In theory, private corporations are run for the benefit of their stockholders; insofar as the theory is enforced in practice, it is through two different mechanisms.
"The stockholder's view of the value of the stock directly affects the firm only if it wishes to raise capital by selling a new issue of stock."
Not true -
(1) Companies commonly use stock as a form of compensation for an important subset of employees. If the stock goes down instead of up, the company has trouble retaining and recruiting talent, and it directly hits their bank accounts as they have to pay more cash to hit a "total comp" number if X units of stock are only worth X/2. This is not a small matter and management is wary of it.
(2) Besides that, the top management team themselves always have that as the primary form of their own compensation (salaries top out at $400k-$500k, stock is all the rest).
(3) Thirdly, a declining stock price triggers shareholder lawsuits by litigious law firms that fish for a disaffected shareholder and casting about for any reason at all. Companies often settle even when there is no merit to the case (which is common)
(4) Declining stock prices cause the board to fire the management team, after a (admittedly long) grace period.
Overall, company management is very strongly incentivized to make the stock price go up, even though the company issues no more shares. Source: first-hand experience as a former high level employee at a public company with a declining stock price, where all of these occurred and punished management greatly.
I have recently become aware, due to an ongoing trial of a Portuguese politician, of how much more governments care about such operations than we'd naively think. This seems to happen a lot when foreign companies attempt to buy national companies. There are material reasons for their caring (foreign companies are more difficult to pressure politically and economically). Here in Portugal, this politician defended his actions, when attempting to block an acquisition, by stating that the operation was "embarrassing for the government". Currently, Trump is applying similar moves to US Steel. The left, here, usually argues for these actions in terms of "national interests" or "strategic interests", which is what Trump does too. Whether this is the justification, or if it's a call to defend "stakeholder" interests, the underlying objective is always to attack private property rights. In both of these examples of mine there was a "golden share" involved.
On an optimistic note, some of these quasi-nationalized enterprises here have had catastrophic financial outcomes, which has led to some liberalization. In one case, the company in question was a telephone company, and it became much less relevant with time. There seems to be a bifurcation here, which perhaps could be studied, where one path leads to better government, and the other leads to becoming Venezuela.
“An employee who finds that the corporation is offering worse terms than alternative employers can quit.”
In some cases it is not quite as simple. Many companies these days have broad non-compete clauses. Those clauses make sense in some cases. If I were an executive of a company, I would likely have direct knowledge of my company strategies and future directions or other internal confidential information.
I worked in IT and sometimes there is significant training given to employees. For example, if someone were hired and given significant training in SalesForce (cloud-based software company that specializes in customer relationship management), It would be reasonable for the company to expect to get something for that investment. Providing the training and then having them leave would incentivize companies to not train people.
Non-competes however are often open ended and may involve skills gained simply by doing the work or going to school. I was a computer services person who had services engagements at a variety of my company’s customers. I was doing standard work, nothing that required them to train me, but I still, like many of my peers had a non-compete. Leaving my industry for a year (the term of many of these non-competes) means I would have to work at something in which I had no competitive skills. I am looked in,
I see the same thing with other jobs such as machinists (my brother). He went to tech school, and eventually left the company he was working for. His skills were standard industry skills but the company went after him anyway.
I would love to see some conversation about how both parties (employees and employers) could manage non-competes in a reasonable way.
I just heard today that many employment situations now include signing a long term contract upon hire.
One local automotive sales and repairs firm's mechanics must agree to a five year contract another three years. The employee can buy his way out of the contract but the cost is a strong incentive to stay.
I'm retired, out of the job market for over 20 years but I remember such, especially in the trades, being rather uncommon back then.
One reason I know of for employers to do this is to offset the cost they put into training new employees. If I'm an employer, and you're a new hire who's new to my industry but showing signs of great potential, it's worth it to me to invest in teaching you how my industry works and then enjoying the benefit of an expert, energetic employee. But that doesn't work if you complete training and then immediately apply to a competing business. It's additionally likely for a competitor to offer a higher salary to people just past training - they can afford it relative to a business that chooses to spend money on training, and it's of course better for the employee.
Multi-year contracts are one way to deal with this. Another solution is to outsource training to a third party that sells training services rather than bundling it with an entry-level job. The latter, of course, does not solve the problem of corporate espionage, while the multi-year contract mitigates it somewhat.
Just a comment but most non-competes are unenforceable, like most one sided legal agreements. Corporations simply have you sign them like slumlords with unenforceable lease clauses because they figure, usually correctly, you will be cowered. State courts routinely rule that for non-competes to be enforceable they can't hamper your employment in the same field in the same area with the same skills and have to be extremely narrowly tailored as to not be punitive but simply to protect IP.
Basically McDonald's can't prevent you from working Burger King, much less Taco Bell, but they can prevent you from inventing a Big Whooperac and carbon copying McDonald's processes into BK on that the week after you leave McDonalds.
(Recycled and slightly tweaked Comment)......The law should rein in the "limited liability" enjoyed by stockholders in a "limited liability corporation" and if it did so corporations to be competitive selling their shares would need to have "Corporate Charters" or whatever that enable shareholders to participate more in running them .
Limited liability is a privilege others don't have and stockholders don't have in other areas of life. If I lend my friend money for books but my friend buys a gun and robs a bank the police would not believe I was not investing in his robbery and would lean on us to rat each other out and I could get sued by someone who was injured in the robbery. A shareholder only risks losing the resale value of a share even if that share has likely already paid for itself with splits, dividends and buybacks. If investors were treated as complicit in corporate misbehavior they would keep executives on a shorter leash. If victims of Bhopal could sue Union Carbide shareholders and investors risked losing their houses Union Carbide would have been forced to operate more safely there. If someone thinks ending limited liability would slow investment too much maybe someone much smarter than I am could create a malpractice insurance product for investors similar to malpractice insurance that doctors have
I wish there could be a market for corporate control for non-profits, especially universities. Imagine the efficiency improvements! Don't quite know how to go about it while leaving non-profits as non-profits.
A couple ways to give more power to those with skin in the game: 1. Don't allow index funds the right to vote their shares. 2. Have the voting rights vest over a period of several years.
To handle the high price of acquiring proxies, we need Internet forums where participants can verify their number of owned shares and make their case for getting proxies.
It's not their money. They invest on behalf of millions of passive accounts. Indeed, a large fraction of those accounts are semi-coerced: few 401(k) plans allow workers to choose individual stocks.
Second, having broad index funds vote their shares violates the spirit of antitrust in a big way. A small number of Wall Street firms gets board altering power in any public corporation not still controlled by its founders. Corporate America becomes like a government -- minus the accountability of elections.
We traditionally give corporations freer rein than governments because competition is supposed to provide both checks and choice. Interlocked boards controlled by a small click of fund managers is one step away from socialism. It's Karl Marx's endgame.
Second first: anti-trust as practiced in every legal system I know is a fraud. The only true monopolies are those created by governments, either by intellectual property, regulations, or other shenanigans.
First second: what difference does any of that make? If I turn over custody and control of my money to a financial institution, I do so because I expect them to do a better job managing it than I can, or than I want to spend the time on. I want them voting for the best policies. If I were the ESG kind, I could invest with Black Rock or Vanguard, and I would expressly want them to vote that way. If I wanted pure financial gain, I would invest that way. I can also choose riskier or safer investments. It’s my choice, and part of that is expecting them to vote for specific policies.
401(k) plans are no more coerced than any other aspect of employment. I can deposit into an IRA for the same tax postponement. I won’t get any matching contributions from the company, but the same applies to choosing to bring my own lunch or go out for lunch if I don’t want the free company lunch or snacks.
Anarcho-capitalism is anti-trust applied to services traditionally provided by governments.
Once upon a time I believed the libertarian line that government was the root of all monopolies. Then I subscribed to Forbes magazine. The casual manner with which writers for "Capitalists' Tool" called for industry consolidation made me rethink my position. Looking at history made me rethink further. The American Tobacco Company had a near monopoly on making cigarettes! Tobacco was produced on small farms. You can roll a cigarette yourself. Cigarette production does not meet the criteria for a natural monopoly, yet we had one.
Overwhelming data indicates that you are either for some kind of antitrust measures, or you are an effective Marxist.
This is not an endorsement of existing antitrust law. This is an endorsement of some sort of antitrust law. I'm cool with some corporations going full on ESG. Have a No White Males Allowed for all I care -- as long as it's not ALL corporations. As long as we have competition, White males will find work in corporations which recognize the arbitrage opportunities. (Much as many corporations, including Standard Oil, recognized the opportunities that anti Black discrimination provided for those who were less racist, back in the days when pro White discrimination was popular.)
I want a system of more businesses, more different workplace environments, more opportunities to be your own boss. Every workplace environment is hostile to some people. A laid back egalitarian environment is hostile to the ambitious. A hard charging environment is hostile for those who want work-life balance now. A Me-Too environment is hostile to those who want to meet a mate in an environment other than a bar or online.
The scrapping of antitrust looked at things purely from the consumer perspective. For those who work, choice in style of workplace can be extremely life enhancing, vastly more so than a 5% tax cut.
One thing I spent a lot of time on for my Chartertopia fantasy was how to make votes valuable, in the sense of putting a value on them. Suppose everyone gets one vote for every year of schooling completed; that's one way, but I don't think very useful, since school has little to do with informing oneself about political issues.
Maybe how much campaign literature one has read. But how can you verify that, and how do you qualify how much they've thought about it, or understood it, or whether they read all campaign literature or only a very partisan subset?
I never did come up with any objective neutral ideas.
"The stockholder's view of the value of the stock directly affects the firm only if it wishes to raise capital by selling a new issue of stock."
Not true -
(1) Companies commonly use stock as a form of compensation for an important subset of employees. If the stock goes down instead of up, the company has trouble retaining and recruiting talent, and it directly hits their bank accounts as they have to pay more cash to hit a "total comp" number if X units of stock are only worth X/2. This is not a small matter and management is wary of it.
(2) Besides that, the top management team themselves always have that as the primary form of their own compensation (salaries top out at $400k-$500k, stock is all the rest).
(3) Thirdly, a declining stock price triggers shareholder lawsuits by litigious law firms that fish for a disaffected shareholder and casting about for any reason at all. Companies often settle even when there is no merit to the case (which is common)
(4) Declining stock prices cause the board to fire the management team, after a (admittedly long) grace period.
Overall, company management is very strongly incentivized to make the stock price go up, even though the company issues no more shares. Source: first-hand experience as a former high level employee at a public company with a declining stock price, where all of these occurred and punished management greatly.
I have recently become aware, due to an ongoing trial of a Portuguese politician, of how much more governments care about such operations than we'd naively think. This seems to happen a lot when foreign companies attempt to buy national companies. There are material reasons for their caring (foreign companies are more difficult to pressure politically and economically). Here in Portugal, this politician defended his actions, when attempting to block an acquisition, by stating that the operation was "embarrassing for the government". Currently, Trump is applying similar moves to US Steel. The left, here, usually argues for these actions in terms of "national interests" or "strategic interests", which is what Trump does too. Whether this is the justification, or if it's a call to defend "stakeholder" interests, the underlying objective is always to attack private property rights. In both of these examples of mine there was a "golden share" involved.
On an optimistic note, some of these quasi-nationalized enterprises here have had catastrophic financial outcomes, which has led to some liberalization. In one case, the company in question was a telephone company, and it became much less relevant with time. There seems to be a bifurcation here, which perhaps could be studied, where one path leads to better government, and the other leads to becoming Venezuela.
Yet more reason to require all listed firms to act as their own stock’s market makers
https://mendimeterastit.blogspot.com/2022/01/on-share-market-of-most-liquidity-and.html
You say
“An employee who finds that the corporation is offering worse terms than alternative employers can quit.”
In some cases it is not quite as simple. Many companies these days have broad non-compete clauses. Those clauses make sense in some cases. If I were an executive of a company, I would likely have direct knowledge of my company strategies and future directions or other internal confidential information.
I worked in IT and sometimes there is significant training given to employees. For example, if someone were hired and given significant training in SalesForce (cloud-based software company that specializes in customer relationship management), It would be reasonable for the company to expect to get something for that investment. Providing the training and then having them leave would incentivize companies to not train people.
Non-competes however are often open ended and may involve skills gained simply by doing the work or going to school. I was a computer services person who had services engagements at a variety of my company’s customers. I was doing standard work, nothing that required them to train me, but I still, like many of my peers had a non-compete. Leaving my industry for a year (the term of many of these non-competes) means I would have to work at something in which I had no competitive skills. I am looked in,
I see the same thing with other jobs such as machinists (my brother). He went to tech school, and eventually left the company he was working for. His skills were standard industry skills but the company went after him anyway.
I would love to see some conversation about how both parties (employees and employers) could manage non-competes in a reasonable way.
I just heard today that many employment situations now include signing a long term contract upon hire.
One local automotive sales and repairs firm's mechanics must agree to a five year contract another three years. The employee can buy his way out of the contract but the cost is a strong incentive to stay.
I'm retired, out of the job market for over 20 years but I remember such, especially in the trades, being rather uncommon back then.
One reason I know of for employers to do this is to offset the cost they put into training new employees. If I'm an employer, and you're a new hire who's new to my industry but showing signs of great potential, it's worth it to me to invest in teaching you how my industry works and then enjoying the benefit of an expert, energetic employee. But that doesn't work if you complete training and then immediately apply to a competing business. It's additionally likely for a competitor to offer a higher salary to people just past training - they can afford it relative to a business that chooses to spend money on training, and it's of course better for the employee.
Multi-year contracts are one way to deal with this. Another solution is to outsource training to a third party that sells training services rather than bundling it with an entry-level job. The latter, of course, does not solve the problem of corporate espionage, while the multi-year contract mitigates it somewhat.
Just a comment but most non-competes are unenforceable, like most one sided legal agreements. Corporations simply have you sign them like slumlords with unenforceable lease clauses because they figure, usually correctly, you will be cowered. State courts routinely rule that for non-competes to be enforceable they can't hamper your employment in the same field in the same area with the same skills and have to be extremely narrowly tailored as to not be punitive but simply to protect IP.
Basically McDonald's can't prevent you from working Burger King, much less Taco Bell, but they can prevent you from inventing a Big Whooperac and carbon copying McDonald's processes into BK on that the week after you leave McDonalds.
(Recycled and slightly tweaked Comment)......The law should rein in the "limited liability" enjoyed by stockholders in a "limited liability corporation" and if it did so corporations to be competitive selling their shares would need to have "Corporate Charters" or whatever that enable shareholders to participate more in running them .
Limited liability is a privilege others don't have and stockholders don't have in other areas of life. If I lend my friend money for books but my friend buys a gun and robs a bank the police would not believe I was not investing in his robbery and would lean on us to rat each other out and I could get sued by someone who was injured in the robbery. A shareholder only risks losing the resale value of a share even if that share has likely already paid for itself with splits, dividends and buybacks. If investors were treated as complicit in corporate misbehavior they would keep executives on a shorter leash. If victims of Bhopal could sue Union Carbide shareholders and investors risked losing their houses Union Carbide would have been forced to operate more safely there. If someone thinks ending limited liability would slow investment too much maybe someone much smarter than I am could create a malpractice insurance product for investors similar to malpractice insurance that doctors have
I wish there could be a market for corporate control for non-profits, especially universities. Imagine the efficiency improvements! Don't quite know how to go about it while leaving non-profits as non-profits.
A couple ways to give more power to those with skin in the game: 1. Don't allow index funds the right to vote their shares. 2. Have the voting rights vest over a period of several years.
To handle the high price of acquiring proxies, we need Internet forums where participants can verify their number of owned shares and make their case for getting proxies.
More ideas here:
https://conntects.net/blogPosts/HolisticPolitics/137/Wanted-a-Stock-Exchange-for-Democratic-Capitalism
Why not index funds? Is their money in the game less valuable than other investors?
It's not their money. They invest on behalf of millions of passive accounts. Indeed, a large fraction of those accounts are semi-coerced: few 401(k) plans allow workers to choose individual stocks.
Second, having broad index funds vote their shares violates the spirit of antitrust in a big way. A small number of Wall Street firms gets board altering power in any public corporation not still controlled by its founders. Corporate America becomes like a government -- minus the accountability of elections.
We traditionally give corporations freer rein than governments because competition is supposed to provide both checks and choice. Interlocked boards controlled by a small click of fund managers is one step away from socialism. It's Karl Marx's endgame.
Second first: anti-trust as practiced in every legal system I know is a fraud. The only true monopolies are those created by governments, either by intellectual property, regulations, or other shenanigans.
First second: what difference does any of that make? If I turn over custody and control of my money to a financial institution, I do so because I expect them to do a better job managing it than I can, or than I want to spend the time on. I want them voting for the best policies. If I were the ESG kind, I could invest with Black Rock or Vanguard, and I would expressly want them to vote that way. If I wanted pure financial gain, I would invest that way. I can also choose riskier or safer investments. It’s my choice, and part of that is expecting them to vote for specific policies.
401(k) plans are no more coerced than any other aspect of employment. I can deposit into an IRA for the same tax postponement. I won’t get any matching contributions from the company, but the same applies to choosing to bring my own lunch or go out for lunch if I don’t want the free company lunch or snacks.
Anarcho-capitalism is anti-trust applied to services traditionally provided by governments.
Once upon a time I believed the libertarian line that government was the root of all monopolies. Then I subscribed to Forbes magazine. The casual manner with which writers for "Capitalists' Tool" called for industry consolidation made me rethink my position. Looking at history made me rethink further. The American Tobacco Company had a near monopoly on making cigarettes! Tobacco was produced on small farms. You can roll a cigarette yourself. Cigarette production does not meet the criteria for a natural monopoly, yet we had one.
Overwhelming data indicates that you are either for some kind of antitrust measures, or you are an effective Marxist.
This is not an endorsement of existing antitrust law. This is an endorsement of some sort of antitrust law. I'm cool with some corporations going full on ESG. Have a No White Males Allowed for all I care -- as long as it's not ALL corporations. As long as we have competition, White males will find work in corporations which recognize the arbitrage opportunities. (Much as many corporations, including Standard Oil, recognized the opportunities that anti Black discrimination provided for those who were less racist, back in the days when pro White discrimination was popular.)
I want a system of more businesses, more different workplace environments, more opportunities to be your own boss. Every workplace environment is hostile to some people. A laid back egalitarian environment is hostile to the ambitious. A hard charging environment is hostile for those who want work-life balance now. A Me-Too environment is hostile to those who want to meet a mate in an environment other than a bar or online.
The scrapping of antitrust looked at things purely from the consumer perspective. For those who work, choice in style of workplace can be extremely life enhancing, vastly more so than a 5% tax cut.
Give it a break. If your political mindset equates hating antitrust law with being a Marxist, you are too rigid for any meaningful conversation.
One thing I spent a lot of time on for my Chartertopia fantasy was how to make votes valuable, in the sense of putting a value on them. Suppose everyone gets one vote for every year of schooling completed; that's one way, but I don't think very useful, since school has little to do with informing oneself about political issues.
Maybe how much campaign literature one has read. But how can you verify that, and how do you qualify how much they've thought about it, or understood it, or whether they read all campaign literature or only a very partisan subset?
I never did come up with any objective neutral ideas.