To be clear, business operators have extremely, extremely broad latitude in how they interpret their fiduciary duty to shareholders.
We actually need to combat this notion that somehow exclusive focus on short term returns is somehow legally, morally, or ethically required. It is actually antisocial and obviously destructive.
Well, there was one case in the law over 100 years ago in the USA. A company had decided to sell itself for cash and go out of business. The Court ruled, that in that situation, it should sell to the highest bidder. This is long before Milton Friedman began advocating that corporations had a duty to their common shareholders that provided the only valid yardstick for evaluating corporate activities. Friedman was an economist, and a controversial one, not a lawyer, and how he got the lawyers behind him is itself a long strange story.
The idea that common shareholders own the corporation was not really obvious to anyone from the start. Common shareholders get from the corporation only what is their privilege according to the corporate bylaws and charter. There are now, and have been in the past, many different kinds of and classes of common shareholders. For example, some big corporations today have many common shareholders who do not have any voting rights. The thing that sets common shareholders apart from the other stakeholders who also hold pieces of paper from the corporation granting them various interests in the corporation, is that the common shareholders get to divide up whatever is left over if and when the corporation is liquidated and everyone else is given what they are owed first. They are more heirs than owners. It is more realistic to hold that the corporation, as an artificial person, is not and cannot be owned by other persons, and owns itself.
It’s incredible how many people don’t understand this. Google is an obvious example that has multiple classes of stock and only some are voting shares.
There is the “shareholder lawsuit” but that really is about enforcing a company’s stated goals to its shareholders, which can and often are things other than “try to make the stock price go up as much as possible”.
I am repeatedly entertained by the phenomenon of someone who reads a case, bothers to remember it, thinks it's important, describes it, but does not provide a citation.
Friedman deeply misunderstands agency law. Saying he got the lawyers behind him is misleading, because there are any corporate fiduciary duties owed by directors or officers to the shareholder other than 1) act informed 2) do not usurp corporate opportunity.
It's not legally required in the state of Delaware (or Michigan where Dodge v Ford occured) to _maximize_ shareholder value.
It's that if you're going to make a decision that affects 1/3 of the companies value you need to actually claim it's in the shareholders interest that you do so.
I don't think maximization of shareholder value is really the interesting part, it's the mandate that they must be prioritized ahead of employees and customers.
> It's that if you're going to make a decision that affects 1/3 of the companies value you need to actually claim it's in the shareholders interest that you do so.
I'm not really sure where the 1/3rd ratio came from. Can you explain? To my layman's ear, "value" and "shareholder value" are the exact same thing.
> I don't think maximization of shareholder value is really the interesting part, it's the mandate that they must be prioritized ahead of employees and customers.
The problem is that Ford didn't try to claim that the factory was in the shareholder's best interest.
> I'm not really sure where the 1/3rd ratio came from. Can you explain? To my layman's ear, "value" and "shareholder value" are the exact same thing.
Nothing special about 1/3. It's the value of the dividend (19 M) / value of Ford (60 M). If you're going to spend 1/3 of the company on something you better at least claim it's in the company / shareholder's best interest.
---
To quote the wikipedia article
> Under some interpretations, the case also affirmed that the business judgment rule that directors may exercise is expansive, leaving Ford and other businesses a wide latitude about how to run the company, if management decisions can point to any rational link to benefiting the corporation as a whole.
And then to emphasis: "if management decisions can point to any rational link to benefiting the corporation as a whole."
Genuine question because I think I might be wrong on this one, or maybe misunderstanding what you're saying - aren't there cases of shareholders suing CEOs for not acting in shareholders interest and winning? If there was no legal obligation to act on behalf of shareholders how could they win those cases?
My understanding is those kind of cases aren't common because a) they are hard to prove, b) the people being sued if they actually have the money to make it worth suing them also have the money to fight it, and c) it's a really bad look for an investor to be suing a previous member of their portfolio and would a strong adverse affect on their deal flow
Unless you're saying there is no explicit legal obligation / fiduciary duty in law, but it does emerge from civil court cases, which is how I understand it, but short paragraphs are not a good place for the amount of nuance so I just said "legal obligation" as a shorthand for something real but very complex.
I think Matt Levine coined this phrase: "everything is securities fraud."
Activist investors will sue for anything alleging that executives broke securities law by doing anything that harmed their portfolio. It doesn't mean they win the cases, or that anyone is guilty.
There's also something worth noting that even if there isn't a legal obligation for executives to act on their shareholders interests, they have a really strong incentive when their compensation is mostly stock grants and the shareholders can fire them.
> The Court declared that, in certain limited circumstances indicating that the "sale" or "break-up" of the company is inevitable, the fiduciary obligation of the directors of a target corporation are narrowed significantly, the singular responsibility of the board being to maximize immediate stockholder value by securing the highest price available.
Seems to imply that under normal operation (i.e. no inevitable break-up) the fiduciary obligations are quite different though?
Yes, under normal circumstances, the "business judgment rule" applies which is much more favorable to boards. Satisfying it requires only that directors:
- act in good faith;
- act in the best interests of the corporation;
- act on an informed basis;
- not be wasteful;
- not involve self-interest (duty of loyalty concept plays a role here).
If I had to choose between common good and shareholder value all else being equal, I'd choose common good every time.
We should be suspicious of games that favor shareholder value over common good and repair them. Of course this is harder than it sounds, but letting the person with the most money in a Monopoly game also set the rules is absurd and and obviously wrong. Wrong even without having a consensus reality on what "common good" entails and this is important.
The "capital game" should serve us, rather than us serving it. A fatalistic lack of imagination is no longer an option. When we're more afraid of unintended consequences than accepting that we have a responsibility to the current consequences, our current consequences look rather intended.
You're never going to be able to change the economic system for the entire population where you live. Better to vote with your feet and move to a country where all economic activity is arranged for "the common good". There are many, many such countries. You're not the first with that idea.
That of course won't mean that you will have the privilege of deciding for everyone else what counts as "the common good". It's unfortunately not like the Arch Linux terminal where you are omnipotent.
I say that sincerely, as somebody who had to do just that. It's easier for Mohammad to go to the mountain.
Edit: To say: I voted with my feet and moved to a place which better aligns with my values. From a "common good" society to a "freedom" society.
I'm not sure this is true. My analysis shows that 75% of economic transitions are completed without violent revolt.
Just a quick glance at the 44 historic economic transitions in my dataset, most of them aren't well known. The most likely reason why we think economic revolutions are associated with violent revolt is due to selection bias - violent revolts are more memorable, take up a larger section of history books, etc.
Happy to take at look at your dataset and compare notes.
Many EU countries are pretty nice places to live, and didn't need a violent revolution to make it happen. All it took was democracy, a population willing to stand for its rights, and an elite which understood that building a welfare state is preferable outcome over having a violent Communist/Fascist revolution.
A capitalist system with right amount of social democracy to prevent worst concentration of wealth is the best model there is, at least for the well-being of its citizen and survival of its democracy.
"Stand for it's rights" is just weasel words for "Was willing to use violence in order to obtain their rights"
Even if they never actually had to become violent, violence or the credible threat of violence is the only thing that has ever in history convinced "The Elites" to change things
There was no such revolt in the country where I live, and in many others. Also if you are talking about France it was to create democracy, not to change the economic system, with democracy you can change the economic system without a revolution.
> Also if you are talking about France it was to create democracy, not to change the economic system
I'm no expert on the French Revolution but I'm pretty sure that "We're all poor while the monarchs are all rich" was a huge driving force behind the French Revolution. "Let them eat cake", etc
It also didn't create democracy, they more or less immediately wound up under Napoleon, a self crowned Emperor
> It also didn't create democracy, they more or less immediately wound up under Napoleon, a self crowned Emperor
It did create democracy, the French Republic, Napoleon did end that though but its much easier to reinstate democracy later than to create it from scratch.
> I'm no expert on the French Revolution but I'm pretty sure that "We're all poor while the monarchs are all rich" was a huge driving force behind the French Revolution. "Let them eat cake", etc
Revolutions to loot the rich happened a lot throughout history, but here the explicit goal was to end monarchy and create democracy not just looting the rich, that is a big difference.
I think the majority of European countries had a violent revolution. And the German invasion of many neighboring nations had the same characteristics, they were welcomed with their new world order by the populace in many places.
The war in general ushered in new economic systems.
After Stalin's death, the Soviet union wasn't a total failure. And few can argue that China is a total failure today. But they paid a much higher price than what's acceptable. To make a somewhat successful "common good" society you first need to exterminate large swatches of the population. (This includes Scandinavian countries, which is less common knowledge). Then you can build on the new generation which won't resist - for a while. And the results are still lack luster, depending on your measuring stick.
There's no general way to model, only empirical evidence. Unless I'm supposed to enter the mind and soul of people and see their motives and reasoning.
Kind of sounds like what is happening now in the west under our current financial/economic system, albeit slowly by manufacturing crisis's and health problems to whittle down the population.
>To make a somewhat successful "common good" society you first need to exterminate large swatches of the population
It sounds like you are conflating "common good" with authoritarianism.
Common good happens at the grass roots level and then spreads by consensus. Doesnt mean it will happen on a large scale, esp if there are larger forces at work.
It seems like this is a population size problem to me. Or at least a concentration of large populations in a small area (Cities). Maybe the trick is to spread out the population a bit more and prevent areas from becoming over populated somehow.
I don't have the data in front of me right now, but there are some sources that say when groups become to large people vie for attention which causes the most egoic people to try and dominate the areas that they are in.
Thus this creates social circles that try to gain power for powers sake and do not contribute to society.
> when groups become to large people vie for attention which causes the most egoic people to try and dominate the areas that they are in.
You may be interested in this essay from the feminist movement in the 60s: https://www.jofreeman.com/joreen/tyranny.htm. It describes how the lack of structure or process forces the group to be run primarily by social dynamics like friendship, charm and influence.
There are lots of effects that happen as groups scale. But this capture of consensus-based and flat groups by ego-centric charismatic members happens in even tiny groups.
That's why successful flat groups (e.g. parliaments) have structure (e.g. Robert's rules) and make decisions by majority vote rather than consensus.
Yeah I can see some truth in this. Structure and processes help us deal with this problem. And my experience has been that structures and process get corrupted, kind of like what has happens in or political systems over the years.
IMHO, it seems like it easier to deal with ego when the groups are smaller. When they get too large, we tend to use bureaucracies to manage decision making logistics. Bureaucracies make it easier for people that want power over others to hide.
> After Stalin's death, the Soviet union wasn't a total failure. And few can argue that China is a total failure today. But they paid a much higher price than what's acceptable. To make a somewhat successful "common good" society you first need to exterminate large swatches of the population. (This includes Scandinavian countries, which is less common knowledge). Then you can build on the new generation which won't resist - for a while. And the results are still lack luster, depending on your measuring stick.
What do you mean by exterminate large swatches of the population in Scandinavia? Yes the way the Sumi have (and to a degree still are) been treated is atrocious, but I'd argue that if anything this is not a feature of creating a "common good" society. I would argue that strongly capitalistic/mercetalistic societies have a horrible track record of treating (and still treat) indigenous populations.
They're called Sami, and I don't think they've been treated much worse than any other ethnicity in Nordic countries.
What I'm referring to are the eugenics programs in Sweden, where unfit people were sterilized and/or had their children taken from them. These kind of programs were also present in North America, for what it's worth. The complete extent of these programs will probably forever be unknown, in all countries. Scandinavian countries are probably the countries who are most open about this, just like with suicide reporting.
As for Finland, they had a communist revolution and a very brutal civil war about the same time as the Russians. So their "common good" society was also born from a bloodbath, although the communists lost the war.
Norway is probably an exception. They're building a "common good" society on oil fortunes, just like the Gulf states have no problem with giving generous welfare for all of their citizens.
Switzerland is not a good place for working moms. It is a very conservative country, for example working moms are systematically discriminated. The society, police, insurance, and banks enforce a conformity to a conservative, male-dominated society.
I hear you but disagree. Who decides what the common good is? You end up with companies moralizing, forcing employees to adhere to those common goods in both their work and personal lives. Forcing people to get the vaccine was for the common good. DEI was common good and that in turn led to Trump being elected. The pendulum swings.
At least with share holder value, you know where you stand. The common good is a constantly changing thing determined by the moral authority in charge at a moment in time.
Common good: humans, according to systems theory, have the same needs and there's a finite set. We can map them & then design systems so as to satisfice all of them.
If one of human needs is status and status is zero-sum, then why does it matter what economic system is in place at all? We could equally rely on feats of strength, or games of chess, or rolling dice for all I care.
Besides why can't one of human needs also be an economic system that doesn't have the failure mode of poverty?
> We could equally rely on feats of strength, or games of chess, or rolling dice for all I care.
Those aren't very productive, our current system makes people produce value for others in their chase for status. Older systems people destroyed value for others in that chase, creating wars or other miseries, we have much less of that today.
I'd much rather have another billionaire than another authoritarian warmongering dictator.
> our current system makes people produce value for others in their chase for status
I don't think most of the people who have extremely high status are doing anything remotely close to producing value
They just own capital which they use to pay other people to produce value, which they then take credit for, which boosts their status
So it would seem that we're pretty divorced from the idea of "produce value -> get status" these days, if you can just pay people to produce value for you instead
Billionaires are the warlords of the 21st century. The only difference is that we've switched the map. We don't compete on the land, we compete on economic territory. But the results are the same - they fill the same role.
Expansionism, cult of followers, dispensing boons, and absolute control over their territory? check. The only reason we don't recognize them as warlords is because they don't wave scimitars and wear turbans. Neolibrral warlords wear Patagonia vests and beige slacks.
We're terrible at mistaking asthetics for function. Fortresses have been replaced by platforms; trade routes replaced by data sharing agreements. Armies have been ursurped by legal teams and lobbyists. We barely escaped feudalism and it's not clear we're out of the orbit of neo feudalism.
If we're able to be honest with ourselves, we need to learn that asthetics and function are different things. Just because they look different doesn't mean they don't fulfill the same function.
If it's zero sum you can design a system where everyone gets three sane amount. That's what strict monogamy does for mating, and you can easily imagine some "everyone is equal" communism-like system.
In practice that doesn't work, and the most successful "common good" systems instead ensure the disparity is limited and access is as equal as possible (e.g. not everyone can be wealthy, but the wealthy are not too rich and anyone had a chance to become rich instead of needing rich parents; or everyone can only have one married partner at a time instead of people who can afford it amassing big harems and not leaving any partners for the rest; or anyone can become famous, and famous people pushing their kids into fame is looked down on)
Humans don't generally have the same needs, and to the extent they do they're competing over limited resources.
At one extreme you get theories like communism or socialism that treat humans as disposable cattle to be murdered or starved when they stand in the way of whatever the party leaders decide is the common good.
The common good is something that has to be worked out deliberatively and is more like taking the resultant of a huge number of force vectors than it is like mass producing units of the same good for everyone.
The word "Common Good" has a specific meaning. It steams from the word "Common" which means the people that share common values at our most basic levels, and "Good" means whats best for the people that share these common values.
What you are talking about is imposed self-interest at the level of the population from one or a small population that do not represent the common good. Not the same thing IMHO.
That's not what common good is. Common good never requires that people share core values.
Common good historically was what's good for the city/polis/country/band/family. Basically, you make some (ideally relatively small) sacrifice to your own interest for the sake of a larger group you share fate with.
There are more formal/mathematical versions of it, for example in Bentham where the common good is essentially a weighted sum over the good to each individual. Rousseau described it almost exactly as the resultant of force vectors. There are more authoritarian versions like in historical Sparta and more recently in Marx and Engels where it's imposed through violence.
> imposed self-interest
I'm not sure exactly what you're saying here, but self-interest is almost by definition not externally imposed. In Marxism one particular vision of the common good is imposed externally via a "revolutionary terror."
c. 1300, "belonging to all, owned or used jointly, general, of a public nature or character," from Old French comun "common, general, free, open, public" (9c., Modern French commun), from Latin communis "in common, public, shared by all or many; general, not specific; familiar, not pretentious." This is from a reconstructed PIE compound ko-moin-i- "held in common," compound adjective formed from ko- "together" + moi-n-, suffixed form of root mei- (1) "to change, go, move," hence literally "shared by all."
Your confusing political language with what came before this. Common good is the will of the people. It has nothing to do with cities, countries, or states. All of those things were created by people that wield political power. This is not the same as the common good. Common good directly relates to what is good for the people that share common values. You have been misinformed, by political society unfortunately.
The idea of common good is centuries older than the appearance of French or the English translation.
It has nothing to do with shared values. It's exactly as I described it above.
Notice the reconstructed PIE means to move together. Common good is about the interests of groups that co-move rather than groups that share values.
This makes sense even in family contexts. What is good for the family is often different from what any one person wants. Think about things like choosing dinner for a big hungry family on a long road trip.
Often the best solution is at best everyone's third or fourth choice because values and desires differ.
So "Common Good" is directly related to "Common Law" which showed up in 509-27 BC Rome during the Republic period and it was a way to have a common understanding between the "Common People" when Rome's political state was trying to use political law against non-Romans. The common people needed a way to protect themselves from the rising emperors and their decrees.
So I understand that you think its about families, but in this context, its really not. It was a way or a method to protect commoners.
When I say value, I mean if we both value freedom then we have a "Shared Value". This is really about the rights of the people which differs what rulers, want for the people. And I mean rulers that want to wield power against the people, for self-interested purposes.
Again that is not what common good is and it does not originate in the Roman Republic.
I'm honestly not sure it's worth responding here or what you're trying to say about Rome. It sounds like you may be confusing the Roman Republic with the Roman Empire, which started much later in 31 BCE. For one thing the Roman Republic did not have an emporer. For another it wasn't expanding militarily or ruling non-Romans.
And you also seem to be confusing different uses of "common".
Common generally means something held collectively by a group. By extension it can mean "customary" as in common law rather than statutory law. By extension it also can mean "ordinary" or "plain", as in "common house cat". "Commoners" or "common people" are just "ordinary" people; that is, people without titles.
The only connection between the "common" in "common good" and "common people" is the use of the string "common". The word means different things in the two contexts.
Rome most certainly was expanding militarily and ruling non romans far before it became an empire. The punic wars for example were more than a century before it became an empire.
No the original meaning of "Common Good" is related to "Common Law" And that actually originated in Rome between the Republic and Empire periods. Your focus on the specific dates have nothing to do with the actual originating use of the saying.
It can mean "ordinary" or "plain", but not in the context of "Common Good". I think you are trying to obfuscate the meaning by focusing on the peripherals of the context.
In this context, I disagree.
Its really clear what the good in "Common" means.
Its like principles of what the Constitution was written on. Life, Liberty and the pursuit of happiness.
Principles like these are qualities we all naturally exhibit and as such doesn't need any explanation or qualifications. I know in our modern world people have decided that everything is open to interpretation. But I believe this was indoctrinated into us, over a long period of time, not to consider the human value[0] aspect of our being that we are born with. This was done by watering down the direct meaning of words and slowly changing the perception that humanity doesn't have infinite value and has to rely on external power structures to give it meaning.
This is capitalist mythology. You'll need to account for "best" here because millions of people under the thumb of large-scale genocide, such as the policy decisions to implement poverty (which capitalism requires), likely have something to say about what you think is "best".
Can you present me with an alternative that was implemented, ran for a significant period of time and resulted in a better quality of life for those under it? Also poverty is not genocide, if you are going to present an argument please make it factual. You insult victims of actual genocide and minimize what they have endured with this comparison.
I'm going by how people in the global majority, victims of imposed poverty by empires through debt slavery, who also experience OTHER forms of genocide & recognize poverty for the genocide it is.
Check out the quality of life of the Aka, Baka, and Mbuti tribes. They're genetically and culturally linked to a mother tribe 150k years ago.
So a culture has kept these people going for 150k years. Capitalism has no such capability.
Collaboration, spontaneous improvisation, counterdominant play/decision making/protection, egalitarian, matrifocality, immediate return. Those are values that flourish in an infinite game theoretically and in real life. We just have been taught so many backwards ideas these ideas seem foreign & barely recognizable.
Friend you are comparing civilizations that support hundreds of millions of people to small tribes of pygmies that total maybe 30k people and survive on hunting and gathering. Additionally they only exist in little groups of 50 to a few hundred individuals. How do you see billions of people surviving as hunter gatherers? Or do you forsee the need to cull 95% of humanity? This is not a realistic comparison friend and you know that. The only system that can keep hundreds of millions or billions of people fed and housed is capitalism.
Friend, go run the simulations at scale and get back to me before you keep peddling the religious belief that capitalism is the only way to feed billions.
You have no idea how to scale up collaboration due to separation from indigenous cultures that were praxised for tens of thousands of years & cultivated food forests across America without price tags.
I am sure you know this due to your extensive research and simulations but the average life span of the tribes you mentioned is in the low 20s... Some of your examples are even less than that.
Only 40% of the Aka and Mbuti actually survive to age 15 or greater
I look forward to you explaining how this is actually a good thing. Because currently it looks like your argument is that the 9 billion people on earth should adopt the life style of tiny groups of hunter gatherers that for the most part don't make it out of childhood and those that do generally die in their early 20s or younger.
For reference, the average lifespan in the United States is 77, so more than 3x, approaching 4x. Per your prior arguments, this is a genocide...
I am sure you've looked at this through a nuanced lens that examines the impact of colonialism on each of those tribes. I'm sure you've taken into account what's causing the deaths.
There's no way this is a dismissive colonially racist take without depth.
Longevity is not quality of life. This is still a culture that, despite all the modern world has done to these people, managed to survive 150k years. If longevity is what you're after, there's your longevity.
You're talking about averages, which ignores all the white supremacy embedded in these systems, ignores the decline of US lifespan, and especially ignores quality of life of those living in poverty.
From here on out, any further disingenuous comments get an AI response.
Not really - in practice on paper capitalistic countries need tons of socialist policies in order to prevent the system from eating the people it depends on.
Businesses are powerful tools for the common good and the fact they produce returns for investors is absolutely critical to their continued existence and long-term viability.
But the point for businesses to exist at all is to produce positive externalities and they need to produce those externalities for more than just their owners.
It cannot be "either/or" and it's not immoral to pursue profits.
You can explicitly build the business to say "delivering shareholder value is not our highest goal, we must remember that we live in a society and upon a planet".
Their purpose is absolutely not "to produce positive externalities" (whatever that even means). What makes you say that? You can, and people do, run a business doing all sorts of heinous things
There's an old saying: The purpose of a system is what it does[1]. You can't (well, shouldn't) judge something by its intended purpose if what it ends up doing goes against it.
Human quality of life tends to be pretty shit without them though, and that is ignoring all of the competitively a necessity "choices" where not doing so is literally suicidal. Not adopting early agriculture and settling down leads to nomadic hunter gatherers being outnumbered and genocided by sedentary farmers sorts of necessity. Refusing to mine and pollute means bad things happen to you when you encounter metallic armed and armored foes.
Voting obviously works, you can vote away capitalism, some countries did that.
The only reason it "doesn't work" is that the countries that did vote away capitalism didn't fare very well, so other countries people are very reluctant to try that again. But they absolutely could if they wanted.
This is a dumb saying. And if you start to apply it to everything capitalism still seems pretty ok. For example: "The purpose of Communism is killing 20+ million people"[1]
I agree that when taken literally, it's a dumb thing to say: literally (i.e., the dictionary definition), the purpose of a system is the reason why it was built, not what it does. But it's a slogan, and slogans don't always make sense taken literally. The point of the slogan is to remind people of the (obvious, I hope) fact that, as I wrote:
> you can't (well, shouldn't) judge something by its intended purpose if what it ends up doing goes against it
If you check my Wikipedia link it shows that the original quote says more or less the same thing: "[this slogan] makes a better starting point in seeking understanding than the familiar attributions of good intention, prejudices about expectations, moral judgement, or sheer ignorance of circumstances".
In other words, it doesn't matter what's the historical context of why corporations were created, what matters is what they do now. You can argue, like it was argued, that corporations as a whole currently are a net benefit. My point is that bringing up the historical context of their original purpose adds nothing to the discussion.
As to your other point, I completely agree that it would be useless to try to defend the Staling regime by pointing out what communism was intended to be. That's more or less the point I was trying to make.
That line is blatant projection on the part of central planners. Both in the sense of how they see the world and it must be planned rather than arising from interactions of independent parties and random vatiables and because it is casting their own flaws onto others.
I'm curious to know why you see it that way, as I don't interpret it like that at all.
Quite the opposite in fact: if anything it's a reaction to people who do try to understand a system by looking at its original plan: it says that you should disregard that and look at what the system actually does (which includes "interactions of independent parties and random variables", as you say).
In any case, that's how I meant it: it's a bit useless to dig up the original purpose of corporations in history books to talk about how corporations work today, like the comment I replied to suggested.
>But the point for businesses to exist at all is to produce positive externalities and they need to produce those externalities for more than just their owners.
I see little evidence that this is true. If anything, modern VC companies are "externality parasites". They produce positive externalities for some (ie. shareholders), by putting a lot of negative externalities on society as a whole (see for example the cost to democracy, societal cohesion, etc. that comes for Facebook and the like).
It’s pretty rare for businesses to produce positive externalities. Businesses create value and some of that value goes to others, but that normally happens through explicit transactions.
The only way to make that happen is to have that common good be priced into the shareholder value, i.e., removing externalities that allow the privatization of profit and the public subsidies of the remediation of the damage done.
Then don't make a company with shares. This is like complaining in a tennis court that it's better to play football. Anybody who makes his business a company with shares will be beholden to shareholders, even if he's the only shareholder. There are plenty of venues for any activity, which isn't structured in this way.
1. Nobody forces you to use a smart phone.
2. Nobody forces you to have social media or use it.
3. Nobody forces you to watch Netflix.
#1 is rapidly approaching the practicality of “nobody forces you to have money.” Technically true but deeply impractical.
#2 is heading that way. Lots of official info is only available on social media. Travel to certain countries can be difficult if you don’t have any social media presence as they’ll decide you’re trying to hide something.
Would you give to charity? You are pointing at the heart of the prisoner's dilemma endlessly recreated by the very existence of capital: why choose long-term public benefit over a short-term personal gain?
People give to charity what they don't need. If all businesses are expected to be charities, they cease to be profitable and thus cease to function, as no one will bankroll the initial investment required to set up a business without the prospect of making money on it.
Let's look at an example. In order to produce e.g. wind turbines, a large factory is needed, full of expensive machines. Let's assume that the buldings plus the machines all costs $500 million altogether. Where would that $500m come from, if the factory will never be profitable, so entities with money will never bankroll it? The only alternative I can think of is 100% socialism and centrally managed economy, where all businesses are owned and bankrolled by the state. However, in practice all such implementations so far (over probably at least a dozen different countries) has been terribly inefficient and corrupt.
I wish it were that simple, I think capitalism works best when personal self-interested incentives are aligned with what creates common good - IE policy is like game design where you design the rules in a way that provides an overall good outcome. In this lens, there is a huge problem with PE right now (the rules incentivize buying out industries and gutting them), and something wrong with VC (the rules incentivize enshittification) so the rules need to be adjusted to align with the broader outcomes we want.
There is no latitude. They have only one requirement: growth growth growth.
If you hit the growth targets, they will pat you in the back and will demand Hyperscale growth growth growth and will throw money at you to supercharge it.
If you refuse to chase the growth, they will simply kick you off the company via Board or fund your competitor that will chase the growth at all means
So you don’t get sued, but you lose control or even your stake or even the whole business. Remember how Uber founder got kicked out? He had a strong hand.
Chilling effect is there one way or another, and even when that does not work adverse selection does.
You have to have a very strong market position to resist the investor pressure. Kinda like Google had twenty years ago.
Or you can have a diverse set of investors who can’t or won’t be swayed by activist investors. But that usually means being public at which point your employees are incentivized by RSUs.
I'm not arguing there isn't an incentive problem. I'm arguing that it doesn't have any basis in statute. The distinction is important because it points to a different solution and different moral culpability for the system's outcomes.
Yeah, but you not getting what you want, you not having own little imperium is not the same as "you having legal obligation".
This amounts to an argument that if doing something immoral gives you money and power, you can not possibly say no and no one can blame you. That somehow more money and power is good enough excuse.
Yeah, I think it honestly lets founders off the hook too much.
In 95% of cases, the founder isn't smashing moral barriers because the VCs and shareholders are making them, or lording the threat of legal action or any some such.
In 95% of cases, the founder is smashing through moral barriers because their interests are aligned with the VCs: because they think what they are doing will lead to stupendous mega-wealth for them personally.
Like sure, I think the idea that corporate execs must be beholden to maximizing share price is a) corrosive to our society and b) not as true as often portrayed, but I don't think that's even a real factor here.
That really doesn't follow. Explosive growth guarantees amorality? What sin is inherit to success? Has envy become so embedded in our thinking that success alone is proof of guilt? Or is it just Original Sin style bullshit where everone is automatically guilty?
To succeed, you have to execute many things well and avoid bad luck. Add to this an extra constraint that one also needs integrity or morals and it will drastically reduce your success rate.
My statement will be true as long as having integrity or morals could hinder growth in some way.
> To be clear, business operators have extremely, extremely broad latitude in how they interpret their fiduciary duty to shareholders.
Legally maybe. The market and shareholders will punish you if you deviate from the current standard behavior.
We’ve all seen companies do layoffs just because “Wall Street” was concerned about the economy and then instantly see the stock price spike up.
These negative consequences are all results of bog standard prisoner dilemma issues that need government regulation to make sure everyone picks the good square, but the tech industry and this boards community as well is allergic to the idea that regulations can improve the situation for everyone
Maybe in theory, but in practice there is a strong power mismatch that causes investors to have a strong influence. Sand Hill learned it's lesson from Facebook/Zuckerberg and now always have a seat on the board. Only outliers like zuck/bezos/similar have the weight to push back against investors. Heck, even Dorsey couldn't for whatever reason.
And even if what you said is true, you can look at the results of years of this system, the difference between companies with outside investment vs without makes a strong case against what you're saying.
It's like saying educating people about their rights wrt police helps, but in practice police don't derive their power from actual laws and it comes at considerable personal expense to push it to courts, in the same way Delaware is very strongly biased towards shareholder rights.
> To be clear, business operators have extremely, extremely broad latitude in how they interpret their fiduciary duty to shareholders.
That may be true legally, but practically it's only true if they control the board. Otherwise they will simply be replaced by people who are willing to do what the board wants.
The annoying tone is unnecessary. Yes, legally speaking operators can go against the board and get replaced, which they certainly should do if they feel they're being asked to do something unethical. But it's not going to change how the company is run.
For the executive, sure. Not for the impact of the overall incentive structure on the trajectory of the business. Which is what this discussion is about.
The root comment this thread is in reply to had the implication that people are only acting this way because of an inaccurate idea of how strict the legal obligations are, and the other comments are about how that’s obviously not the only force producing the current outcome
Yeah, obviously that's not "the only force producing this outcome." Nobody claimed it was.
But it's important for founders to understand they are not legally obligated to do any specific thing for their shareholders. It is their responsibility to act morally. Yes, there are other incentives and forces at play. "Legal obligation" is not the cop-out excuse that executives claim it is.
Even focusing on short term profit would be fine, if you want to blow up the business go ahead, if those profits were actually shared fairly with shareholders. Too often companies can just dilute their stock over and over, which fucks over individual investors and benefits the 51% owners, and investors don't really get a say, yes there's a vote but if 51% is owned by a few it's not a vote.
Individual investors are largely operating on trust.
We actually need to combat this notion that somehow exclusive focus on short term returns is somehow legally, morally, or ethically required. It is actually antisocial and obviously destructive.