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It makes sense as things are right now. It's anchored by a bunch of court decisions that arguably subvert the public interest. Do I think Shareholder value shou

by adamc 3y ago

It makes sense as things are right now. It's anchored by a bunch of court decisions that arguably subvert the public interest. Do I think Shareholder value should be all that drives corporations? No. But I don't think corporations should be considered people, either.

graemep 3y ago
So what should their aims be? Who should decide that? The shareholder's could also fire directors who did not accept the best offer? I am not familiar with the US decisions you refer to, BUT the same thing would happen in the UK, for example, where I would expect the other directors and the shareholders to ensure a really good offer was accepted.
- no_wizard 3y ago
  Why not let them be what they are? The most base level definition, a corporation is simply A group of people authorized to act as a single entity and recognized as such in law. Even if you take a slightly more expansive take on that, there is nothing that inherently means a corporation should exist to maximize profit. Its minimally viable definition is pretty well understood: A legal organization of people to act as a singular entity and are recognized as such under the law, typically formed as commercial entities to transact commerce on their behalf. I don't think that misses anything. Anything piled on top of that seems like something that should be specific from business to business. Thats my general issue with the US courts siding with maximize shareholder value to the point its now seen as a decree. Especially when such rulings tend to trounce majority shareholders by minority ones.
- jorvi 3y ago
  > So what should their aims be? The market should decide that. And somehow, “shareholders” (what a giant tent) are currently destroying corporations and thus markets in the chase of ever higher returns. A good metaphor for a this as a whole is the Ultimate Ears Roll 2. For its time it was a really good Bluetooth speaker, punching far above its weight compared to competing Bluetooth speakers, but also within Ultimate Ears’ product line. There was almost no reason to go one or two product tiers higher. In a healthy market, the other competitors would have stepped up, and Ultimate Ears would have improved their other products to create sufficient differentiation. Instead, Ultimate Ears just discontinued the Roll 2 and replaced it with a relatively inferior product. In a rational market without shareholders this doesn’t make sense, but once you consider that the company isn’t optimizing for sales (good and/or cheap products) but for shareholder value, the picture fits.
- Karellen 3y ago
  Before the Friedman Doctrine[0] (that is, that a corporation's only responsibility was to its shareholders) was put forward in 1970, and generally accepted sometime around the '80s, it had been held for centuries[1] that shareholder-owned corporations also had responsibilities to society and the general public, as well as to their industry and their employees. Yes, they had responsibilities to their shareholders, but those did not automatically override literally any other consideration. [0] https://en.wikipedia.org/wiki/Friedman_doctrine https://en.wikipedia.org/wiki/Friedman_doctrine [1] The Amsterdam Stock Exchange was founded for the trading of shares in the first real publicly-traded joint-stock company, the Dutch East India Company, in 1602. https://en.wikipedia.org/wiki/Euronext_Amsterdam https://en.wikipedia.org/wiki/Euronext_Amsterdam
  - gottorf 3y ago
    > it had been held for centuries[1] that shareholder-owned corporations also had responsibilities to society and the general public, as well as to their industry and their employees. For centuries[0], governments were very limited, and other organized institutions of human life, like churches and businesses, held duties to the public at large. Government spending as a percentage of GDP in the US, for example, remained in the single digits for most of its history[1] (outside of wartime), with a big bump post-WW2, then another big bump in the 70s with the Great Society programs, leading up to the current figure of a little over a third of the economy[2]. For an even longer view, government spending in the UK from the late 1600s and onward hovered around 10% with the same wartime jumps[3] for centuries, until the two world wars and the permanent expansion of the welfare state, hanging on around 45% now. So, it's a very reasonable view to say that governments around the world started to take a much more sizable role in such "responsibilities" to society, and crowded out private efforts in those arenas. In effect, redistributive taxes are supposed to take place of those previously responsible. [0]: Millennia, really; for most of civilized human existence. [1]: https://taxfoundation.org/research/all/federal/short-history-government-taxing-and-spending-united-states/ https://taxfoundation.org/research/all/federal/short-history... [2]: https://www.imf.org/external/datamapper/exp@FPP/USA/FRA/JPN/GBR/SWE/ESP/ITA/ZAF/IND https://www.imf.org/external/datamapper/exp@FPP/USA/FRA/JPN/... [3]: https://researchbriefings.files.parliament.uk/documents/CBP-8265/CBP-8265.pdf https://researchbriefings.files.parliament.uk/documents/CBP-...
- aravindet 3y ago
  The simple and unsatisfying answer is that the board is responsible for these decisions, and the board should be constituted in accordance with each company's articles. My point is that there is nothing inevitable about the board representing the interests of shareholders alone. A typical company where the shareholders appoint most or all of the directors is not the only way to set up a board, and I'd argue that there are legitimate reasons to set up a company where other stakeholders (e.g. employees [1][2] or customers [3]) appoint directors. Also, consider this: There is a risk/return continuum between bondholders and shareholders (through holders of various other convertible and preferred securities). It is always an arbitrary decision as to where to draw the line separating investors who get a say and those who don't. So my view in all this is that as long as Figma’s board was appointed in accordance with its constitution, and the board members weren’t acting corruptly (e.g. bribery, conflicts of interest) or exceeding their authority under the company's constitution, shareholders should NOT get to challenge that board’s decisions. (IANAL; this is my view, not necessarily what the law says.) p.s. A stock exchange may require that boards be primarily represent shareholders as a condition for listing; but this should not affect privately held companies. [1] https://en.wikipedia.org/wiki/Codetermination_in_Germany https://en.wikipedia.org/wiki/Codetermination_in_Germany [2] https://en.wikipedia.org/wiki/Worker_cooperative https://en.wikipedia.org/wiki/Worker_cooperative [3] https://en.wikipedia.org/wiki/Consumers%27_co-operative https://en.wikipedia.org/wiki/Consumers%27_co-operative
jph00 3y ago
In the US there’s another option: become a Public Benefit Corporation (PBC). That’s what we (Answer.AI) did. It provides a great solution to exactly this problem: you don’t have to sell your company just because the financial offer is high; if it’s not going to help you achieve your stated public benefit then you can reject the offer. There’s really no significant downside to becoming a PBC, AFAICT, and a lot of potential upside.
- whatshisface 3y ago
  The fact your investors won't be able to exit as easily (or ever) is a significant downside if you're having any difficulty at all raising money. It's easier to found a charity than find philanthropists!

by adamc 3y ago

graemep 3y ago

So what should their aims be? Who should decide that? The shareholder's could also fire directors who did not accept the best offer? I am not familiar with the US decisions you refer to, BUT the same thing would happen in the UK, for example, where I would expect the other directors and the shareholders to ensure a really good offer was accepted.

no_wizard 3y ago
Why not let them be what they are? The most base level definition, a corporation is simply A group of people authorized to act as a single entity and recognized as such in law. Even if you take a slightly more expansive take on that, there is nothing that inherently means a corporation should exist to maximize profit. Its minimally viable definition is pretty well understood: A legal organization of people to act as a singular entity and are recognized as such under the law, typically formed as commercial entities to transact commerce on their behalf. I don't think that misses anything. Anything piled on top of that seems like something that should be specific from business to business. Thats my general issue with the US courts siding with maximize shareholder value to the point its now seen as a decree. Especially when such rulings tend to trounce majority shareholders by minority ones.
jorvi 3y ago
> So what should their aims be? The market should decide that. And somehow, “shareholders” (what a giant tent) are currently destroying corporations and thus markets in the chase of ever higher returns. A good metaphor for a this as a whole is the Ultimate Ears Roll 2. For its time it was a really good Bluetooth speaker, punching far above its weight compared to competing Bluetooth speakers, but also within Ultimate Ears’ product line. There was almost no reason to go one or two product tiers higher. In a healthy market, the other competitors would have stepped up, and Ultimate Ears would have improved their other products to create sufficient differentiation. Instead, Ultimate Ears just discontinued the Roll 2 and replaced it with a relatively inferior product. In a rational market without shareholders this doesn’t make sense, but once you consider that the company isn’t optimizing for sales (good and/or cheap products) but for shareholder value, the picture fits.
Karellen 3y ago
Before the Friedman Doctrine[0] (that is, that a corporation's only responsibility was to its shareholders) was put forward in 1970, and generally accepted sometime around the '80s, it had been held for centuries[1] that shareholder-owned corporations also had responsibilities to society and the general public, as well as to their industry and their employees. Yes, they had responsibilities to their shareholders, but those did not automatically override literally any other consideration. [0] https://en.wikipedia.org/wiki/Friedman_doctrine https://en.wikipedia.org/wiki/Friedman_doctrine [1] The Amsterdam Stock Exchange was founded for the trading of shares in the first real publicly-traded joint-stock company, the Dutch East India Company, in 1602. https://en.wikipedia.org/wiki/Euronext_Amsterdam https://en.wikipedia.org/wiki/Euronext_Amsterdam
- gottorf 3y ago
  > it had been held for centuries[1] that shareholder-owned corporations also had responsibilities to society and the general public, as well as to their industry and their employees. For centuries[0], governments were very limited, and other organized institutions of human life, like churches and businesses, held duties to the public at large. Government spending as a percentage of GDP in the US, for example, remained in the single digits for most of its history[1] (outside of wartime), with a big bump post-WW2, then another big bump in the 70s with the Great Society programs, leading up to the current figure of a little over a third of the economy[2]. For an even longer view, government spending in the UK from the late 1600s and onward hovered around 10% with the same wartime jumps[3] for centuries, until the two world wars and the permanent expansion of the welfare state, hanging on around 45% now. So, it's a very reasonable view to say that governments around the world started to take a much more sizable role in such "responsibilities" to society, and crowded out private efforts in those arenas. In effect, redistributive taxes are supposed to take place of those previously responsible. [0]: Millennia, really; for most of civilized human existence. [1]: https://taxfoundation.org/research/all/federal/short-history-government-taxing-and-spending-united-states/ https://taxfoundation.org/research/all/federal/short-history... [2]: https://www.imf.org/external/datamapper/exp@FPP/USA/FRA/JPN/GBR/SWE/ESP/ITA/ZAF/IND https://www.imf.org/external/datamapper/exp@FPP/USA/FRA/JPN/... [3]: https://researchbriefings.files.parliament.uk/documents/CBP-8265/CBP-8265.pdf https://researchbriefings.files.parliament.uk/documents/CBP-...
aravindet 3y ago
The simple and unsatisfying answer is that the board is responsible for these decisions, and the board should be constituted in accordance with each company's articles. My point is that there is nothing inevitable about the board representing the interests of shareholders alone. A typical company where the shareholders appoint most or all of the directors is not the only way to set up a board, and I'd argue that there are legitimate reasons to set up a company where other stakeholders (e.g. employees [1][2] or customers [3]) appoint directors. Also, consider this: There is a risk/return continuum between bondholders and shareholders (through holders of various other convertible and preferred securities). It is always an arbitrary decision as to where to draw the line separating investors who get a say and those who don't. So my view in all this is that as long as Figma’s board was appointed in accordance with its constitution, and the board members weren’t acting corruptly (e.g. bribery, conflicts of interest) or exceeding their authority under the company's constitution, shareholders should NOT get to challenge that board’s decisions. (IANAL; this is my view, not necessarily what the law says.) p.s. A stock exchange may require that boards be primarily represent shareholders as a condition for listing; but this should not affect privately held companies. [1] https://en.wikipedia.org/wiki/Codetermination_in_Germany https://en.wikipedia.org/wiki/Codetermination_in_Germany [2] https://en.wikipedia.org/wiki/Worker_cooperative https://en.wikipedia.org/wiki/Worker_cooperative [3] https://en.wikipedia.org/wiki/Consumers%27_co-operative https://en.wikipedia.org/wiki/Consumers%27_co-operative

jph00 3y ago

In the US there’s another option: become a Public Benefit Corporation (PBC). That’s what we (Answer.AI) did. It provides a great solution to exactly this problem: you don’t have to sell your company just because the financial offer is high; if it’s not going to help you achieve your stated public benefit then you can reject the offer. There’s really no significant downside to becoming a PBC, AFAICT, and a lot of potential upside.

whatshisface 3y ago
The fact your investors won't be able to exit as easily (or ever) is a significant downside if you're having any difficulty at all raising money. It's easier to found a charity than find philanthropists!