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Comment by secabeen | Hacker News Reader

> I found it interesting to realize that most modern antitrust theory - that consumer harm is the only reasonable basis for government intervention in monopolies - appears to lack historical basis in the law. For instance, the consumer welfare standard severely downplays the importance of free and fair competition among businesses as a means for class advancement.

This feel similar to the myth of shareholder primacy. In both cases, the "agreed on standard" has little to no basis in the law, but happens to enrich the powerful and well connected over the little man.

https://corpgov.law.harvard.edu/2019/08/22/so-long-to-shareh...

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If you look into the actual historical basis of shareholder primacy, you'll find everything is a bit more complicated than you think it is. Shareholder primacy has an old idea, coming from a the 1919 court case Dodge v. Ford Motor Co. The facts of the case were as follows:

1. The Dodge brothers - minority shareholders in Ford Motors, wanted to set up their own automotive company. They planned to use the money from Ford's dividends to support their company.

2. Henry Ford would have liked to keep his monopoly on affordable cars. He cancelled the dividend and claimed he's going to spend the money on improving society (by selling the Model T even cheaper) as a thinly veiled excuse.

3. The courts in Michigan saw what's happening and forced Ford to issue dividends.

As you can see in that case case, it was the lack of shareholder primacy that enriched the powerful. In the last 20 centuries of human history the powerful have always crushed the little man with the excuse they are serving the public interest. Beware of anything that empowers powerful individuals (like corporate CEOs and directors) to take arbitrary actions in the name of "social responsibility".

How did Ford cancel the dividend without shares?

The did have shares.

> In the last 20 centuries of human history the powerful have always crushed the little man with the excuse they are serving the public interest.

Was this not happening before the estimated birth of Jesus of Nazareth?

I was thinking more of the "people's" party of the Roman republic which replaced electoral government with divine monarchy in 27 BC. It's a rather fragrant example of what I'm describing as well as the first one I know of, but I doubt it's the first time it actually happened.

Christianity couldn't have been a tool of the rich and powerful in the first century, because it only began acquiring powerful followers around the third century crisis.

What is the reasonable alternative to shareholder primacy? Removing shareholders as a check on the executives would create an all powerful CEO similar to the structure of tech companies with dual class shares but at all companies. I don't think that's a good thing.

Also, why would investors want to invest in a company where they could not remove a ad CEO that isn't delivering returns? They would probably just reinvent shareholder primacy through investment contracts.

Do shareholders actually act as a substantial check on companies though? And it's this a check towards positive behavior, or negative behavior (for the company, society, etc.)?

A CEO or board of directors that angers the majority of shareholders (or an outspoken minority) doesn’t last long. That correlation is absolutely clear.

Which means most CEOs and boards focus on managing shareholders at least as much as anything else they do.

I agree. Unfortunately the majority of shareholders are rich dudes who just care about their numbers going up. The whole thing is psychopathic.

They certainly wouldn’t be rich dudes for long if they were okay with the numbers going down!

What do you suggest we optimize for instead? "their numbers going up" is at least objective.

Everyone who has money in the stock market via their retirement funds care if the stock goes up

THEIR numbers going up, is the part you may be overlooking in that.

Care to clarify?

I'm assuming the person I replied to was insinuating that the people with an influential amount of voting stock are adequate representatives of the interests of small fry investors building up for retirement. My response is that if the former has the option to increase their share of wealth at the expense of the latter (like rearranging the leadership in a way that promotes short term gain at the expense of long term gain), they will take it. They're interested in their numbers, not any particular company, or the health of the market, or retirees.

Thank you for asking for clarification. I realize I responded precipitously and was too cryptic to contribute anything meaningful to the discussion.

If they didn't why would anybody be complaining about "shareholder primacy?"

And it's a check towards their own interests. Just like the CEO acts in his own interests. I can't for the life of me understand why anyone thinks the CEO is more likely to act in the best interest of employees or society than the shareholders are.

> I can't for the life of me understand why anyone thinks the CEO is more likely to act in the best interest of employees or society than the shareholders are.

Probably because shareholders can just care about money in the immediate term and don't need to actually care about any one company or its long term success. They may never know or even interact with the employees of that company on any meaningful level, and may have investments in several other companies including direct competitors so that if any one company tanks they'll still have other investments making them money hand over fist.

A CEO, particularly when they're a founder, might actually care about the company doing well and may personally know the people working for the company. They might care a lot more about the employees they work closely with on a daily basis as opposed to a shareholder who just watches numbers go up and down while deciding when best to sell. The CEO's day to day will change drastically if their company fails. A shareholder whose company does poorly just adjusts what they buys/sell the same as any other day.

A CEOs compensation is mostly stock so that doesn't make any sense. But even if that weren't true, the idea that shareholders don't care about long term prospects or don't mind when the company tanks because they have other investments is one of the most outlandish financial takes I have ever heard.

When shareholders can trade in nanoseconds to exploit random anomalies in stock prices it's harder to imagine them deeply caring about their investments in the long term. Because CEOs don't have the option to jump ship at nearing the speed of light, it's reasonable to conclude that they might just care a bit more.

HFTs and day traders inventory accounts for negligible percentage of shares. The vast majority of shares in all publicly traded companies are held by long term investors. Short term holders have no impact on corporate decision making.

> myth of shareholder primacy

FWIW that's just logic.

Whether it's de jure or de facto, the owners of something will own it to their interests.

Yep, why would anyone own anything that negatively impacts them.

If you had 100 dollars would you invest it into a company where the CEO could just take the entire company hostage and potentially make you lose your entire investment?

> Yep, why would anyone own anything that negatively impacts them.

That's a false dichotomy. You can own something (or a share) and the purpose of it need not be "return as much value as possible, via buybacks, in the next quarter".

Uh, so why would I choose to own that?

To earn a return on your investment. Maximizing that return in the next quarter by threatening to take a controlling stake in the company falls into this category of course, but it's silly to think it is the exclusive mode. The point the other poster is trying to make is that it's absurd to pretend the options are 'unilateral control of the company is determined by shares' and 'shareholders are being negatively impacted by their investment'.

Ownership guarantees some legal rights, but it doesn't mean that all value is yours to consume. Employees, partners and customers are all going to fight for the value that is created and will use whatever leverage they have to get it.

Of course owners don't get all of the value. Otherwise, there wouldn't be employees or customers.

Everyone shares.

Company actions maximize company value. Employee actions maximize employee value. Customer actions maximize customer value.

So often it's "buyer beware" when it comes to consumers, it seems like it should likewise be the job of the investor to be smart about what companies they invest in if they want to avoid a CEO who would run a business into the ground just for funsies. The risk of potentially losing your entire investment is something every investor has to accept as being possible with carefully considered and wise investments making it less likely to occur.

> So often it's "buyer beware" when it comes to consumers, it seems like it should likewise be the job of the investor to be smart about what companies they invest in if they want to avoid a CEO who would run a business into the ground just for funsies

It's pretty much like that already, the CEO can run the company into the ground for funsies if they are insane.

But if the investor catches the CEO doing this they have the right to sue to prevent it from happening and the legal system and shareholder primacy are what allow for this. Otherwise, what does the concept of ownership even mean if the owner can't decide what is done with the business?

Even without a right to sue or shareholder primacy shareholders can get a crazed CEO fired, screw with their pay, etc.

Well, people buy both Google and Facebook stock where the founders still have a controlling interest and could theoretically do anything they wanted

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