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"Ownership" without control gives you precisely nothing, except for perhaps standing in a shareholder lawsuit. A company being unaccountable to its investors s

"Ownership" without control gives you precisely nothing, except for perhaps standing in a shareholder lawsuit. A company being unaccountable to its investors should make it unattractive as an investment.

Klinky 13y ago
Shareholder accountability is pretty much bogus. The only shareholders who have ever had a real say are those who owned vast quantities. The flood of blind investing through retirement funds has further diluted shareholder influence to little more than demanding increasing share price.
- fiatmoney 13y ago
  Large institutional investors like mutual funds, pension funds, etc. have at least some of their incentives aligned with their own investors - they want the value of their holdings to go up (to increase management fees), which means exercising some level of corporate governance. For instance, looking askance at value-destroying vanity purchases (arguably, Oculus being the latest example). Even this minimal level of oversight isn't possible when they have no voting rights worth mentioning.
  - Klinky 13y ago
    Shareholders are so far out of the loop, rarely are they consulted on important business decisions. Usually when things start going sour is when they start making noise, and by that time it's often too late. Most aren't going to question the actions of the company so long as the price keeps going up. While an institutional investor could divest themselves of a stock if they don't like how the company is managing their purchases, it would likely be hard to justify removing GOOG, APPL or FB from their portfolio right now. It's not like mutual fund managers are that great at beating the market, especially after fees.
    - wbl 13y ago
      Some managers make turning around failing companies as stockholders their business. They go in, push for changes that will increase the value of the company, and exit, taking the cash and look for another failing company they think can do better.
- QuantumChaos 13y ago
  >The flood of blind investing through retirement funds has further diluted shareholder influence to little more than demanding increasing share price. But this is the only thing shareholders have the right to demand anyway. As long as they can ensure the CEO and board of directors are maximizing share price, the system is working.
snowwrestler 13y ago
> Oddly, no previous management research has looked at what the legal literature says about the topic, so we conducted a systematic analysis of a century’s worth of legal theory and precedent. It turns out that the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time. http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar/1 http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar...
- fiatmoney 13y ago
  Right. "Ownership" is a really fuzzy thing; in the context of owning shares of a public corporation it gives you the right to be treated equally (in some senses) with other shareholders, standing for shareholder lawsuits alleging breach of fiduciary duty, and most importantly the right to select the board and vote on certain proposals. No voting rights takes away the most important component.
  - nickff 13y ago
    It has not been shown that voting is the most important and effective means of maintaining accountability. There is a long-standing debate as to whether voice (voting) or exit (the ability to exit a long position) is more important.[1] [1] http://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty http://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty
  - dirtyaura 13y ago
    Surely the most important thing of share ownership of public corporation is that you are eligible to future dividends?
    - Tuna-Fish 13y ago
      Google pays no dividends, and by all the public information they have ever released, they never intend to.
deleted 13y ago
[deleted]
nknighthb 13y ago
Why would it be better to own stock in a company subject to the control of ever-changing third parties whose goals and motivations I cannot know? At least if I bought Google stock (which I never have directly), I'd know my investment would be shepherded by three specific individuals whose characteristics and motivations are at least not entirely mysterious, nor entirely in conflict with my own, until they decide it is appropriate for that control to change.
- solomatov 13y ago
  >Why would it be better to own stock in a company subject to the control of ever-changing third parties whose goals and motivations I cannot know? Actually motivation of the board of a typical is well known: to get as much money as possible. Most of public companies are owned by institutional investor, i.e. mutual, pension, hedge, etc funds.
  - nknighthb 13y ago
    I'm talking about the shareholders who choose the board, not the board itself. Institutional investors change their holdings all the time. And many of them are controlled by people I believe should never see the outside of a prison. (And even the ones that aren't, might be tomorrow!) So again, I ask, why is it better to risk my money in investments this ever-changing cast of characters can control, rather than companies like Google?
- yohui 13y ago
  > until they decide it is appropriate for that control to change Or, perish the thought, they die* (wills aside). * Though see: https://en.wikipedia.org/wiki/Calico_(company) https://en.wikipedia.org/wiki/Calico_(company)
JumpCrisscross 13y ago
> "Ownership" without control gives you precisely nothing This statement implies non-voting stock is worthless. That is untrue. There are people willing to pay good money for nonvoting stock. Imagine a dual-class share company. Class B shares cannot vote. Class A shares can vote - they own 100% of the vote share. But both classes are pari passu in economic terms - if Class A gets a $1 dividend Class B must receive the same. Further, let there be 1 Class A (voting) share and 999,999 Class B (non-voting) shares. Would you believe those 999,999 non-voting shares are worthless? Both voting and non-voting stock take part in a company's cash flows - their discounted cash flow value is identical. The only time the difference (or "spread") matters is in the event of a proxy fight or takeover, i.e. a contest of control. The spread is a function of the probability that your vote is decisive - that absent your vote there would be a tie - in a meaningful contest of control. Small odds, which is why voting-nonvoting spreads are minor in the United States (I did a thesis on the subject - in Italy these spreads are around 10%).
- yid 13y ago
  Thank you, that was very clear. > if Class A gets a $1 dividend Class B must receive the same. Does this mean that companies cannot split into voting and non-voting stock without paying out a dividend?
  - deleted 13y ago
    [deleted]
  - repsilat 13y ago
    You'd think so, but in practice it's the other way around. The decision to pay a dividend is effectively made by the voting shareholders, and the voting shareholders see paying a dividend as giving money away to the non-voting shareholders.
    - gohrt 13y ago
      1. GOOG's stock structure specifically guarantees equitable dividens and even share price parity. 2. Directly voting seizing the economic value of minority shareholders is about the easiest deleliction-of-fiduciary-duty case to win.

Klinky 13y ago

Shareholder accountability is pretty much bogus. The only shareholders who have ever had a real say are those who owned vast quantities. The flood of blind investing through retirement funds has further diluted shareholder influence to little more than demanding increasing share price.

fiatmoney 13y ago
Large institutional investors like mutual funds, pension funds, etc. have at least some of their incentives aligned with their own investors - they want the value of their holdings to go up (to increase management fees), which means exercising some level of corporate governance. For instance, looking askance at value-destroying vanity purchases (arguably, Oculus being the latest example). Even this minimal level of oversight isn't possible when they have no voting rights worth mentioning.
- Klinky 13y ago
  Shareholders are so far out of the loop, rarely are they consulted on important business decisions. Usually when things start going sour is when they start making noise, and by that time it's often too late. Most aren't going to question the actions of the company so long as the price keeps going up. While an institutional investor could divest themselves of a stock if they don't like how the company is managing their purchases, it would likely be hard to justify removing GOOG, APPL or FB from their portfolio right now. It's not like mutual fund managers are that great at beating the market, especially after fees.
  - wbl 13y ago
    Some managers make turning around failing companies as stockholders their business. They go in, push for changes that will increase the value of the company, and exit, taking the cash and look for another failing company they think can do better.
QuantumChaos 13y ago
>The flood of blind investing through retirement funds has further diluted shareholder influence to little more than demanding increasing share price. But this is the only thing shareholders have the right to demand anyway. As long as they can ensure the CEO and board of directors are maximizing share price, the system is working.

snowwrestler 13y ago

> Oddly, no previous management research has looked at what the legal literature says about the topic, so we conducted a systematic analysis of a century’s worth of legal theory and precedent. It turns out that the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time. http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar/1 http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar...

fiatmoney 13y ago
Right. "Ownership" is a really fuzzy thing; in the context of owning shares of a public corporation it gives you the right to be treated equally (in some senses) with other shareholders, standing for shareholder lawsuits alleging breach of fiduciary duty, and most importantly the right to select the board and vote on certain proposals. No voting rights takes away the most important component.
- nickff 13y ago
  It has not been shown that voting is the most important and effective means of maintaining accountability. There is a long-standing debate as to whether voice (voting) or exit (the ability to exit a long position) is more important.[1] [1] http://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty http://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty
- dirtyaura 13y ago
  Surely the most important thing of share ownership of public corporation is that you are eligible to future dividends?
  - Tuna-Fish 13y ago
    Google pays no dividends, and by all the public information they have ever released, they never intend to.

deleted 13y ago

[deleted]

nknighthb 13y ago

Why would it be better to own stock in a company subject to the control of ever-changing third parties whose goals and motivations I cannot know? At least if I bought Google stock (which I never have directly), I'd know my investment would be shepherded by three specific individuals whose characteristics and motivations are at least not entirely mysterious, nor entirely in conflict with my own, until they decide it is appropriate for that control to change.

solomatov 13y ago
>Why would it be better to own stock in a company subject to the control of ever-changing third parties whose goals and motivations I cannot know? Actually motivation of the board of a typical is well known: to get as much money as possible. Most of public companies are owned by institutional investor, i.e. mutual, pension, hedge, etc funds.
- nknighthb 13y ago
  I'm talking about the shareholders who choose the board, not the board itself. Institutional investors change their holdings all the time. And many of them are controlled by people I believe should never see the outside of a prison. (And even the ones that aren't, might be tomorrow!) So again, I ask, why is it better to risk my money in investments this ever-changing cast of characters can control, rather than companies like Google?
yohui 13y ago
> until they decide it is appropriate for that control to change Or, perish the thought, they die* (wills aside). * Though see: https://en.wikipedia.org/wiki/Calico_(company) https://en.wikipedia.org/wiki/Calico_(company)

JumpCrisscross 13y ago

> "Ownership" without control gives you precisely nothing This statement implies non-voting stock is worthless. That is untrue. There are people willing to pay good money for nonvoting stock. Imagine a dual-class share company. Class B shares cannot vote. Class A shares can vote - they own 100% of the vote share. But both classes are pari passu in economic terms - if Class A gets a $1 dividend Class B must receive the same. Further, let there be 1 Class A (voting) share and 999,999 Class B (non-voting) shares. Would you believe those 999,999 non-voting shares are worthless? Both voting and non-voting stock take part in a company's cash flows - their discounted cash flow value is identical. The only time the difference (or "spread") matters is in the event of a proxy fight or takeover, i.e. a contest of control. The spread is a function of the probability that your vote is decisive - that absent your vote there would be a tie - in a meaningful contest of control. Small odds, which is why voting-nonvoting spreads are minor in the United States (I did a thesis on the subject - in Italy these spreads are around 10%).

yid 13y ago
Thank you, that was very clear. > if Class A gets a $1 dividend Class B must receive the same. Does this mean that companies cannot split into voting and non-voting stock without paying out a dividend?
- deleted 13y ago
  [deleted]
- repsilat 13y ago
  You'd think so, but in practice it's the other way around. The decision to pay a dividend is effectively made by the voting shareholders, and the voting shareholders see paying a dividend as giving money away to the non-voting shareholders.
  - gohrt 13y ago
    1. GOOG's stock structure specifically guarantees equitable dividens and even share price parity. 2. Directly voting seizing the economic value of minority shareholders is about the easiest deleliction-of-fiduciary-duty case to win.