders is just to sell their stock. The CEO doesn't own the corporation either, but the CEO can direct the resources of the corporation. In any sort of operational sense, the CEO only reports to the board of directors, not to the shareholders entire.
- spork12 8y ago
  Some companies offer different classes of stock with voting or non-voting rights. For example Google has Class A - (GOOGL) and Class C - (GOOG)
- deelowe 8y ago
  Investors always own corporations (via their voting power). That's what a corporation is. Some companies have different classes of investors (e.g. restricted stock that isn't traded and converts when sold) to protect against things like hostile take overs, but it doesn't change the overall structure.
  - vonmoltke 8y ago
    "Ownership" as a legal concept is not that simple: https://www.google.com/amp/s/amp.ft.com/content/7bd1b20a-879b-11e5-90de-f44762bf9896 https://www.google.com/amp/s/amp.ft.com/content/7bd1b20a-879... The meat of the article: If I own an object I can use it, or not use it, sell it, rent it, give it to others, throw it away and appeal to the police if a thief misappropriates it. And I must accept responsibility for its misuse and admit the right of my creditors to take a lien on it. But shares give their holders no right of possession and no right of use. If shareholders go to the company premises, they will more likely than not be turned away. They have no more right than other customers to the services of the business they “own”. The company’s actions are not their responsibility, and corporate assets cannot be used to satisfy their debts. Shareholders do not have the right to manage the company in which they hold an interest, and even their right to appoint the people who do is largely theoretical. They are entitled only to such part of the income as the directors declare as dividends, and have no right to the proceeds of the sale of corporate assets — except in the event of the liquidation of the entire company, in which case they will get what is left; not much, as a rule.

neom 8y ago

Because if you don't like my plan you can go find a new CEO. And finding a new CEO is harder than it looks, especially in big business. CEOs should have a lot of leverage with their board, if they don't, they're cooked anyway. I have said to the external shareholders many times that their opinion of putting the business first and my opinion of putting the business first may differ because, unlike the investors, i'm responsible for the internal shareholders as well, and need to balance their views and opinions.

makmanalp 8y ago
> finding a new CEO is harder than it looks I support your side of the argument, but why is it the case that finding a CEO is hard? It seems a bit like becoming president: there aren't many people in the pool who have matching previous experience anyway, and it's not even clear if "similar" experience even applies (Does one company resemble the other, even in the same industry? Different stages of growth, corporate structure, business model, region of operation etc), and much of the job seems to be adapting to new conditions. It seems more about the CEO's reputation and network, is that really just it? You pay for the CEO's access to the Old Boy's Club? Wouldn't the company be better served by spreading the role across multiple people, to avoid the stigma of changing CEOs?
- marcelluspye 8y ago
  >It seems a bit like becoming president I think this is why it is hard. Look at the people who ran for president in 2016. A lot of people want to be president, but most voters see, among a large pool, at most one person they think would fit the bill (and I think in the last election, a lot of people thought no one did). It's really hard to make a choice in such a situation. In the case of presidential elections, it's simply a matter of procedure that one person has to be selected on a specific day. Looking for a CEO? I'm sure the temptation to keep shopping when none of the candidates look ideal is very appealing.
- neom 8y ago
  Hey thanks for the reply, these are excellent questions. It's hard because usually the person you want is either happily employed because they are good at their job, or retired because they were good at their job. I've been a part of 3 CEO searches for big-ish startups and it wasn't fun. There is also often a fundamental reality difference between the board, the shareholders, the employees and the world. Getting that part out of the way can sometimes in and of itself take 2-4 months depending on the company. Once you've done that, figuring out what the "type" of CEO you need can take some time, do they need public market experience, do they need a network, do they need to be technical, etc. Then you build the list, and then the job of convincing someone to take the job is often equally difficult. Re: spreading the roll across multiple people. This is what a really excellent CEO does anyway, in fact if I don't see this being done it's a massive red flag. In a great company, the CEO only has two jobs: dealing with real emergencies and being accountable to the shareholders. I think one person being held to account is extremely beneficial though, and I don't think it would be a good idea to switch it to committee, I actually think of all the things capitalism gets right, corporate structure is for the most part quite well thought out and works.
  - makmanalp 8y ago
    Hey! Thanks for taking my semi-snarky reply at face value. I appreciated your kind response, and learned a few things. I'll pass on your hello to Glaeser if I ever run into him :-)
- neom 8y ago
  (ps I see you're at Kennedy, if you happened to know ed glaeser tell him I say hi!)

Accipitriform 8y ago

> But the CEO doesn't own the company, the investors do, so why would the CEO be the one to state the goals leaving investors to "take it or leave it"? Well, one point of the article is that these days 62% of CEO income is equity, so in most cases the CEO is also an "investor". It does seem to me that creates a conflict of interest, in that a short-term plan to increase share price may not be in the long-term interests of the company. Yet, the CEO will likely not be around for the long haul and benefits more from short-term thinking. I'm generally not a fan of Warren, but a good bit of this makes sense to me. I think the most questionable part is: "At least 75% of directors and shareholders would need to approve before a corporation could make any political expenditures". That is just thrown in there with no explanation, and is likely intended to cripple Republicans by not allowing campaign contributions in almost all cases. That is likely the poison pill that will doom this legislation.

fixermark 8y ago

Indeed. Google short-cutted this problem by never giving a controlling majority to the shareholders. It's interesting to me that solution seems unique to only a handful of companies.

deleted 8y ago

[deleted]

snowwrestler 8y ago

It's not clear that investors own a corporation, in the same sense that you own something like a phone or a house. The right of investors to make a claim on the resources of a corporation, or to direct its actions, are quite limited unless the investor is on the board of directors. The corporation has duties to its shareholders--it can't defraud them, for instance--but those duties are actually quite limited. In most cases the remedy for unhappy shareholders is just to sell their stock. The CEO doesn't own the corporation either, but the CEO can direct the resources of the corporation. In any sort of operational sense, the CEO only reports to the board of directors, not to the shareholders entire.

spork12 8y ago
Some companies offer different classes of stock with voting or non-voting rights. For example Google has Class A - (GOOGL) and Class C - (GOOG)
deelowe 8y ago
Investors always own corporations (via their voting power). That's what a corporation is. Some companies have different classes of investors (e.g. restricted stock that isn't traded and converts when sold) to protect against things like hostile take overs, but it doesn't change the overall structure.
- vonmoltke 8y ago
  "Ownership" as a legal concept is not that simple: https://www.google.com/amp/s/amp.ft.com/content/7bd1b20a-879b-11e5-90de-f44762bf9896 https://www.google.com/amp/s/amp.ft.com/content/7bd1b20a-879... The meat of the article: If I own an object I can use it, or not use it, sell it, rent it, give it to others, throw it away and appeal to the police if a thief misappropriates it. And I must accept responsibility for its misuse and admit the right of my creditors to take a lien on it. But shares give their holders no right of possession and no right of use. If shareholders go to the company premises, they will more likely than not be turned away. They have no more right than other customers to the services of the business they “own”. The company’s actions are not their responsibility, and corporate assets cannot be used to satisfy their debts. Shareholders do not have the right to manage the company in which they hold an interest, and even their right to appoint the people who do is largely theoretical. They are entitled only to such part of the income as the directors declare as dividends, and have no right to the proceeds of the sale of corporate assets — except in the event of the liquidation of the entire company, in which case they will get what is left; not much, as a rule.