Thanks for your visit and your thoughtful observations. You caught me completely by surprise with this one: “remove the personal liability protection they currently enjoy” - I didn’t see that one coming!

But you’re right about the consequences of that sort of exposure to liability - it would likely dry up the availability, and innovative deployment, of capital. That is why protection from it (albeit eroding due to egregious negligence) via the corporate veil is so important to the ownership side of the legal structure behind the concept of shareholder organizations.

Which brings us back to ownership, its motives, and the relationship between those and many of the corporate scandals we have experienced over the past decades (and before).

You pointed this out before, and I agree it is a shortcoming in the way I’ve approached this topic, and one that should be filled. As a result, I’m going to do one or two posts on it this week, to try to see if I can close that gap. I hope you don’t mind my putting an answer off until this week.

Thanks again for this - it’s important to address and to establish its position in the overall framework, and the basis of that position.

“The interests of owners and managers do not naturally coincide”

I’d like to explore this a bit… because it seems counterintuitive.

After all, both desire to make money — for the company and, as a consequence of this, for themselves.

What is at odds is the desire to serve the short-term interests of many of the owners (dividends, quick, rapid growth, hedge, etc., ) vs. the long-term interests of the company (sustainable growth, steady or growing income, quality of life, etc.)

In many cases, the actual owners of the company (the shareholders) have no interest in the workings of the company as long as it serves their short-term needs, even if it comes at the expense of the long-term future of the company.

This is why you hear people saying either:
1. “I wish I sold my shares before the price tanked,” or
2. “I sure am glad I sold my shares before the price tanked.”

What was important to them was that their investment yielded a return, not that the company was doing the right thing.

The assumption isn’t always that the company that does the right thing will be rewarded with short-term gains. Many times decisions made decades before have a tremendous impact on what the company can do with respect to those decisions, and correcting them the right way may be more painful than realizing a short-term gain (investment in infrastructure vs. layoffs).

Shareholders aren’t necessarily the only ones who are shortsighted.

Managers’ careers can span across several companies, and if one company tanks, they can still find gainful employment elsewhere. Consequently, they may desire to increase the stock value just long enough that their own value is raised.

That way they can point to the increase and say, “You need to hire me as CEO because I did this for Company XYZ,” only to see the price drop once the CEO leaves because of the mess he created.

Where does it all leave us? Probably pretty close to where you led us. If two or more parties must share control of a machine, one way to make less likely that one would use it to harm the other is through adequate checks and balances.

However, another way to make the board and shareholders more accountable is to remove the personal liability protection they currently enjoy. Then they would be more discerning about what they invest in, more personally vested in what the company does, and how the board governs.

It would also likely dry up the capital, though, or else consolidate it.