Re:Companies Shouldn’t Be Accountable Only to Shareholders
by AnthonyMouse on Wednesday August 15, 2018 @11:25AM
(#17766760)
> 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.
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.
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.