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You are misreading or misrepresenting what the article says. It is arguing that “limited liability” for shareholders de facto means “zero liability” for anythin
by pmiller2 7y ago
You are misreading or misrepresenting what the article says. It is arguing that “limited liability” for shareholders de facto means “zero liability” for anything the company does. While that’s not strictly true, a shareholder in a public company indeed suffers no consequences for said company’s actions other than potential loss of their initial investment. The author is saying this is insufficient, as it leads to companies taking legal risks like building unsafe airplanes and causing pollution.
Does this not reflect the world outside your window? When I can put money into a company, then sit on it over a period of years and just watch it grow, what’s my incentive to prevent the company from doing bad things? When I can do that for hundreds of companies at a time, in the form of an index fund or ETF, and be virtually assured my money will grow over the long term, why would I do anything to prevent the company from taking risks?
TL;DR: “Zero liability” is not zero, it’s just so small it doesn’t discourage bad behavior.
- metalliqaz 7y ago"taking risks" isn't even strong enough. "doing harm." a capitalist system is a system by and for capital, and if capital isn't held to account for harm, it will never do anything to prevent that harm (the harm is almost always inflicted on those without capital). in fact, there is incentive to do more harm if it is profitable.
- voxic11 7y agoBut limited liability comes into play in none of his examples which is why he appears to be conflating issues. All of the examples he gives are of companies which had enough money to cover their liabilities (none of them went bankrupt due to the example misconduct). So it appears that the issue is with liability in general, not limited liability in specific.
- pmiller2 7y agoLimited liability is what makes people want to continue investing in Boeing after they made a plane prone to crashing, and Exxon after they leak millions of gallons of oil into the ocean. You can, and I think do, argue that those companies should have more liability for those things, perhaps in the form of prison sentences for negligence, or, at least, increased fines, but limited liability is what ultimately keeps the company going for the long term, in spite of what they’ve done.
- voxic11 7y agoBut Boeing and Exxon both are still around and still profitable and did not need to fall back on the principle of limited liability to protect their shareholders. So if anything that would indicate to me as a shareholder that both companies are not that bad at quantifying risk. Limited liability makes it less risky to invest in smaller, less established companies. Those with well established histories like Boeing and Exxon seem like they would actually be helped by eliminating limited liability as they have long histories of not needing to use it.
- pmiller2 7y agoYou're missing the point. If I could suffer unlimited liability beyond my initial investment for things Exxon does, why would I invest? What would happen to Exxon if everyone thought that way?
- dahfizz 7y agoPeople would stop being able to retire because any and all investment has become infinitly risky. That's what would happen.
- voxic11 7y agoI need to invest my money in something[0]. If Exxon has a good track record of only incurring liabilities which they can cover using revenue (which they do) then I would invest with them over some other company without such a record. [0] https://meltingasphalt.com/wealth-the-toxic-byproduct/ https://meltingasphalt.com/wealth-the-toxic-byproduct/
- pjc50 7y agoIf I could suffer unlimited liability for opening a restaurant, or even investing in my brother's restaurant, would I? If a staff member fails to wash their hands and kills a few people with a particularly disastrous food poisoning outbreak, who should lose their house, me (passive investor), or them (worker)? (Getting rid of limited liability also means the company is no longer necessarily a liability shield for its staff! People would likely fallback on not being a company, so either partnership arrangements or just a cloud of independent contractors)
- hogFeast 7y agoHow is losing money suffering no consequences? (I can tell you that I worked in investment management and sat in meetings where this kind of thing was discussed...no-one thinks this, companies that do bad things lose money...end...SRI is something that the good managers always did, it is just branded so bad managers can make money. Index funds are making it easier on companies but...that is a choice people are making to separate stewardship from their portfolio management).
- pmiller2 7y ago> a shareholder in a public company indeed suffers no consequences for said company’s actions other than potential loss of their initial investment. I didn't say "no consequences." I said the consequences were too small.
- hogFeast 7y ago...compared to what...you have lost 100% of what you put in. Any other system is about wealth transfer...it is generally not advisable to attempt to transfer wealth this way, there are unintended consequences.
- pmiller2 7y agoThe consequences are too small compared to what would be needed to prevent Exxon dumping millions of barrels of oil into the ocean. Who cares if it’s wealth transfer, anyway? If I lose my initial investment in a company, that money goes somewhere, right? Ergo, what we have is already a form of wealth transfer.
- deleted 7y ago[deleted]
- pjc50 7y agoCounterpoint: as a Boeing investor, exactly how much foreknowledge of and ability to prevent the 737 MAX disaster would you have had?
- tpm 7y agoYou probably wouldn't want to invest into something unknown if you then were liable for damages caused by it. Which is, I think, the point of the article.
- pmiller2 7y agoIt doesn’t matter, because all I can lose is my initial investment. That’s the point.
- bpt3 7y agoYou aren't virtually assured your money will grow over the long term, especially if you only invest in companies that make mistakes on the scale of Exxon and Boeing. It seems like your post is based on this premise, which isn't accurate. Also, I don't think anyone misunderstands what the author is saying, as it's very clear. It just makes no sense, isn't supported by the examples she brings up, and the proposed solution would do significant harm.
- pmiller2 7y agoYou are virtually assured your money will grow over time if you invest in enough companies. That’s the reason VCs and index funds exist.
- bpt3 7y ago1. No, you aren't "virtually assured". Past performance indicates that's the case over enough time (25+ years), but that isn't an assurance. 2. I'm not sure how this supports your argument, as an index fund investor is even more removed from the decision making process that leads to some sort of disaster.
- pmiller2 7y agoTake a look here and get back to me: https://www.slickcharts.com/sp500/returns https://www.slickcharts.com/sp500/returns You don't need to go to a 25 year time horizon to have a very high chance of making money. By my count, the S&P only lost money in 20 out of the past 94 years. According to https://www.thebalance.com/rolling-index-returns-1973-mid-2009-4061795 https://www.thebalance.com/rolling-index-returns-1973-mid-20..., there was no rolling 15 year period since 1973 where the index lost money. The index lost money in only 11 of 80 rolling 10 year periods from 1928-2008.
- bpt3 7y agoYes, I'm aware. I picked 25 years because that's about how long it took for the market to surpass the highs just prior to the Great Depression. My point, since you seem to keep missing it, is that "a very high chance" is not the same as "virtually assured", and "virtually assured" is not the same as "guaranteed", yet you seem to be conflating these concepts, as well as minimizing the current consequences of investing in an irresponsible company (losing your investment).