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Comment by michaelt | Hacker News Reader

If you're interested in corporate governance, you might enjoy reading the book "Pay without performance"

One of the points it makes is that shareholders have very little power in practice, as even if you own a million dollars of Apple shares, that's only 0.00007% of the company. Not exactly enough to force through a motion on your own.

And if you think you'll build up a coalition to get a majority? Good luck doing that when you can't even find out the names of other shareholders.

Minority shareholder lawsuits? They're actually a negligible force; rare, unlikely to succeed, and low impact even when they do.

And that's without getting into 'preference shares' that grant CEOs outsized voting rights.

The book argues management can neglect shareholders' interests with impunity for these reasons.

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Well there are two kinds of public shareholders, right. There may be a small number who own large enough shares to bother attending board meetings and voting, and then there are the millions with pensions, 401ks, index funds, etc. I think you're talking about the latter, who have the same issue but a slightly different version of it. In their case, the "ill-informed management" comes down to "price goes up, buy, price goes down, sell". Through share price they wield an extremely blunt version of the same weapon.

This is almost worse, because it very explicitly cares only about the short-term price. It's also a much harder problem to solve, because you can't just tell those people "think long-term and ethically when you're exercising your impact on the marketplace!". No matter how ethical they may be as individuals, most of them probably don't even know which companies they have stakes in, much less whether those companies are heading in the right direction!

> it very explicitly cares only about the short-term price.

There is no short term price in stocks. Stocks are valued at their perceived long term value. If shareholders suspect a company is sacrificing the long term for the short term, they're going to dump the stock until the price of it drops to reflect that.

This also implies that if you can reliably detect that a company is eating its seed corn before everyone else does, you can make a mint shorting it.

> There is no short term price in stocks. Stocks are valued at their perceived long term value.

Hogwash. Pretty much every company on the S&P 500 dropped 30% around March. Did their perceived long-term value change 30%? I doubt it. I think most people were fully aware that most companies in the S&P's 10 year value wasn't going to change much; certainly not 30%. Yet, it dropped 30%. And then the next month it has risen back up to about 10% of its all-time high. I don't think people seriously thought that Apple, Coca-Cola, Pepsi, etc. suddenly dropped in value 30% and then suddenly rose 20% (yes, I know, technically it was more). If you can have swings of +/- 30% over a period of two months, I don't think the value is reflecting the long-term prospects.

There is both short-term AND long-term pricing in stocks. "In the short-run, the market is a voting machine. In the long-run, the market is a weighing machine." Ben Graham

Hogwash. Pretty much every company on the S&P 500 dropped 30% around March. Did their perceived long-term value change 30%?

Double hogwash. That pricing reflected that people suddenly needed cash right now and was irrespective of what anyone thought about long term value. I will bet most of the sellers bitterly regretted it but saw no option but to sell at whatever price they could get because they had urgent immediate needs.

Yes, one good way to think about this was that there was very little change in the value (fully discounted long term etc.) of stocks but a large change in the price (current exchange rate with other participants facing temporal constraints) of cash.

Right, that's my point: prices don't perfectly reflect long-term value. You give an excellent example of why the currently price might not reflect long-term value, which I need to remember for next time!

The short term price theory requires that anyone selling at those short term high prices is selling to someone convinced that prices will go higher in the future, i.e. that you've tricked them.

Price volatility is an indication that either economic conditions are changing rapidly which affects the long term prospects, or that people are very unsure about what the long term prospects are.

It is not an indication that companies are being rewarded for eating their seed corn.

BTW, years ago, I knew a CEO who believed in manipulating the accounts to boost the short term at the expense of the long term. He made the mistake of telling the press he was doing this. The stock immediately tanked.

If the short term pricing theory was correct, the stock would have risen.

Then we have companies like Amazon, who explicitly say they are sacrificing short term profits for long term growth. The result? The stock price has soared to incredible heights.

Your example is hogswash. Absolutely, the perceived long term value dropped 30% as people feared a million deaths (with lockdown) and dead bodies piling up outside hospitals across the country (with lockdown, and not just New York City). The stock market is rising now that people realize the pandemic, while still bad, isn't going to be as bad as those predictions. Our perception/understanding of the pandemic has rapidly changed.

I think there’s a third class: Institutional investors like CalPERS or NYSLRS. CalPERS has something like $300B in assets. When they talk, companies listen.

While they might be implicitly in your first group, attending significant meetings AND ensuring long term growth are primary responsibilities.

Calpers is like a king with no pants everyone pretends to respect them but they are as dumb as money gets

> even if you own a million dollars of Apple shares, that's only 0.00007% of the company. Not exactly enough to force through a motion on your own.

And it shouldn't be. The board has only 24 hours in a day, not remotely enough time to debate every motion from every shareholder.

However, as a shareholder, you can dump your stock, which does send a message when many shareholders do this.

> as a shareholder, you can dump your stock

Indeed - but brundolf laments about the lack of shareholders "bothered with [Boeing's] nuances or long-term health" and having only a single one-bit message is not conducive to nuance.

Sends the message that it’s time for the company to buy more of their own stock.

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