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These days, those corporate insiders have a lot of their wealth tied up their company's stock. So while it's a terrible way to think about running a company, a

These days, those corporate insiders have a lot of their wealth tied up their company's stock. So while it's a terrible way to think about running a company, a lot of companies are run that way because it benefits the people running them.

eru 6y ago
> These days, those corporate insiders have a lot of their wealth tied up their company's stock. Yes, that helps a bit to align incentives. In practice, it's only a start. (It's especially interesting because investors these days tend to be broadly diversified and typically own shares in all the companies in an industry. Managers are typically highly concentrated.)
- scott_s 6y ago
  I think you're coming to the opposite conclusion I implied. Because corporate insiders' wealth is tied up in company stock, they are incentivized to optimize for the value of the stock, which may be counter to the long-term health of the company.
  - eru 6y ago
    > [...], they are incentivized to optimize for the value of the stock, which may be counter to the long-term health of the company. That would imply that shareholders are idiots. And especially that all hedgefunds are idiots as well. Otherwise you'd expect a lot of short-selling once the stock price exceeds the long term health, wouldn't you?
    - scott_s 6y ago
      If everyone was rational and had full information, yes. But it can take a while for outsiders to catch on, and people are not fully rational. For two high profile examples, look at GE and Boeing. They had a reckoning, but it took a long time.
      - eru 6y ago
        We don't need everyone to be fully rational. Especially not when short selling is safe and easy to do. With proper shortselling, a single entity can benefit from muckracking. Of course, short selling is the first thing that gets banned at the drop of a hat. To give a timeless example: https://www.google.com/search?q=france+bans+short+selling https://www.google.com/search?q=france+bans+short+selling You are right that it can take a while in practice. We should make it easier for the reckoning to come.

eru 6y ago

> These days, those corporate insiders have a lot of their wealth tied up their company's stock. Yes, that helps a bit to align incentives. In practice, it's only a start. (It's especially interesting because investors these days tend to be broadly diversified and typically own shares in all the companies in an industry. Managers are typically highly concentrated.)

scott_s 6y ago
I think you're coming to the opposite conclusion I implied. Because corporate insiders' wealth is tied up in company stock, they are incentivized to optimize for the value of the stock, which may be counter to the long-term health of the company.
- eru 6y ago
  > [...], they are incentivized to optimize for the value of the stock, which may be counter to the long-term health of the company. That would imply that shareholders are idiots. And especially that all hedgefunds are idiots as well. Otherwise you'd expect a lot of short-selling once the stock price exceeds the long term health, wouldn't you?
  - scott_s 6y ago
    If everyone was rational and had full information, yes. But it can take a while for outsiders to catch on, and people are not fully rational. For two high profile examples, look at GE and Boeing. They had a reckoning, but it took a long time.
    - eru 6y ago
      We don't need everyone to be fully rational. Especially not when short selling is safe and easy to do. With proper shortselling, a single entity can benefit from muckracking. Of course, short selling is the first thing that gets banned at the drop of a hat. To give a timeless example: https://www.google.com/search?q=france+bans+short+selling https://www.google.com/search?q=france+bans+short+selling You are right that it can take a while in practice. We should make it easier for the reckoning to come.