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Comment by tvural | Hacker News Reader

I would also point out that short sellers and "activist investors" are a significant downside to being public. Essentially you give investors focused on these strategies a financial incentive to destroy the company's long-term value. Activism has been a big problem for drug companies where investors will try to fire all the scientists so that profits will go up for a few years.

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> Activism has been a big problem for drug companies

Forgive me if I'm wrong, but isn't it kinda up to the shareholders?

If shareholders value something other than the "long term value" you speak of (I guess share price and dividends) then that's their prerogative surely? If I want to buy a controlling stake in a company but my idea of value is, say, sacrificing profit at the expense of employee perks and charitable efforts, then this is my "shareholder value" and isn't it then the responsibility of the company to provide that?

Likewise, if I buy shares in a company and then want that company fire all the highly paid people so profits go up to enable me to flip my shares for more money, that's my value and isn't it therefore up to the company to do that?

In summary, if the value of a company is measured by what the shareholders want, then it can't be a problem if the company does the thing that the shareholders want, even if that's destroying what you see as the "long term value" of the company.

It might not be what you want as a founder or CEO when you IPO, but those are the rules, those are the risks and you have to take them if you want to play the system?

I think your points highlights the contrast between how the US thinks of corporate stewardship (shareholders get complete discretion) with how many German companies do (stakeholders all contribute to board-level decision-making).

In the US it seems entirely reasonable that an owner should be able to undermine the long-term viability of something they own, but in Germany other stakeholders - the larger community the company exists in, the employees of the company -- get a seat at the table to determine the company's course.

I'm not advocating for either, just an interesting distinction.

For what it's worth this is my limited understanding of the way the US stock market works from my observations over 17 years in the UK :)

Personally I'm a big fan of the "middle ground" European model that seems to be, "capitalism with boundaries", as far as I can tell unfettered capitalism is incredibly destructive and unfair.

...which would be an excellent explanation of why fewer companies want to play that system.

LTSE is trying to solve this by vesting voting rights over time. I’m curious to see if it succeeds.

On that note Eric Ries just released a new book at the end of last year, it's called "The Startup Way".

Seems backwards. You should get more voting rights if you lock yourself into holding the stock for >5 years.

This is correct. Shareholders may increase the voting power of their shares up to 10x over 10 years by registering their shares on the company’s books.

(I work at LTSE)

You mean people that point out shady shit a company is doing? Short sellers serve a very important role in the market and help prevent things like Theranos.

True, but it can be a significant problem for legitimate companies. After going public Tesla had the highest short interest of any major stock at 72%. The other companies that were in the top 5 at the time are all bankrupt or close to it now. Short sellers perceived it as an unrealistic joke, and tried to convince everyone else of that, which could easily have become self-fulfilling.

But they didn't, did they. So what's the problem here? There is no problem with a big chunk of people holding a short position in a stock. Tesla has some big problems that traditional business people get concerned about (e.g. making money).

Activist investor is minority investor who puts pressure on management and generally campaigns to change something about a company - for their own goals.

Why would activists want short term profit gains, isn't the point of Activist investors more ideological in nature?

> There are two quite separate kinds of "activist":

> One kind wants companies to make more money by being meaner: They call for efficiencies, stock buybacks, mergers, less spending on perks, etc. This stuff is often stereotyped as enriching shareholders at the expense of workers and other stakeholders, and as harming long-term value by focusing on short-term stock-price results.

> The other kind wants companies to make less money but be nicer: They call for more social responsibility or environmental studies or other things that might reduce returns on investment (at least in the short term) but achieve broader social goals.

> They are not so much opposed as they are unrelated.

from https://www.bloomberg.com/view/articles/2018-01-08/what-do-i...

I don't see how they are a downside. I am sure that VCs and PEs are at least as tough as activist investors in making sure to keep management on its toes. Notions like MVP and ramen profitability were not invented by activist investors, after all.

If they can control the company it's because people don't see the longterm value.

Not if too many people participating in the stock market are speculators rather than long-term investors.

Which means they don't care about longterm value. Management serves the owners.

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