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Comment by AmericanChopper | Hacker News Reader

I can’t believe that somebody could write a whole book based on such a contrived premise. Shareholders don’t control a company? They do, they control who sits on the board, and the board controls the company. Shareholders aren’t entitled to a company’s profits? They’re entitled to its dividends, if they think the company isn’t paying enough dividends they can elect a new board. Shareholders don’t own a company? They own its profits and they control its decision making. Some semantic of the word “own” is pointless. You could argue that shareholders don’t often exert this control against incumbent management, but that is only because management most often respect shareholder primacy. When shareholders invest their savings in public companies they’re trusting them to grow those savings. If you’re not operating in the interest of shareholders, then your public company will not survive long.

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Business owners don’t have singular goals. Neither do shareholders. Profits are important. But short-term earnings aren’t everything, to whole business owners nor shareholders. Some managers like to pretend they are, because hitting a single quantitative short-term goal is easier than running a business, and that’s the problem discussed here.

Did you read the article? Because that’s pretty tangential to most of what it brings up. It’s also not an accurate description of reality. Different investors have different horizons, and different companies operate with different horizons for their missions. If there’s any myth here it’s that all investors are singularly focussed on the next quarters profits, or even that most of them are. Most of the people on this board have probably worked at a company with a cap that’s 20x it’s revenue, or at least know somebody who has. There’s a whole sector of investors who are willing to invest in companies that lose money year after year on the premise that they may one day make a profit.

The irony of the theory that American companies are all focused on short term profits at the cost of long term profits is that it is refuted by simply looking at graphs of the S&P 500 over the decades.

The theory also requires that the aggregate of investors are fools.

Actually, they are NOT entitled to dividends. That's part of the myth, and is covered in the book. You should give it a read. The author covers some historical cases which are often misinterpreted, and lead to the confusion. In the case of dividends entitlement, the case you're drawing from is https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

She's a lawyer and professor in precisely this area. You could read the wikipedia article, and try to confirm your bias. Or, you can read the book, written by an expert, and broaden your perspective.

You’re (perhaps intentionally) confusing profits and dividends. Based on the type stock a shareholder owns, they are absolutely entitled to their share of dividends.

The authors point is that a company is not obliged to pay all its profits in devisends. Without any proper explaination, the author draws the conclusion that shareholders aren’t entitled to any of the companies profits. This completely ignores to irrefutable truths

1) Not paying dividends does not automatically mean not maximising shareholders benefit. There’s unlimited ways a company can invest their profits in things other than dividends that will still benefit shareholders.

2) The shareholders control the company’s decision making. They elect the board, and the board controls the entire company.

The authors entire argument relies on pointless semantics and a highly selective view of reality. The same selective view you’ve displayed by acting as if profits and dividends are the same thing, and ignoring corporate governance structures.

Shareholders don’t control a company? They do, they control who sits on the board, and the board controls the company.

Well, yes and no. The best or most powerful negotiator controls the company, and everybody who has an interest in the business (investors, creditors, employees, customers, suppliers, the public) can seek the power to manipulate the company on behalf of their own self interest. Shareholders can certainly partake in that process as well. But there's no law that guarantees that their interests have primacy over those other groups.

Being a good negotiator isn’t going to overturn a shareholder vote or a board decision. You’re trying to say that corporate governance doesn’t exist because in some cases it can be inefficient.

In practice, management can get minority shareholders to approve almost anything, the most obvious being by treating unreturned proxy ballots as implicit votes for management. They can entertain floor resolutions (never put before shareholders on proxy ballots) at investor meetings in locales they choose, but which they know will be burdensome or foolish for shareholders to attend, because they plane ticket alone would wipe out any expected earnings on their shares over the next 100 years.

And that's just in the nominially shareholder-democratic sphere of things that are actually brought before shareholders. Most things simply aren't, and furthermore, in public companies, management essentially CAN'T tell shareholders more than is required by the SEC, because that means making the information public, for their competitors to see and plan around.

In short, shareholder democracy "sounds good, doesn't work." Management has total, dictatorial power, except in the case of major institutional investors like mutual fund managers or investment banks, who often as a matter of policy always support management. Even when they don't, they're so far removed from the people whose money it is that they're using to exercise their power that they may as well be classed with the manager class. Rarely, very wealthy individuals can exercise substations control as investors. More often, they are management as well (e.g. Zuckerberg's control of Facebook is as a manager, not as a shareholder.)

Clearly, a single employee or customer of a large company might not be in a good negotiating position, but an organized group of workers or customers might be able to influence the governance of a company. Organization might come about in a formal way, e.g., a labor union, or informally through the spread of ideas.

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