3 ms·

Actually, I think that money is theirs. It's not part of their stock, it's cash that they have in reserve.

by dpcx 15y ago

huggyface 15y ago
I think they're saying that it's the shareholder's money, which is absolutely true. However that doesn't preclude them from doing good with it, even in money-losing investments, beyond perhaps shareholder revolt ousting the board. There's an oft claimed belief that corporations are somehow bound by corporate law to do everything in their abilities to increase profits/returns for their shareholders. That is not and has never been true. Corporations are essentially mini-democracies, albeit where your say is scaled by your ownership: If the shareholders don't like it they have mechanisms to deal with it.
- tedunangst 15y ago
  Nothing prevents the shareholders from taking the dividend and investing it in cold fusion or flying cars. Then you don't even need to take a vote. You just give people their money and they decide what to do with it.
InclinedPlane 15y ago
The board aren't the owners, they're just the board, the owners are the share holders. The company literally belongs to them, as does this money.
- __alexs 15y ago
  That is to stretch the definition of ownership quite a lot. Share holders have no rights to or control of any portion of the cash balance of a company that are not granted to them by the board.
  - tptacek 15y ago
    The board represents and has a fiduciary duty to the shareholders. The term "fiduciary duty" is not abstract; it has legal force, hence the frequency in the news of another investing term: "shareholder's lawsuit".
- _delirium 15y ago
  That's true, but the shareholders have delegated the decision on how to spend the money to their legal representatives on the board. There's a strong presumption that the shareholders have elected board members whose decisions they support, so if the board makes decisions and the shareholders don't vote them out, those are presumed to express the preferences of the shareholders. Note that those decisions do not have to maximize shareholder profit. Shareholders can elect board members who commit to maximizing shareholder value, but they can also elect board members with a variety of other preferences and ideas about how to best run a company, or how to best spend its cash on hand. The board can legally pursue a wide range of strategies, and shareholder lawsuits basically never prevail (in the U.S.) absent some kind of overt wrongdoing, like secret side deals made by board members or something like that, or else shenanigans related to mergers and equity (e.g. some kinds of dilution). (There's a persistent myth to the contrary, but it's not really rooted in law; see e.g. http://truthonthemarket.com/2010/07/27/the-shareholder-wealth-maximization-myth/ http://truthonthemarket.com/2010/07/27/the-shareholder-wealt... and http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar/1 http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar... ... and even if that weren't true, courts are willing to grant considerable leeway to business strategies such as "building goodwill" and "increasing positive sentiment towards the brand", since courts aren't in a good position to second-guess a duly elected board on such points). I tend to think of it as the board being in possession of the company that the shareholders have all but signed over to them; with shareholders retaining notional ownership, mainly enforced via the rarely exercised right to revoke the delegation of power if they get sufficiently angry.
  - tptacek 15y ago
    So, the clarity you've added here is neat (I hadn't drilled down into the specifics of what "fiduciary duty" meant in law, and also had been using "maximize shareholder value" as a shorthand for it), but if you search, you'll find lots of instances of boards being sued for breaches of loyalty over company business decisions. Courts seem to find lots of ways to connect the dots between "putting the interests of the corporation first" and "not signing off on dumb business decisions, like giving the CEO a huge raise in a year where the company missed its numbers". Regardless; Apple is not going to space, at least not until it can figure out how to make money doing it.

Actually, I think that money is theirs. It's not part of their stock, it's cash that they have in reserve.

by dpcx 15y ago

Actually, I think that money is theirs. It's not part of their stock, it's cash that they have in reserve.

I think they're saying that it's the shareholder's money, which is absolutely true. However that doesn't preclude them from doing good with it, even in money-losing investments, beyond perhaps shareholder revolt ousting the board. There's an oft claimed belief that corporations are somehow bound by corporate law to do everything in their abilities to increase profits/returns for their shareholders. That is not and has never been true. Corporations are essentially mini-democracies, albeit where your say is scaled by your ownership: If the shareholders don't like it they have mechanisms to deal with it.

tedunangst 15y ago
Nothing prevents the shareholders from taking the dividend and investing it in cold fusion or flying cars. Then you don't even need to take a vote. You just give people their money and they decide what to do with it.

InclinedPlane 15y ago

The board aren't the owners, they're just the board, the owners are the share holders. The company literally belongs to them, as does this money.

__alexs 15y ago
That is to stretch the definition of ownership quite a lot. Share holders have no rights to or control of any portion of the cash balance of a company that are not granted to them by the board.
- tptacek 15y ago
  The board represents and has a fiduciary duty to the shareholders. The term "fiduciary duty" is not abstract; it has legal force, hence the frequency in the news of another investing term: "shareholder's lawsuit".
_delirium 15y ago
That's true, but the shareholders have delegated the decision on how to spend the money to their legal representatives on the board. There's a strong presumption that the shareholders have elected board members whose decisions they support, so if the board makes decisions and the shareholders don't vote them out, those are presumed to express the preferences of the shareholders. Note that those decisions do not have to maximize shareholder profit. Shareholders can elect board members who commit to maximizing shareholder value, but they can also elect board members with a variety of other preferences and ideas about how to best run a company, or how to best spend its cash on hand. The board can legally pursue a wide range of strategies, and shareholder lawsuits basically never prevail (in the U.S.) absent some kind of overt wrongdoing, like secret side deals made by board members or something like that, or else shenanigans related to mergers and equity (e.g. some kinds of dilution). (There's a persistent myth to the contrary, but it's not really rooted in law; see e.g. http://truthonthemarket.com/2010/07/27/the-shareholder-wealth-maximization-myth/ http://truthonthemarket.com/2010/07/27/the-shareholder-wealt... and http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar/1 http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar... ... and even if that weren't true, courts are willing to grant considerable leeway to business strategies such as "building goodwill" and "increasing positive sentiment towards the brand", since courts aren't in a good position to second-guess a duly elected board on such points). I tend to think of it as the board being in possession of the company that the shareholders have all but signed over to them; with shareholders retaining notional ownership, mainly enforced via the rarely exercised right to revoke the delegation of power if they get sufficiently angry.
- tptacek 15y ago
  So, the clarity you've added here is neat (I hadn't drilled down into the specifics of what "fiduciary duty" meant in law, and also had been using "maximize shareholder value" as a shorthand for it), but if you search, you'll find lots of instances of boards being sued for breaches of loyalty over company business decisions. Courts seem to find lots of ways to connect the dots between "putting the interests of the corporation first" and "not signing off on dumb business decisions, like giving the CEO a huge raise in a year where the company missed its numbers". Regardless; Apple is not going to space, at least not until it can figure out how to make money doing it.