With all respect to Eric, I strongly believe the concept of forcing "long-term investment" is ultimately a scam.
At the end of the day, it's fundamentally a blank check for management to misbehave -- to misspend money, pursue pet projects rather than real business goals, and have nobody to tell them no.
There is nothing inherently short-term about the stock market -- this is a myth that keeps getting repeated but has zero substance. Short-term changes in supply and demand add changes to prices, but it's not like anything's 10x off of the value a company is expected to produce -- the net present value of future cash flows.
But if you prevent people from selling, then you're preventing the market from holding a company accountable when its management messes up.
> But if you prevent people from selling, then you're preventing the market from holding a company accountable when its management messes up.
Is it even possible to hold management accountable for anything at all? Personally, I think executive compensation is the real culprit.
I've tried to think of ways to put a cap on compensation but I can't think of any way especially since the management of one company is on the board of another and they are all in it together. Also something I didn't know until recently: board members get paid! How is that not the dumbest thing in the world, I will never know... Personally, I think board members in public companies should get ZERO compensation, no travel allowance, no perks. They own stock, don't they? but I digress.
Is there a way to cap executive compensation to a multiplier of the lowest salary paid by the company? like 10x or 50x something? Like if the lowest pay is USD 15 per hour or USD 15 * 2000 = USD 30k then the highest executive compensation (including stock grants, bonuses etc) may not exceed USD 30k * 50 = USD 1.5M which isn't too bad.
> Is it even possible to hold management accountable for anything at all?
Of course, it's the way things work now. And it has nothing to do with compensation.
Employees are held accountable by management, and are fired when underperforming.
Management is held accountable by the board -- and is similarly fired when underperforming. CEO's are let go all the time.
And the board is held accountable to shareholders -- as owners change or demand new policies, board composition changes accordingly.
Of course if the CEO/founder owns more than 50% of voting shares then the board is more advisory than anything else, but that's the exception -- and it's simply what you get from being the owner.
That’s what it says on paper but there is a lot written about management’s capture of the levers of control. They sit on the boards, set each others salaries, and recommend each other for their boards. Shares are automatically voted the way the board chooses unless specifically voted the other way. Institutional investors typically have a hands-off attitude toward corporate governance issues leaving activists as the only ones who can hold management’s feet to the fire.
Why would you want to put a cap on management compensation?
The comp for the highest level of management essentially comes out of the same pool of money as the returns to shareholders. If shareholders want to pay the CEO lots of money, let them. It's their money.
Especially, C-level executive's pay doesn't really come out of the same pot of money as low level employees' pay. The pay for cashiers at Walmart is more dependent on what Target or McDonald's pay their cashiers than on how much money the CEOs make.
Thanks to outsourcing jobs to third parties capping exec pay at some multiple of lowest employee pay doesn't make much sense. Many companies don't directly employ their security guards for example, but pay a third party company.
As for board members: they should be compensated however much they can negotiate for.
If I were to own a company, I would have opinions on how much the board members should be compensated. But who am I to tell other people how much to pay for services?
In any case, I don't really understand how capping compensation would help hold management to account? I can see an argument for how management should mostly be paid in eg stock, so that their incentives are aligned properly. But I don't think that's what you wanted to get at?
At the end of the day, it's fundamentally a blank check for management to misbehave -- to misspend money, pursue pet projects rather than real business goals, and have nobody to tell them no.
There is nothing inherently short-term about the stock market -- this is a myth that keeps getting repeated but has zero substance. Short-term changes in supply and demand add changes to prices, but it's not like anything's 10x off of the value a company is expected to produce -- the net present value of future cash flows.
But if you prevent people from selling, then you're preventing the market from holding a company accountable when its management messes up.