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As publicly traded companies (eg. Goldman, Morgan Stanley), don't the executives have legal obligations towards the shareholders? Isn't it illegal for them to g

by Maro 15y ago

As publicly traded companies (eg. Goldman, Morgan Stanley), don't the executives have legal obligations towards the shareholders? Isn't it illegal for them to game the rules to maximize their bonuses at the expense of the company's long-term viability? Why don't the shareholders fire these guys out of simple self-interest to protect the value of the stock they're holding? If I were the owner of a company and the CEO I hired to run it for me were to put my company at risk for his bonuses I'd be hitting my head against the wall and firing him. No gov't regulation required.

vbo 15y ago
Why don't the shareholders fire these guys out of simple self-interest to protect the value of the stock they're holding? Because malignity is obvious in hindsight, not so much though when you're chasing short term profits and looking at various incentive schemes (bonuses) to make people perform. Which is what they end up doing, in a narrow sighted kind of way, focusing on fulfilling the bonus criteria by gaming the system rather than protecting the interests of their shareholders. Incentives of this kind lead to inward rather than outward focus; Barry Schwartz and Kenneth Sharpe discuss this matter at length in "Practical Wisdom".
damoncali 15y ago
Nobody wants to ruin the party. You're asking someone to stand up and say "stop making so much money, this isn't sustainable" when EVERYONE is making money hand over fist. Sure, it may be the right thing to do depending on your point of view, but nobody will do it because they will be laughed out of the room and cast aside. Retail share holders are ignorant, so they don't matter. Big share holders know that there is a time frame that they care about that is as short as they want it to be. They don't care about the long term. The board of directors (in theory) should, but even they are short-timers. Asking them to stop making money in the short term to help the long term is counter to their personal interests. It's just a flaw in the system, and a major argument against going public. Interestingly, the handful of folks I know who have served as directors for public companies all share certain personality trais: A strong extroversion (in that they seem to care a lot about what others think of them), a tendency towards overconfidence, and an aloof demeanor. Not sure if that's universal, but it's something I've noticed. It probably doesn't help.
- Maro 15y ago
  > Big share holders know that there is a time frame that they care about that is as short as they want it to be. It's always said that the it's the "public" [through centralized funds like retirement funds] that get the short end of the stick at the end of a bubble. It seems to me these _are_ big share holders and they _should_ care.
  - damoncali 15y ago
    Everyone should care. But the reality is that almost nobody does in the public market system.
jonhendry 15y ago
" Why don't the shareholders fire these guys out of simple self-interest to protect the value of the stock they're holding?" They're not willing to unilaterally disarm. They think their 'most talented' people will flock to the other companies that haven't reformed.

by Maro 15y ago

vbo 15y ago

Why don't the shareholders fire these guys out of simple self-interest to protect the value of the stock they're holding? Because malignity is obvious in hindsight, not so much though when you're chasing short term profits and looking at various incentive schemes (bonuses) to make people perform. Which is what they end up doing, in a narrow sighted kind of way, focusing on fulfilling the bonus criteria by gaming the system rather than protecting the interests of their shareholders. Incentives of this kind lead to inward rather than outward focus; Barry Schwartz and Kenneth Sharpe discuss this matter at length in "Practical Wisdom".

damoncali 15y ago

Nobody wants to ruin the party. You're asking someone to stand up and say "stop making so much money, this isn't sustainable" when EVERYONE is making money hand over fist. Sure, it may be the right thing to do depending on your point of view, but nobody will do it because they will be laughed out of the room and cast aside. Retail share holders are ignorant, so they don't matter. Big share holders know that there is a time frame that they care about that is as short as they want it to be. They don't care about the long term. The board of directors (in theory) should, but even they are short-timers. Asking them to stop making money in the short term to help the long term is counter to their personal interests. It's just a flaw in the system, and a major argument against going public. Interestingly, the handful of folks I know who have served as directors for public companies all share certain personality trais: A strong extroversion (in that they seem to care a lot about what others think of them), a tendency towards overconfidence, and an aloof demeanor. Not sure if that's universal, but it's something I've noticed. It probably doesn't help.

Maro 15y ago
> Big share holders know that there is a time frame that they care about that is as short as they want it to be. It's always said that the it's the "public" [through centralized funds like retirement funds] that get the short end of the stick at the end of a bubble. It seems to me these _are_ big share holders and they _should_ care.
- damoncali 15y ago
  Everyone should care. But the reality is that almost nobody does in the public market system.

jonhendry 15y ago

" Why don't the shareholders fire these guys out of simple self-interest to protect the value of the stock they're holding?" They're not willing to unilaterally disarm. They think their 'most talented' people will flock to the other companies that haven't reformed.