7 ms·

We need a better mechanism than going public. That only leads to the inevitable next-quarter-itis that has taken down once great companies like HP and Bell Lab

by TylerE 4y ago

We need a better mechanism than going public. That only leads to the inevitable next-quarter-itis that has taken down once great companies like HP and Bell Labs.

Nifty3929 4y ago
Don't forget that things are the way they are for good reasons, or at least historically good reasons. At least with next-quarter-itis you're holding execs accountable for delivering _something_ relatively soon. It's an imperfect check-and-balance. Are you excited by the fact that Mark Z doesn't suffer from this disease with Meta and is spending $25B/yr on a virtual reality platform that won't provide returns for many years, if at all? Quarterly reporting (and the inevitable over-weighting of it) is there to PROTECT small-time investors.
- hakfoo 4y ago
  As you said, the relationship between shareholders and the C-suite is a check-and-balance. Meta's structure basically makes Zuckerberg unoustable. He can continue to toss money into the ether chasing a particularly bad idea. Conversely, it's possible to have voting power so diluted that nobody who has a long-term vision has any way to promote it. Broad ownership allows people to call bullshit, but maybe something like a capital-gains surtax on shares held less than 5 years would make it too expensive to dive-bomb into a company just long enough to sabotage its long-term future.
  - Nifty3929 4y ago
    "capital-gains surtax" In the United States we have "long-term gains" which are taxed preferentially at much lower rates. How about we just stop doing that. Also for carried interest. Also also the "never mind about those taxes at all" stepped-up basis for your heirs when you die. All of these things simply distort the overall market as people modify their plans to account for these tax breaks. If you don't like to see higher taxes, then replace these distorting, selective tax-breaks with lower overall rates to make up the difference. Or if you like higher taxes then don't do that. But for gosh sakes can't we please get rid of these behavior-distorting tax laws?
cheriot 4y ago
My impression is that the incentives leading to "next-quarter-itis" are primarily executive compensation and investor's own timelines (influenced by long term cap gains only requiring one year). Keeping companies private just limits who can own them and doesn't help.
samtho 4y ago
We need a new exchange that focuses on driving profits for shareholders over a longer term especially ones with wider goals. I think there is a market desire for companies that have positive social or public goals but still make sense organized as a for-profit. What we might get is less pan-flash/hyper-growth-startup-IPO and more organically grown companies with a certain amount of staying power and positive social or public goals. Our current model of “must have quarter over quarter growth” is a good a check in theory but it’s too easy to cut corners in the short term instead of solving systemic, organizational problems which just kicks the can down the road.
- TylerE 4y ago
  Wonder if something like a one year lock in period would work. The fundamental change seems to have been circa 1960’or so, when stocks went from being things that earned a dividend - and the dividend is where most of the return came from, to most companies reducing and then stopping dividends altogether.
- cheriot 4y ago
  How does the exchange shares are trade on impact the incentives for management and shareholders? ltse.com has never made sense to me.
  - samtho 4y ago
    I would say that remains to be seen. I think the goal is to ultimately asking incentives to longer term views instead of quarterly ones, which may end up taking a different form down the road.
snarf21 4y ago
We need a law that says that CEOs and C-suite writ large and board members can't receive stock/options/RSU. Otherwise, we'll always be stuck in Goodhart's law. Maybe they make enough already and don't need bonuses. The "bonus" is keeping your job not getting a golden parachute.
- gwbrooks 4y ago
  Why do we need a law telling private holders of equity how they can or can't distribute that equity as incentives? If shareholders think the C-suite and/or board are overcompensated, they can vote for a different decision. And if they don't have the majority to get their way they can sell, buying into a company that better reflects their priorities. I'm not sure I see the case for further regulation of what are, essentially, private decisions and transactions.
- jocaal 4y ago
  Not giving management of a company shares is a very bad idea. A company's soul purpose is to serve its shareholders and to keep management and the shareholders on the same page, management should be given shares in the company. https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem?wprov=sfla1 https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...

by TylerE 4y ago

We need a better mechanism than going public. That only leads to the inevitable next-quarter-itis that has taken down once great companies like HP and Bell Labs.

Nifty3929 4y ago

Don't forget that things are the way they are for good reasons, or at least historically good reasons. At least with next-quarter-itis you're holding execs accountable for delivering _something_ relatively soon. It's an imperfect check-and-balance. Are you excited by the fact that Mark Z doesn't suffer from this disease with Meta and is spending $25B/yr on a virtual reality platform that won't provide returns for many years, if at all? Quarterly reporting (and the inevitable over-weighting of it) is there to PROTECT small-time investors.

hakfoo 4y ago
As you said, the relationship between shareholders and the C-suite is a check-and-balance. Meta's structure basically makes Zuckerberg unoustable. He can continue to toss money into the ether chasing a particularly bad idea. Conversely, it's possible to have voting power so diluted that nobody who has a long-term vision has any way to promote it. Broad ownership allows people to call bullshit, but maybe something like a capital-gains surtax on shares held less than 5 years would make it too expensive to dive-bomb into a company just long enough to sabotage its long-term future.
- Nifty3929 4y ago
  "capital-gains surtax" In the United States we have "long-term gains" which are taxed preferentially at much lower rates. How about we just stop doing that. Also for carried interest. Also also the "never mind about those taxes at all" stepped-up basis for your heirs when you die. All of these things simply distort the overall market as people modify their plans to account for these tax breaks. If you don't like to see higher taxes, then replace these distorting, selective tax-breaks with lower overall rates to make up the difference. Or if you like higher taxes then don't do that. But for gosh sakes can't we please get rid of these behavior-distorting tax laws?

cheriot 4y ago

My impression is that the incentives leading to "next-quarter-itis" are primarily executive compensation and investor's own timelines (influenced by long term cap gains only requiring one year). Keeping companies private just limits who can own them and doesn't help.

samtho 4y ago

We need a new exchange that focuses on driving profits for shareholders over a longer term especially ones with wider goals. I think there is a market desire for companies that have positive social or public goals but still make sense organized as a for-profit. What we might get is less pan-flash/hyper-growth-startup-IPO and more organically grown companies with a certain amount of staying power and positive social or public goals. Our current model of “must have quarter over quarter growth” is a good a check in theory but it’s too easy to cut corners in the short term instead of solving systemic, organizational problems which just kicks the can down the road.

TylerE 4y ago
Wonder if something like a one year lock in period would work. The fundamental change seems to have been circa 1960’or so, when stocks went from being things that earned a dividend - and the dividend is where most of the return came from, to most companies reducing and then stopping dividends altogether.
cheriot 4y ago
How does the exchange shares are trade on impact the incentives for management and shareholders? ltse.com has never made sense to me.
- samtho 4y ago
  I would say that remains to be seen. I think the goal is to ultimately asking incentives to longer term views instead of quarterly ones, which may end up taking a different form down the road.

snarf21 4y ago

We need a law that says that CEOs and C-suite writ large and board members can't receive stock/options/RSU. Otherwise, we'll always be stuck in Goodhart's law. Maybe they make enough already and don't need bonuses. The "bonus" is keeping your job not getting a golden parachute.

gwbrooks 4y ago
Why do we need a law telling private holders of equity how they can or can't distribute that equity as incentives? If shareholders think the C-suite and/or board are overcompensated, they can vote for a different decision. And if they don't have the majority to get their way they can sell, buying into a company that better reflects their priorities. I'm not sure I see the case for further regulation of what are, essentially, private decisions and transactions.
jocaal 4y ago
Not giving management of a company shares is a very bad idea. A company's soul purpose is to serve its shareholders and to keep management and the shareholders on the same page, management should be given shares in the company. https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem?wprov=sfla1 https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...