Capitalism the Apple Way vs. Capitalism the Google Way (2017)

I'm not sure I'd phrase it this way. Suppose option A earns you 5% and option B earns you 6%. But you, as a founder, really prefer option A to option B. Then you better not take your company public, because your personal preference doesn't match the market preference.

In your example, going to Mars earns less money than selling the satellites, and Musk really wants to go to Mars. I don't see this as a governance problem -- Musk's pleasure in going to Mars plus the returns from doing that exceed the public's pleasure from the returns only. So since this is a bit of a vanity project, it can't be publicly controlled and remain a Musk vanity project. That's not a governance problem, it's how governance is supposed to work.

But then you say that investors are happily buying these shares? Well, it's an expected income stream, so the shares are being priced. Happiness has nothing to do with it. A 5% return is still worth something, even if the share price would go up should the strategy change. In no model would the price of the suboptimal income stream be zero.

The real question here is what happens to the visionary iconoclast who knows that going to Mars will result in a higher return. For them, it's not a vanity project but some kind of private belief that is more accurate than the market belief. In that case, non-voting shares will outperform in the long run. We can say that Steve Jobs was such a visionary and maybe Musk is, too. But how much do you want to bet on that? And is that really an argument for one type of structure over another? That your average company is run by some visionary genius that is smarter than the market? Is that a governance problem? No, not at all.

In the end though, if the founders of SNAP wanted to sell SNAP, they'd sell their voting shares. If they wanted to pay dividends, they'd pay dividends to only the voting class. Why would they ever need to bother with including common, what could the common shareholder do, ask a question at the shareholder's meeting?

Q: "In the buyout offer from Facebook, Facebook is buying the Preferred Series of shares only, leaving SNAP as a subsidiary of Facebook. Facebook is planning on a tight integration, one that will essentially turn the SNAP app to a rebranded Instagram. What does the common share holder get out of this deal?"

A: "Well, the SNAP common shares still exist, they remain non-voting, non-dividend shares in the subsidiary. Next question."

Q: "So, the founders get paid, but common doesn't get anything? As a common shareholder, I object and I don't agree to this buyout"

A: "To answer your question, if you look at your shareholder agreement, as an owner of SNAP common, you get the right to ask a question. You will still retain that right to ask questions. As for your second statement, please ensure your spoken comments take the form of questions please."

I think this goes for all founder controlled companies, but even more so when the class structure is used to move voting rights to just the founding shareholders.

Capitalism traditionally gives power to customers through their ability to choose not to buy the company's products. Works better for Apple than for Google, though we pass laws to mitigate some externalities (privacy).

Workers get a say in a similar way. If a company isn't worth working for, they won't work there. This is truer for companies like Google and Apple than most (even though they are enormous) because the labour market is so tight. Again, though, we pass laws like allowing labour unions (which are a price-fixing mechanism) to address imbalances of power.

Funnily enough, this is kind of on-topic for the article. Ownership in a company usually gives you "voice" and "exit", and these fancy share classes effectively take away voice and just leave the average shareholder with exit -- "If you don't like how we run the company, invest in someone else."

I think the reasonableness of it is a question of effectiveness rather than morality or logic, to be honest, but I do like the idea that Zuckerberg's board proposed to him when considering an additional share class+split that would have entrenched his power: "Your shares will become regular stock when you stop personally being CEO." They wanted him to run the company how he wanted to run it, but didn't want him to hand-pick a successor.

Still, a bit perverse that negotiation. Technically Zuck had the votes, so I guess (?) the legal mechanism of that action was "We won't sue you for not representing our interests if we do it this way." (Voting stock or no, shareholders always have some legal voice.)

This profile provides an overview of some of his more recent moves: https://www.cnbc.com/2018/12/30/salesforce-marc-benioff-talk...

Here's his list of publications: http://www.mihirdesai.org/publications-and-media/

The difference between these two companies is that one publicizes the stuff it's working on and rushes it to market, while the other keeps it all secret until it's ready.

Also, Apple is working on AR glasses(rumored to be announced next year), self-driving car and are making a big push into digital health.

Apple is far from doomed, they still have a lot of room for growth.

History has proven this to be false. There is only a shortage of creativity. There was a Micorsoft talk Ballmer gave where he rightly pointed out that it is rare for even successful companies to have more than one cash cow idea. Using their existing cash to create two or more is the main challenge facing companies like Microsoft, Google and Apple.

> Proponents of the managerial model embodied by Google worry about a different principal-agent problem. Rather than being concerned about managers ignoring investors, they are concerned that investors won’t serve the people who would benefit from the long-term success of the company. Those professional investors are both the principals for the CEOs but also the agents of many other shareholders. The hedge funds that pressured Apple are the dreaded “short-term” investors who are interested only in quick wins and don’t serve their longer-term beneficiaries, such as pension funds, that allocate capital to them in the first place. As investors, hedge funds are impatient, and, the argument goes, ruining the economy by shortening time horizons.

https://www.theguardian.com/technology/2019/jan/03/google-ta...

> It's really a CFO's problem, financial engineering.

I'm not sure how you distinguish this from capitalism.

There are very, very few counter-examples in narrow low-growth specialised markets, but the general rule has been shown to occur countless times across economies as small as communes to as big as a superpower.

The reason capitalism works is that capital generally flows to people with a track record of making efficient, effective, growth (and therefore jobs) generating investments. Which is what you want. There is some wastage of course, but far less than in planned economies (at least all of them so far) and capitalism tends to be very efficient at recycling that wasted capital back into productive enterprises.