7 ms·

This is why I think we need to figure out executive compensation. Boards just rubber stamp whatever the CEO wants. Tie their compensation to real goals and req

This is why I think we need to figure out executive compensation. Boards just rubber stamp whatever the CEO wants. Tie their compensation to real goals and require them to hold for the next 10 years.

kQq9oHeAz6wLLS 5y ago
What do you mean "we"? Like government intervention? These are private companies, if they don't want to change this aspect, there's not a lot you can do aside from getting on the board...
- bckr 5y ago
  > What do you mean "we"? Perhaps people who are interested in building great companies, like the regulars of a tech startup-centric forum
  - throwawaylinux 5y ago
    I think it's great that companies particularly large incumbents tend to decay and fall after a time. It promotes renewal and evolution, like the cycle of life and death. It's a bit sentimental to want a company to survive decades. It would be much worse if the big incumbents all remained at the top and dug themselves into the regulators and politicians and crowded out others (they already do to a great extent but it could be a lot worse).
    - bckr 5y ago
      On the other hand, as a consumer, I'd like the services that I'm using now to remain useable for the rest of my life.
      - throwawaylinux 5y ago
        People in 1900, as consumers, thought they'd need a reliable supply of horse feed for the rest of their lives too. Uncertainty and risk are big reasons why people fear change, I completely understand. I'm not saying the feeling or desire for stable incumbents is invalid, although maybe my comment could have been worded a bit better.
- jtbayly 5y ago
  They are publicly traded companies, mostly.
- cheriot 5y ago
  Governments place a lot of rules on corporate governance already. Maybe a new one is called for. Maybe a social movement that pushes index funds to exercise the voting shares they hold. I'm open to ideas.
zozbot234 5y ago
The real defense against this dynamic is the takeover bid. If you think the existing board and CEO are doing a poor job of running the company by neglecting growth opportunities, you can literally buy out the existing shareholders' position and be in charge. If you're right, you'll reap the gain in the form of increased valuation for the shares you bought.
- lisper 5y ago
  That only works if the market recognizes the long-term impact of financialization and prices the company accordingly. Otherwise you'll be paying more than the company is actually worth. By the time it becomes obvious that the company was overpriced it's too late. Whatever actual value might have been there back in the day has already been destroyed.
- orzig 5y ago
  I've been successful enough, but glancing at my bank account it doesn't look like i can literally buy 51% of any company I've heard of. Have you done it? Or can you help point me to someone like myself who has? If 'you' meant "Private Equity Firms that specialize in hostile leveraged buyouts", are they numerous enough to squeeze inefficiency out of the Fortune 500?
  - CSSer 5y ago
    Activist investing is a thing if that's what you're asking. This link includes a short list of such famous individuals: https://www.investopedia.com/terms/a/activist-investor.asp https://www.investopedia.com/terms/a/activist-investor.asp
- CSSer 5y ago
  Forgive me if this sounds foolish, I don't know how this stuff works. Could it be possible to somehow write something like this as a requirement into the corporate charter or articles of incorporation such that if these terms were violated the company would have to be dissolved (or some other equivalent nuclear option)? Has there ever been anything like this e.g. 'if company ever stop selling x, it has to close down'?
bushbaba 5y ago
Why would the board care about the 10 year health of a public traded company, If that same board could profit on the short term gains and get out before it tanks? When the board members taking their gains and re-investing them in other companies to then repeat this strategy.
- lend000 5y ago
  I think the solution is in reforming capital gains taxes. You should only get the discount on taxes if you hold for 5+ years. And even then, the brackets should be more progressive for extreme (e.g. hundreds of millions) in income.
  - mwint 5y ago
    Overall, these two changes would incentivize holding stocks <1 year more often than people do currently. Perhaps you could get a longer-term effect if you had another, lower tax level at 5+ years, or raised moderately the 1+ year cap gains rate and moved the current one to 5 years.
    - lend000 5y ago
      That's fine with me -- they shouldn't get a discount if it isn't a long term investment.
      - mwint 5y ago
        There are severe market stability issues associated with people gravitating towards <1 year holdings. The cap gains rate exists partially to encourage long-ish holdings. With that incentive severely reduced as your plan proposes, you’ll see much Miles’s incentive to hold and more volatile markets.
        lend000 5y ago
        I doubt there is anything specific about an exact one year holding cutoff, but I'd love to see a source. If anything, the fact that we're having this conversation suggests the long term investment theory has been demonstrated to be either false or uncalibrated as it exists now. I'd also be open to a graduated rate (almost like a vesting schedule) of discounts starting at 1-2 years and ending at 5 years. But do we really need more complexity? Just have it be 5 years and public companies can be long-term focused once again. Markets will survive -- day traders tend to lose money and drop out.
chadcmulligan 5y ago
I saw an interview with an old finance guy some years ago talking about this, he was saying in the past you'd work for a company and spend your career there, you'd get shares somehow (through partnerships or some other mechanism, but you can't sell them) and as the years go by the value of your shares increases and you get more and more, so its in your self interest to keep the company going. Now it's in the interest of a CEO to take a performing company carve out the middle so profits go up in the short term, shareholders get more money, he gets fat bonuses and the company dies. Though there were problems with the old style too - they became very conservative and couldn't adapt among other things.
- cheriot 5y ago
  +1 the way shareholders and managers have a shorter time horizon than their employees is a huge red flag
jmcgough 5y ago
> Boards just rubber stamp whatever the CEO wants Boards often want the same thing because members usually own stock in the company. Make a lot of money in the short term, pump that into stock buybacks, profit. Shareholders want the same thing - they often aren't looking past the next 1-4 quarters, they want fast returns.
- cheriot 5y ago
  > Shareholders want the same thing Maybe that's the root of it and long-term capital gains should take longer than 1 year. The owners have a shorter horizon than employees!
BobbyJo 5y ago
It's not really a solvable problem IMO. Big corporations and humans have different lifespans, so trying to tie together their fates is kind of fools errand. Intel's success has a time horizon of decades. The only person willing to sacrifice that kind of time for a company to see things through is the founder, because it's more sentimentality than achievement or profit seeking.
- cheriot 5y ago
  If Intel's business requires a time horizon of decades and its owners time horizon is a couple years isn't that a problem? I'd propose some portion of a leader's comp should stay in company stock for 10 years even if they leave after 3. That will incentivize them to make good capital investments and train the next generation of leaders.
morgante 5y ago
I'm not convinced this is even a problem that needs to be solved. If companies inevitable self-destruct from short-term management, that creates space for new companies to emerge with new approaches. Sure, there will be some noise/churn but overall I think it makes the overall ecosystem stronger. The 1,000-year monopoly is a terrifying idea.
- cheriot 5y ago
  Creative destruction is important, but some businesses are easier to replace than others. How do you create another Intel or Boeing? The start up costs are insane. Even beyond that, there's value in some institutions.
  - emodendroket 5y ago
    I mean if we really need leading-edge aerospace or semiconductors protected from the vicissitudes of the market, the government getting more directly involved seems like the obvious answer.
    - cheriot 5y ago
      I agree for these two cases, but more generally the market has some inefficiencies when good companies self-immolate like this.

This is why I think we need to figure out executive compensation. Boards just rubber stamp whatever the CEO wants. Tie their compensation to real goals and require them to hold for the next 10 years.

kQq9oHeAz6wLLS 5y ago

What do you mean "we"? Like government intervention? These are private companies, if they don't want to change this aspect, there's not a lot you can do aside from getting on the board...

bckr 5y ago
> What do you mean "we"? Perhaps people who are interested in building great companies, like the regulars of a tech startup-centric forum
- throwawaylinux 5y ago
  I think it's great that companies particularly large incumbents tend to decay and fall after a time. It promotes renewal and evolution, like the cycle of life and death. It's a bit sentimental to want a company to survive decades. It would be much worse if the big incumbents all remained at the top and dug themselves into the regulators and politicians and crowded out others (they already do to a great extent but it could be a lot worse).
  - bckr 5y ago
    On the other hand, as a consumer, I'd like the services that I'm using now to remain useable for the rest of my life.
    - throwawaylinux 5y ago
      People in 1900, as consumers, thought they'd need a reliable supply of horse feed for the rest of their lives too. Uncertainty and risk are big reasons why people fear change, I completely understand. I'm not saying the feeling or desire for stable incumbents is invalid, although maybe my comment could have been worded a bit better.
jtbayly 5y ago
They are publicly traded companies, mostly.
cheriot 5y ago
Governments place a lot of rules on corporate governance already. Maybe a new one is called for. Maybe a social movement that pushes index funds to exercise the voting shares they hold. I'm open to ideas.

zozbot234 5y ago

The real defense against this dynamic is the takeover bid. If you think the existing board and CEO are doing a poor job of running the company by neglecting growth opportunities, you can literally buy out the existing shareholders' position and be in charge. If you're right, you'll reap the gain in the form of increased valuation for the shares you bought.

lisper 5y ago
That only works if the market recognizes the long-term impact of financialization and prices the company accordingly. Otherwise you'll be paying more than the company is actually worth. By the time it becomes obvious that the company was overpriced it's too late. Whatever actual value might have been there back in the day has already been destroyed.
orzig 5y ago
I've been successful enough, but glancing at my bank account it doesn't look like i can literally buy 51% of any company I've heard of. Have you done it? Or can you help point me to someone like myself who has? If 'you' meant "Private Equity Firms that specialize in hostile leveraged buyouts", are they numerous enough to squeeze inefficiency out of the Fortune 500?
- CSSer 5y ago
  Activist investing is a thing if that's what you're asking. This link includes a short list of such famous individuals: https://www.investopedia.com/terms/a/activist-investor.asp https://www.investopedia.com/terms/a/activist-investor.asp
CSSer 5y ago
Forgive me if this sounds foolish, I don't know how this stuff works. Could it be possible to somehow write something like this as a requirement into the corporate charter or articles of incorporation such that if these terms were violated the company would have to be dissolved (or some other equivalent nuclear option)? Has there ever been anything like this e.g. 'if company ever stop selling x, it has to close down'?

bushbaba 5y ago

Why would the board care about the 10 year health of a public traded company, If that same board could profit on the short term gains and get out before it tanks? When the board members taking their gains and re-investing them in other companies to then repeat this strategy.

lend000 5y ago
I think the solution is in reforming capital gains taxes. You should only get the discount on taxes if you hold for 5+ years. And even then, the brackets should be more progressive for extreme (e.g. hundreds of millions) in income.
- mwint 5y ago
  Overall, these two changes would incentivize holding stocks <1 year more often than people do currently. Perhaps you could get a longer-term effect if you had another, lower tax level at 5+ years, or raised moderately the 1+ year cap gains rate and moved the current one to 5 years.
  - lend000 5y ago
    That's fine with me -- they shouldn't get a discount if it isn't a long term investment.
    - mwint 5y ago
      There are severe market stability issues associated with people gravitating towards <1 year holdings. The cap gains rate exists partially to encourage long-ish holdings. With that incentive severely reduced as your plan proposes, you’ll see much Miles’s incentive to hold and more volatile markets.
      - lend000 5y ago
        I doubt there is anything specific about an exact one year holding cutoff, but I'd love to see a source. If anything, the fact that we're having this conversation suggests the long term investment theory has been demonstrated to be either false or uncalibrated as it exists now. I'd also be open to a graduated rate (almost like a vesting schedule) of discounts starting at 1-2 years and ending at 5 years. But do we really need more complexity? Just have it be 5 years and public companies can be long-term focused once again. Markets will survive -- day traders tend to lose money and drop out.

chadcmulligan 5y ago

I saw an interview with an old finance guy some years ago talking about this, he was saying in the past you'd work for a company and spend your career there, you'd get shares somehow (through partnerships or some other mechanism, but you can't sell them) and as the years go by the value of your shares increases and you get more and more, so its in your self interest to keep the company going. Now it's in the interest of a CEO to take a performing company carve out the middle so profits go up in the short term, shareholders get more money, he gets fat bonuses and the company dies. Though there were problems with the old style too - they became very conservative and couldn't adapt among other things.

cheriot 5y ago
+1 the way shareholders and managers have a shorter time horizon than their employees is a huge red flag

jmcgough 5y ago

> Boards just rubber stamp whatever the CEO wants Boards often want the same thing because members usually own stock in the company. Make a lot of money in the short term, pump that into stock buybacks, profit. Shareholders want the same thing - they often aren't looking past the next 1-4 quarters, they want fast returns.

cheriot 5y ago
> Shareholders want the same thing Maybe that's the root of it and long-term capital gains should take longer than 1 year. The owners have a shorter horizon than employees!

BobbyJo 5y ago

It's not really a solvable problem IMO. Big corporations and humans have different lifespans, so trying to tie together their fates is kind of fools errand. Intel's success has a time horizon of decades. The only person willing to sacrifice that kind of time for a company to see things through is the founder, because it's more sentimentality than achievement or profit seeking.

cheriot 5y ago
If Intel's business requires a time horizon of decades and its owners time horizon is a couple years isn't that a problem? I'd propose some portion of a leader's comp should stay in company stock for 10 years even if they leave after 3. That will incentivize them to make good capital investments and train the next generation of leaders.

morgante 5y ago

I'm not convinced this is even a problem that needs to be solved. If companies inevitable self-destruct from short-term management, that creates space for new companies to emerge with new approaches. Sure, there will be some noise/churn but overall I think it makes the overall ecosystem stronger. The 1,000-year monopoly is a terrifying idea.

cheriot 5y ago
Creative destruction is important, but some businesses are easier to replace than others. How do you create another Intel or Boeing? The start up costs are insane. Even beyond that, there's value in some institutions.
- emodendroket 5y ago
  I mean if we really need leading-edge aerospace or semiconductors protected from the vicissitudes of the market, the government getting more directly involved seems like the obvious answer.
  - cheriot 5y ago
    I agree for these two cases, but more generally the market has some inefficiencies when good companies self-immolate like this.