If by 'you' you mean 'the owners' who are the share holders, then yes. What you'll find is that generally share holders do want economic returns at the cost of anything else, especially when so many of the owners each own only a tiny slice of many different businesses. Part of it is that it will be difficult for the owners to come to an agreement on anything else and so they'll go for economic returns.
There is also a selection effect concerning when executives at a company are replaced. Are owners choosing when to replace executives in such a way that selects for executives who put short term profitability over other concerns?
NO. I guess what I mean is that the FOUNDER(s) of a company have a reason for it to exist. They get to define everything about it. If at some point they need to raise money by selling shares, they get to define what the shareholders get in return for their investment. The share holders are free to take it or leave it. This scenario was probably present in every public company at some time in its history. AFAIK no company has ever been created via IPO.
Even if a group of founders (who may also be initial private investors) creates a new company, they define a purpose. It may be to "make money doing X" or it may be "develop a better Y" just because they are into Y, Or "cure disease Z", establish a human presence on Mars, build a better search engine. Most founders probably want to make some money - otherwise we call it philanthropy - but that doesn't mean they are mutually exclusive. But in every case I think the company exists prior to 99 percent of the investment that comes after something has been defined beyond profit.
And they tend to take the offers from founders that give them voting power to decide the reason for the company to exist. If a founder wants to raise money without trading away power in the company they can try to sell such shares, but they should expect far less interest in people wanting to buy them.
Also, should we really call them shareholders or investors at that point? They are more like backers, similar to people who spend money on kickstarter.
I support your side of the argument, but why is it the case that finding a CEO is hard? It seems a bit like becoming president: there aren't many people in the pool who have matching previous experience anyway, and it's not even clear if "similar" experience even applies (Does one company resemble the other, even in the same industry? Different stages of growth, corporate structure, business model, region of operation etc), and much of the job seems to be adapting to new conditions. It seems more about the CEO's reputation and network, is that really just it? You pay for the CEO's access to the Old Boy's Club? Wouldn't the company be better served by spreading the role across multiple people, to avoid the stigma of changing CEOs?
I think this is why it is hard. Look at the people who ran for president in 2016. A lot of people want to be president, but most voters see, among a large pool, at most one person they think would fit the bill (and I think in the last election, a lot of people thought no one did). It's really hard to make a choice in such a situation. In the case of presidential elections, it's simply a matter of procedure that one person has to be selected on a specific day. Looking for a CEO? I'm sure the temptation to keep shopping when none of the candidates look ideal is very appealing.
The corporation has duties to its shareholders--it can't defraud them, for instance--but those duties are actually quite limited. In most cases the remedy for unhappy shareholders is just to sell their stock.
The CEO doesn't own the corporation either, but the CEO can direct the resources of the corporation. In any sort of operational sense, the CEO only reports to the board of directors, not to the shareholders entire.
For example Google has Class A - (GOOGL) and Class C - (GOOG)
The meat of the article:
If I own an object I can use it, or not use it, sell it, rent it, give it to others, throw it away and appeal to the police if a thief misappropriates it. And I must accept responsibility for its misuse and admit the right of my creditors to take a lien on it.
But shares give their holders no right of possession and no right of use. If shareholders go to the company premises, they will more likely than not be turned away.
They have no more right than other customers to the services of the business they “own”. The company’s actions are not their responsibility, and corporate assets cannot be used to satisfy their debts.
Shareholders do not have the right to manage the company in which they hold an interest, and even their right to appoint the people who do is largely theoretical. They are entitled only to such part of the income as the directors declare as dividends, and have no right to the proceeds of the sale of corporate assets — except in the event of the liquidation of the entire company, in which case they will get what is left; not much, as a rule.
Well, one point of the article is that these days 62% of CEO income is equity, so in most cases the CEO is also an "investor".
It does seem to me that creates a conflict of interest, in that a short-term plan to increase share price may not be in the long-term interests of the company. Yet, the CEO will likely not be around for the long haul and benefits more from short-term thinking.
I'm generally not a fan of Warren, but a good bit of this makes sense to me.
I think the most questionable part is: "At least 75% of directors and shareholders would need to approve before a corporation could make any political expenditures". That is just thrown in there with no explanation, and is likely intended to cripple Republicans by not allowing campaign contributions in almost all cases. That is likely the poison pill that will doom this legislation.
The problem with this is that a company that maximizes profits is worth $100/share and the same company with other priorities is worth $70/share -- not zero, but if you want to say "people who don't like it can sell their shares" then the bid price as soon as the change is announced is $70/share and the people who didn't consent to that will want to know who to go to for their other $30/share.
A possible solution to this is to require unanimous consent to make a change like that, so you have to buy out the dissenters ahead of time. But then you're going to have holdout problems.
The other problem without a unanimity requirement is that once the company is at $70/share, anyone can buy a majority of shares at the discounted price, change the policy back to profit maximization and then resell them for a large profit.
A better answer to all of these things is for companies not to have such diffuse ownership. It's a lot easier to convince one person or five people to do something like this and stick to it than to try to do the same thing for thousands.
And can't companies already do this? If something is in the company's charter, they do it even if it isn't strictly profit-maximizing, no?
> I also say that if the only goal of a company is to create returns, then every company that isn't in a higher profit industry should probably liquidate and use the money to start a hedge fund, or invest in a company that is more profitable.
It's not just about returns, it's about risk-adjusted returns. Companies with low margins typically also have high stability -- or lower share prices, so that the P/E ratio still reflects the level of risk.
And poorly performing companies often do get liquidated.
Yes, you're right, our inane system of corporate profiteering at the behest of everything else _is_ an incredible and sad joke.
I've never agreed with that. As a private company you can be in business for whatever reason you want. Maintaining financial viability seems to be necessary, but beyond that "profit" or return for anyone is not obviously an objective. Granted, you'll probably have trouble raising money if there's nothing in it for investors but does that mean they have to become the one and only priority?
I often think a CEO needs to state what they're doing and the investors should decide if they think the plans and objectives of the company (and those running it) are a good investment. Investors can take it or leave it - for what it is. That seems to be what Google did to some extent.
I also say that if the only goal of a company is to create returns, then every company that isn't in a higher profit industry should probably liquidate and use the money to start a hedge fund, or invest in a company that is more profitable. In other words, if your company makes small margins making some widgets, your investors would get better returns if you sell everything and invest in apple. This is a joke of course, but it makes my point. It's up to the company to define what it's objectives are, and it's up the investors to decide what they want to invest in based on those stated objectives of the companies.