Comment by bigstrat2003
2 days ago
Private ownership is a necessary, but not sufficient, condition to have a business which has a healthy relationship with its customers. You also need the owners to be people of reasonably good character who understand that the best way to run a business is a win-win approach on both sides, not people who see nothing wrong with extracting maximum profit from the business no matter whom it hurts. The PE horror stories you hear are cases where the owners are in the latter group.
You hypothesis then is that there is not a _single_ public company that has a healthy relationship with its company? Not one, in the entire global public space?
When does this relationship with customers happen? Is it at the IPO? When they file the paperwork? When they contemplate going public for the first time? Or is it that any founder who might one day decide to contemplate going public was doomed to unhealthy customer relations from birth?
The obvious next thing we in society should do is abolish public equity as a concept as a customer protection mechanism?
> Not one, in the entire global public space?
It is genuinely hard to think of one. I treat all companies as adversarial relationships, where I fully expect them to treat me as disposable at least over any time horizon greater than 1-2y. There are certainly some companies that are more likely to find a mutually beneficial equilibrium. I think of Target, IKEA, sometimes Apple. But I don’t trust any of those companies to take care of me in the future. But I also wouldn’t be the least bit surprised if my next interaction with any of those companies was bad. I just typically expect it to be more mutually beneficial than Comcast, Hertz, or Verizon.
Costco is public, according to wikipedia.
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Fortune 500 companies are particularly neurotic example of 'all' companies.
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From what I can see, it's often when the founder loses control of the company (either voluntarily (e.g. retirement) or not) and it falls to the board (representing the shareholders) to appoint the CEO. At that point it's at best a toss up whether they'll appoint someone who actually intends to create value or someone who intends to extract value.
> The obvious next thing we in society should do is abolish public equity as a concept as a customer protection mechanism?
Abolishing public equity is quite drastic, but there are lots of other things we could (and IMO should) be doing to protect society from the negative externalities it causes. For example:
- Mandating worker representation on company boards. So shareholders still have some power, but less.
- Progressive corporation tax (larger companies pay more tax). This would bias the economy towards smaller companies which generally have less problematic externalities.
It's not instant (well, sometimes it is), more of a slow but inexorable push down a hill. Some public companies are farther along the path than others, but if the company continues to exist and profit it's inevitable. For example, there are no S&P 500 companies with healthy customer relationships.
It's not impossible to run a publicly owned company in the US that isn't insanely hostile towards it's customers or employees... it's just really damn difficult because of bad legal precedent.
Dodge v. Ford is basically the source of all these headaches; the Dodge Brothers owned shares in Ford. Ford refused to pay the dividends he had to pay to the Dodge Brothers, suspecting that they'd use the dividends to start their own car company (he wasn't wrong about that part). The Dodge Brothers sued Ford, upon which Fords defense for not paying out dividends was "I'm investing it in my employees" (an obvious lie, it was very blatantly about not wanting to pay out). The judge sided with the Dodge Brothers and the legal opinion included a remark that the primary purpose of a director is to produce profit to the shareholders.
That's basically become US business doctrine ever since, being twisted into the job of the director being to maximize profits to the shareholders. It's slightly bunk doctrine as far as I know; the actual precedent would mostly translate to "the shareholders can fire the directors if they think they don't do a good job" (since it can be argued that as long as any solid justification exists, producing profit for the shareholders can be assumed[0]; Dodge v. Ford was largely Ford refusing to follow his contracts with money that Dodge knew Ford had in the bank), but nobody in the upper areas of management wants to risk facing lawsuits from shareholders arguing that they made decisions that go against shareholder supremacy[1]. And so, the threats of legal consequences morph into the worst form of corporate ghoulishness that's so pervasive across every publicly traded company in the US. It's why short-term decision making dominates long-term planning for pretty much every public company.
[0]: This is called the "business judgement rule", where courts will broadly defer the judgement on if a business is ran competently or not to the executives of that business.
[1]: Tragically, just because it's bunk legal theory, doesn't change that the potential and disastrous consequences of lawsuits in the US are a very real thing.
It is not broadly believed in corporate governance circles that there is a legal requirement to maximize shareholder value. Nor will you find court judgements that require it.
If anything Milton Friedman is more responsible for this idea that shareholder maximizing is the corporate goal. That is an efficient market argument though not a legal one and he framed it long after the dodge suit. He needed to frame that argument because so many firms were _not_ doing that.
But just because a Chicago school economist says something about governance doesn’t mean it’s broadly applicable in the same way an Austrian economists opinions about inflation aren’t iron rules about monetary policy.
Theory of abundance, you could classify your approach as. Rather than artificial scarcity to exercise market power.
Could also consider: employee ownership and public ownership
People complain about the latter because they have higher expectations because the institution is supposed to serve them and often has all the diseases of true scale without being able to pick and choose customers. Private industry skates by because people assume it's out to screw them and they can cherry pick.