Comments on: What companies are good for

By: Matt-Chicago

Matt-Chicago — Thu, 03 May 2012 18:39:32 +0000

Turtle, your post makes absolutely no sense. I don’t think you have a firm grasp on the subject matter to have an opinion on it.

By: steve778936

steve778936 — Thu, 03 May 2012 05:49:29 +0000

At least part of the problem is that since the 80′s, the overall performance of the corporation has become divorced from the executive compensation packages. Regardless of how poorly some companies did, the CEO had a contract that endlessly increased his/her reward, in some cases to a ridiculous degree. Wall Street had a particular problem with this. Investment banks became gambling halls where traders used other people’s money in high stakes games. Corporate governance went out the window and profit became the only goal. Disaster predictably followed. Much of this has been justified throughout the corporate world on the basis that ‘we have to pay top dollar to get the best people’. It now appears that the ‘best’ were anything but. CEOs and senior managers should operate under the same rules as other employees. That means they have a job description which includes everything they should be responsible for, and the appropriate penalties should they fail to fulfill them. Conversely, no CEO should be responsible for the share price rise or fall. Historically, if you run a sound company, the share price will look after itself.

By: PseudoTurtle

PseudoTurtle — Wed, 02 May 2012 16:39:10 +0000

The problem really lies in how corporations are legally structured.

Take a partnership, for example. When a business operates as a partnership the owners share the profits according to the partnership agreement.

The downside of a partnership is that they also share the losses — including their personal property, should the business go bad.

The moment they elect to become a corporation, completely different laws apply.

Investors share in the profits, but not the losses.

Creditors cannot “pierce the corporate veil” to get at the personal assets of the true owners — the investors.

Instead, they must be satisfied with only what the corporation owns in its own name.

They cannot, as a general rule, even touch the personal assets of the professional managers running the corporation (i.e. the CEO, CFO, Board of Directors).

These professional managers are often paid mostly by performance bonuses, which creates incentives for them to run the corporation to maximize their own profit, which is not necessarily in the best interests of the investors or society at large.

The problem is easy to fix.

Simply remove the special status of corporations that make them immune to any control by anyone.

This means the investors would have direct control over the corporation and how it is managed by these professionals.

Why would they care?

Because presently only the profits flow to investors, but no losses.

Change the corporations laws to allow both profits and losses to flow to investors (in proportion to their percentage of ownership, just as profits are distributed now), thus creating a significant vested interest by stockholders to make sure the company is properly run.

Yes, it really is as simple at that!