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>I've never agreed with that. As a private company you can be in business for whatever reason you want.

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?

>> If by 'you' you mean 'the owners' who are the share holders, then yes.

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.

>The share holders are free to take it or leave it.

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.

But the CEO doesn't own the company, the investors do, so why would the CEO be the one to state the goals leaving investors to "take it or leave it"?

Because if you don't like my plan you can go find a new CEO. And finding a new CEO is harder than it looks, especially in big business. CEOs should have a lot of leverage with their board, if they don't, they're cooked anyway. I have said to the external shareholders many times that their opinion of putting the business first and my opinion of putting the business first may differ because, unlike the investors, i'm responsible for the internal shareholders as well, and need to balance their views and opinions.

> finding a new CEO is harder than it looks

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?

Hey thanks for the reply, these are excellent questions. It's hard because usually the person you want is either happily employed because they are good at their job, or retired because they were good at their job. I've been a part of 3 CEO searches for big-ish startups and it wasn't fun. There is also often a fundamental reality difference between the board, the shareholders, the employees and the world. Getting that part out of the way can sometimes in and of itself take 2-4 months depending on the company. Once you've done that, figuring out what the "type" of CEO you need can take some time, do they need public market experience, do they need a network, do they need to be technical, etc. Then you build the list, and then the job of convincing someone to take the job is often equally difficult. Re: spreading the roll across multiple people. This is what a really excellent CEO does anyway, in fact if I don't see this being done it's a massive red flag. In a great company, the CEO only has two jobs: dealing with real emergencies and being accountable to the shareholders. I think one person being held to account is extremely beneficial though, and I don't think it would be a good idea to switch it to committee, I actually think of all the things capitalism gets right, corporate structure is for the most part quite well thought out and works.

Hey! Thanks for taking my semi-snarky reply at face value. I appreciated your kind response, and learned a few things. I'll pass on your hello to Glaeser if I ever run into him :-)

>It seems a bit like becoming president

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.

(ps I see you're at Kennedy, if you happened to know ed glaeser tell him I say hi!)

It's not clear that investors own a corporation, in the same sense that you own something like a phone or a house. The right of investors to make a claim on the resources of a corporation, or to direct its actions, are quite limited unless the investor is on the board of directors.

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.

Some companies offer different classes of stock with voting or non-voting rights.

For example Google has Class A - (GOOGL) and Class C - (GOOG)

Investors always own corporations (via their voting power). That's what a corporation is. Some companies have different classes of investors (e.g. restricted stock that isn't traded and converts when sold) to protect against things like hostile take overs, but it doesn't change the overall structure.

"Ownership" as a legal concept is not that simple: https://www.google.com/amp/s/amp.ft.com/content/7bd1b20a-879...

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.

> But the CEO doesn't own the company, the investors do, so why would the CEO be the one to state the goals leaving investors to "take it or leave it"?

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.

Indeed. Google short-cutted this problem by never giving a controlling majority to the shareholders. It's interesting to me that solution seems unique to only a handful of companies.

> 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.

> This is a joke of course

Yes, you're right, our inane system of corporate profiteering at the behest of everything else _is_ an incredible and sad joke.

Aye, but there's the rub. Everyone is free to divest their retirement holdings from all companies that aren't B corps. But then you have to be willing to (maybe) accept sub inflation level returns. So do you want 8-10%+ returns in your retirement holdings? This is happening exactly because businesses are being run to generate economic returns to its owners. Obviously the super large shareholders make out even better but we come along on the ride for free.

I'd like +inflation in the long term - the rub is that quarter to quarter horizons and returns at all costs lead to companies producing right up until they fall into the sea. The hedge funds and activist investors that drive them into this (super large investors) jump ship in advance, everyone who's not in the know is left to go down with it.

Exactly. Why replace one government mandate with another? Let the company decide its own objectives, instead of "must maximize returns for shareholders" or "must give employees a voice of x%". If it worked in the 80s, why wouldn't it work today?

> Historically, board appointed the CEO and most board members are shareholder. Having incentive aligned with the board earned you loyality of the board members and more compensation if you could trick the market into believing your fairytale and still juice out the max return.