7 ms·

I think it would be more accurate to say this is what happens when you let the shareholders who are too far removed from the business itself run the business. T

by _bxg1 6y ago

I think it would be more accurate to say this is what happens when you let the shareholders who are too far removed from the business itself run the business. Those are the people who'd like a company to be a simple growing-asset in their portfolio, who specifically don't want to be bothered with its nuances or long-term health, and who have the leverage to impose their ill-informed will on everyone else. I have a pet theory that a large portion of the decay in our society can be traced back to the layers of abstraction between stakeholders and the things (and people) they have power over. Usually this kind of thing doesn't happen before a company has gone public.

cls59 6y ago
Or who don't even care about the long-term health. Extract all you can today and dump the remains. Having a company that remains healthy and prosperous for generations is not an outcome that some investors seem to be optimizing for.
- _bxg1 6y ago
  It's not an outcome that public investors are incentivized to optimize for. That's the problem.
  - Icathian 6y ago
    On the one hand, from a systems perspective, this is obviously true. But I wonder at what point you have to draw the line and quit excusing any and all behavior as the result of misaligned incentives, and simply hold people morally and ethically accountable for the choices they make?
    - _bxg1 6y ago
      I'm not excusing it, I'm only being pragmatic. It's well and good to push people to be more ethical, but relying on that trait is a separate question. The human conscience doesn't do very well with abstractions. The further removed someone's actions are from the damage caused down the line, the weaker that moral signal gets. If we want to improve our society, we have to be realistic about these things and design our institutions to buttress against them.
      - Icathian 6y ago
        Certainly, but shaming and shunning are interpreted by the human conscience as damage in very real ways. You're not wrong, but I think modern sensibility has such an adverse reaction to using shame as a deterrent that we refuse to call things out as shameful. Sure, it only works if the people in question care about your opinion, but building consensus on what acts should be shunned only takes about a generation and a half. Segregation, dog fighting, the list is long. If we really think this is bad for society (and I do) then shrugging and talking about incentives isn't the way forward. Especially in the absence of a mechanic to actually change those incentives.
      - wonnage 6y ago
        We absolutely rely on people to act ethically even with incentive systems. Every incentive system is prone to abuse. Also, people are motivated by different incentives. These often boil down to their own ethical/moral values.
    - thereisnospork 6y ago
      >But I wonder at what point you have to draw the line and quit excusing any and all behavior as the result of misaligned incentives, and simply hold people morally and ethically accountable for the choices they make? Your statement is contradictory, incentives are what hold people accountable.
- ksk 6y ago
  >Having a company that remains healthy and prosperous for generations is not an outcome that some investors seem to be optimizing for. There are plenty of buy-and-hold shareholders investing in bluechips.
oaiey 6y ago
To the point. Thanks. Modern capitalism is not good for companies, people and society as a whole.
- ALittleLight 6y ago
  Which system is better?
- thephyber 6y ago
  You say "Modern capitalism" as if there was a different capitalism before it. The system is the same (perhaps more optimized from longer innovation); the culture and the players are different.
  - Avicebron 6y ago
    I think he's saying that the modern economic shell game that is going on is actively damaging the economic welfare of a large body of people. From my perspective the "modern" part of it has become more extractive than generative. A lot of "innovation" has been to cut as many corners as possible while isolating wealth into fewer and fewer groups.
  - jackcosgrove 6y ago
    "Modern capitalism" might be better called "managerial capitalism". It is different from entrepreneurial capitalism, which preceded it. Entrepreneurial capitalism was a constellation of small private enterprises, often family-owned. Managerial capitalism is characterized by the dominance of firms publicly traded on capital markets, and managed by professional managers who are often distinct from the shareholders. Entrepreneurial capitalism, I believe, better aligns incentives by combining the shareholder and manager role. It also reduces dependence on capital markets, which can become a single point of failure during a financial panic. Lastly entrepreneurial capitalism makes coordination between competitors less likely, whereas such coordination is embraced by the mergers and acquisitions arms of banks in a mangerial capitalist system quite openly. The only advantage of managerial capitalism is scale. Pooling capital in public markets permits massive economies of scale and their efficiencies.
  - 6y ago
pjmorris 6y ago
> I have a pet theory that a large portion of the decay in our society can be traced back to the layers of abstraction between stakeholders and the things (and people) they have power over. My pet theory is a specific instance of yours: MBAs wielding spreadsheets (and, more generally, analysts wielding databases) is the abstraction layer.
- kevin_thibedeau 6y ago
  They also "boost productivity" by shortening schedules by 20%. More profit. More corners cut.
michaelt 6y ago
If you're interested in corporate governance, you might enjoy reading the book "Pay without performance" One of the points it makes is that shareholders have very little power in practice, as even if you own a million dollars of Apple shares, that's only 0.00007% of the company. Not exactly enough to force through a motion on your own. And if you think you'll build up a coalition to get a majority? Good luck doing that when you can't even find out the names of other shareholders. Minority shareholder lawsuits? They're actually a negligible force; rare, unlikely to succeed, and low impact even when they do. And that's without getting into 'preference shares' that grant CEOs outsized voting rights. The book argues management can neglect shareholders' interests with impunity for these reasons.
- _bxg1 6y ago
  Well there are two kinds of public shareholders, right. There may be a small number who own large enough shares to bother attending board meetings and voting, and then there are the millions with pensions, 401ks, index funds, etc. I think you're talking about the latter, who have the same issue but a slightly different version of it. In their case, the "ill-informed management" comes down to "price goes up, buy, price goes down, sell". Through share price they wield an extremely blunt version of the same weapon. This is almost worse, because it very explicitly cares only about the short-term price. It's also a much harder problem to solve, because you can't just tell those people "think long-term and ethically when you're exercising your impact on the marketplace!". No matter how ethical they may be as individuals, most of them probably don't even know which companies they have stakes in, much less whether those companies are heading in the right direction!
  - WalterBright 6y ago
    > it very explicitly cares only about the short-term price. There is no short term price in stocks. Stocks are valued at their perceived long term value. If shareholders suspect a company is sacrificing the long term for the short term, they're going to dump the stock until the price of it drops to reflect that. This also implies that if you can reliably detect that a company is eating its seed corn before everyone else does, you can make a mint shorting it.
mpalczewski 6y ago
share holders? The same "passive investors" that are buying an index fund that includes Boeing. It's not about leverage it's about taking time and figuring out what you are investing in. Everyone wants the free ride of "investing" nobody actually wants to pick stocks by doing research into which companies have sustainable businesses and good governance.
- donavanm 6y ago
  Well then it will be really easy for those active fund managers to fleece the naive index rubes, right?
  - mpalczewski 6y ago
    Active fund managers are worse, they have a different racket closet indexing while charging high fees is the most common starting a bunch of different funds, and then when one of them outperforms by chance, marketing that one as the one is another.
achillesheels 6y ago
Otherwise known as the "democratic means of production" which can be measured by how many US citizens own equities (almost 50%). And let's not discount the "managerial revolution" that has occurred as management:labor ratios have exploded over time (and noted by the Pulitzer Prize winning The Visible Hand by Alfred D. Chandler, Jr.)
Causality1 6y ago
Were it up to me I'd personalize all liability, including legal. No more corporate fines. Fines levied against corporations should come directly from the personal fortunes of shareholders and legal malfeasance should always result in prison time for the decision makers, even if it's as little as a single week in jail.
- londons_explore 6y ago
  Would anyone dare touch a stock market if they were personally responsible for liabilities of companies they invest in? Particularly in the case of stock indexes - where a single company with a $xxT poorly written contract could wipe out the entire index and everyone who held it.
  - Causality1 6y ago
    Proportionality. If you own one tenth of one percent of the stock you should have one tenth of one percent of the liability. No liability equals no responsibility equals no integrity. Being an amoral company should be just as likely to end in disaster as being an amoral person.
  - lstodd 6y ago
    Why not? Insurance companies will skim some profit off, is all
    - londons_explore 6y ago
      Imagine some middle manager in some S&P 500 company approves a contract that says: "Company A agrees to purchase for $1000 each product offered by company B which meet the specifications provided". And Company B finds that the spec says "A quartz crystal between 1um and 1mm in diameter". So company B goes and finds a beach, full of sand, calculates there are 1 billion grains of sand in each cubic meter of the beach, and the beach is 50m long, 50m deep, and 50m wide. Total amount is 50 * 50 * 50 * 1 billion * $1000 = $125 quadrillion. Far more than all the money in the world. That bankrupts the company, but since there is no liability limit, it bankrupts every other investor. Even if you have 0.0001% of the company, you're still bankrupt. If you have insurance, the insurance company is bankrupt, and you're still on the hook for whatever remains, which bankrupts you too.
evandijk70 6y ago
In what way has our society decayed?

by _bxg1 6y ago

cls59 6y ago

Or who don't even care about the long-term health. Extract all you can today and dump the remains. Having a company that remains healthy and prosperous for generations is not an outcome that some investors seem to be optimizing for.

_bxg1 6y ago
It's not an outcome that public investors are incentivized to optimize for. That's the problem.
- Icathian 6y ago
  On the one hand, from a systems perspective, this is obviously true. But I wonder at what point you have to draw the line and quit excusing any and all behavior as the result of misaligned incentives, and simply hold people morally and ethically accountable for the choices they make?
  - _bxg1 6y ago
    I'm not excusing it, I'm only being pragmatic. It's well and good to push people to be more ethical, but relying on that trait is a separate question. The human conscience doesn't do very well with abstractions. The further removed someone's actions are from the damage caused down the line, the weaker that moral signal gets. If we want to improve our society, we have to be realistic about these things and design our institutions to buttress against them.
    - Icathian 6y ago
      Certainly, but shaming and shunning are interpreted by the human conscience as damage in very real ways. You're not wrong, but I think modern sensibility has such an adverse reaction to using shame as a deterrent that we refuse to call things out as shameful. Sure, it only works if the people in question care about your opinion, but building consensus on what acts should be shunned only takes about a generation and a half. Segregation, dog fighting, the list is long. If we really think this is bad for society (and I do) then shrugging and talking about incentives isn't the way forward. Especially in the absence of a mechanic to actually change those incentives.
    - wonnage 6y ago
      We absolutely rely on people to act ethically even with incentive systems. Every incentive system is prone to abuse. Also, people are motivated by different incentives. These often boil down to their own ethical/moral values.
  - thereisnospork 6y ago
    >But I wonder at what point you have to draw the line and quit excusing any and all behavior as the result of misaligned incentives, and simply hold people morally and ethically accountable for the choices they make? Your statement is contradictory, incentives are what hold people accountable.
ksk 6y ago
>Having a company that remains healthy and prosperous for generations is not an outcome that some investors seem to be optimizing for. There are plenty of buy-and-hold shareholders investing in bluechips.

oaiey 6y ago

To the point. Thanks. Modern capitalism is not good for companies, people and society as a whole.

ALittleLight 6y ago
Which system is better?
thephyber 6y ago
You say "Modern capitalism" as if there was a different capitalism before it. The system is the same (perhaps more optimized from longer innovation); the culture and the players are different.
- Avicebron 6y ago
  I think he's saying that the modern economic shell game that is going on is actively damaging the economic welfare of a large body of people. From my perspective the "modern" part of it has become more extractive than generative. A lot of "innovation" has been to cut as many corners as possible while isolating wealth into fewer and fewer groups.
- jackcosgrove 6y ago
  "Modern capitalism" might be better called "managerial capitalism". It is different from entrepreneurial capitalism, which preceded it. Entrepreneurial capitalism was a constellation of small private enterprises, often family-owned. Managerial capitalism is characterized by the dominance of firms publicly traded on capital markets, and managed by professional managers who are often distinct from the shareholders. Entrepreneurial capitalism, I believe, better aligns incentives by combining the shareholder and manager role. It also reduces dependence on capital markets, which can become a single point of failure during a financial panic. Lastly entrepreneurial capitalism makes coordination between competitors less likely, whereas such coordination is embraced by the mergers and acquisitions arms of banks in a mangerial capitalist system quite openly. The only advantage of managerial capitalism is scale. Pooling capital in public markets permits massive economies of scale and their efficiencies.
- 6y ago

pjmorris 6y ago

> I have a pet theory that a large portion of the decay in our society can be traced back to the layers of abstraction between stakeholders and the things (and people) they have power over. My pet theory is a specific instance of yours: MBAs wielding spreadsheets (and, more generally, analysts wielding databases) is the abstraction layer.

kevin_thibedeau 6y ago
They also "boost productivity" by shortening schedules by 20%. More profit. More corners cut.

michaelt 6y ago

If you're interested in corporate governance, you might enjoy reading the book "Pay without performance" One of the points it makes is that shareholders have very little power in practice, as even if you own a million dollars of Apple shares, that's only 0.00007% of the company. Not exactly enough to force through a motion on your own. And if you think you'll build up a coalition to get a majority? Good luck doing that when you can't even find out the names of other shareholders. Minority shareholder lawsuits? They're actually a negligible force; rare, unlikely to succeed, and low impact even when they do. And that's without getting into 'preference shares' that grant CEOs outsized voting rights. The book argues management can neglect shareholders' interests with impunity for these reasons.

_bxg1 6y ago
Well there are two kinds of public shareholders, right. There may be a small number who own large enough shares to bother attending board meetings and voting, and then there are the millions with pensions, 401ks, index funds, etc. I think you're talking about the latter, who have the same issue but a slightly different version of it. In their case, the "ill-informed management" comes down to "price goes up, buy, price goes down, sell". Through share price they wield an extremely blunt version of the same weapon. This is almost worse, because it very explicitly cares only about the short-term price. It's also a much harder problem to solve, because you can't just tell those people "think long-term and ethically when you're exercising your impact on the marketplace!". No matter how ethical they may be as individuals, most of them probably don't even know which companies they have stakes in, much less whether those companies are heading in the right direction!
- WalterBright 6y ago
  > it very explicitly cares only about the short-term price. There is no short term price in stocks. Stocks are valued at their perceived long term value. If shareholders suspect a company is sacrificing the long term for the short term, they're going to dump the stock until the price of it drops to reflect that. This also implies that if you can reliably detect that a company is eating its seed corn before everyone else does, you can make a mint shorting it.

mpalczewski 6y ago

share holders? The same "passive investors" that are buying an index fund that includes Boeing. It's not about leverage it's about taking time and figuring out what you are investing in. Everyone wants the free ride of "investing" nobody actually wants to pick stocks by doing research into which companies have sustainable businesses and good governance.

donavanm 6y ago
Well then it will be really easy for those active fund managers to fleece the naive index rubes, right?
- mpalczewski 6y ago
  Active fund managers are worse, they have a different racket closet indexing while charging high fees is the most common starting a bunch of different funds, and then when one of them outperforms by chance, marketing that one as the one is another.

achillesheels 6y ago

Otherwise known as the "democratic means of production" which can be measured by how many US citizens own equities (almost 50%). And let's not discount the "managerial revolution" that has occurred as management:labor ratios have exploded over time (and noted by the Pulitzer Prize winning The Visible Hand by Alfred D. Chandler, Jr.)

Causality1 6y ago

Were it up to me I'd personalize all liability, including legal. No more corporate fines. Fines levied against corporations should come directly from the personal fortunes of shareholders and legal malfeasance should always result in prison time for the decision makers, even if it's as little as a single week in jail.

londons_explore 6y ago
Would anyone dare touch a stock market if they were personally responsible for liabilities of companies they invest in? Particularly in the case of stock indexes - where a single company with a $xxT poorly written contract could wipe out the entire index and everyone who held it.
- Causality1 6y ago
  Proportionality. If you own one tenth of one percent of the stock you should have one tenth of one percent of the liability. No liability equals no responsibility equals no integrity. Being an amoral company should be just as likely to end in disaster as being an amoral person.
- lstodd 6y ago
  Why not? Insurance companies will skim some profit off, is all
  - londons_explore 6y ago
    Imagine some middle manager in some S&P 500 company approves a contract that says: "Company A agrees to purchase for $1000 each product offered by company B which meet the specifications provided". And Company B finds that the spec says "A quartz crystal between 1um and 1mm in diameter". So company B goes and finds a beach, full of sand, calculates there are 1 billion grains of sand in each cubic meter of the beach, and the beach is 50m long, 50m deep, and 50m wide. Total amount is 50 * 50 * 50 * 1 billion * $1000 = $125 quadrillion. Far more than all the money in the world. That bankrupts the company, but since there is no liability limit, it bankrupts every other investor. Even if you have 0.0001% of the company, you're still bankrupt. If you have insurance, the insurance company is bankrupt, and you're still on the hook for whatever remains, which bankrupts you too.

evandijk70 6y ago

In what way has our society decayed?