Value Added to Society by Idle Shareholders and Landlords

[ankitj]

@weldone - is there any evidence that only reason employees are not working harder is because they don't own (larger share of) companies? And that we would have made (even) bigger advances in things like autonomous cars, genetic research, low cost airlines etc. if we had employees/founders owning 100% of the stocks of all companies?

 

[GIMH]

will if everything is left to market lol

Where to begin with this

 

[TNT]

Good point and that risk is compensated by the high interest rate. If you charge 40% compound interest for a loan that will be repaid at once after 5 years then $100 becomes $538 in 5 years. So lenders won't mind if 2 out of 3 startups fail. They're still getting back $538 for $300 in 5 years - that's a double-digit ROI.

You have assumed that 2 out of 3 startups will fail, I think with 40% compound interest the failure rate will be considerably higher, something along the lines of 19 out of 20 will fail.

 

[Dan]

**** this focus on start-ups, how's Johnny down the road going to open up (or expand) his carpet cleaning business if he's paying 35%+ interest? How's that local restaurant going to start up when they've got to fork out an extra 60% of the purchase price of their pizza oven in interest?

This seems like a brilliant way to end up with an economy that has very little between Etsy shops/the gig economy and Google. Which, tbf, if probably a tech bro dream -- who needs dem working class people if our entire economy is 'brilliant' tech bros earning billions and starving artists being all bohemian by making a living selling beaded necklaces from a cardboard shack in a laneway.

 

[harsh.ag]

weldone's proposed system, theoretically, *should* provide loans in the following way:

For existing businesses (now with equity owned by active management; I'm not touching the workers-owning-equity proposition with a 10 foot pole) - interest rates would be between returns on equity and current interest rates on debt. How will existing equity be transferred to active management? No clue. How will management afford to buyback the shares? No clue. Perhaps via taking on personal debt. Share prices to fall quite a bit (now via private valuation rather than public stock markets).

For regular startups - at interest rates higher than equity return, decided by industry failure rates (which would also now include a cost of the increased financing, thus making it a dynamic system). With a short moratorium period.

For negative cashflow unicorn startups - at very high interest rates, also a long moratorium based contract. Same dynamic calculation.

The stock market will no longer exist. If you buy shares of a company privately, you will have to be hired in a management role. Stock incentives to workers still allowed.
Free outflow of capital will have to be outlawed. Unless all countries adopt this system simultaneously.
The demand for and supply of capital should theoretically decline.
Valuations decline across the board, privately. Presence of debt also makes bankruptcy much more common with less of an equity buffer to ride short-term bad waves. The value of having idle equity during bad times is being highly underrated.

Probably missing a lot of things.

 

[ankitj]

To add, how do employee plus shareholders benefit from their equity holding? There is no stock market, so can't sell off. Selling off even privately to other employees (idle shareholders not allowed) will have a price discovery problem. Once you sell off, should your responsibilities be adjusted downward for your new level of equity holding.

Or do you not allow share trade at all, and only dividends payout is how shareholders benefit? How will management agree on levels of dividend payments -- one of them might want to keep reinvesting in business, another one might want to build a personal mansion from windfall dividends. How will there be any dividend payouts when companies don't make profits in early stages? Will managers really want to own equity or will they rather work for pay?

Etc.

 

[weldone]

**** this focus on start-ups, how's Johnny down the road going to open up (or expand) his carpet cleaning business if he's paying 35%+ interest? How's that local restaurant going to start up when they've got to fork out an extra 60% of the purchase price of their pizza oven in interest?

You are going on the wrong path by assuming that such comparatively low-risk and low-capital intensive businesses will have such high cost of debt.

 

[weldone]

To add, how do employee plus shareholders benefit from their equity holding? There is no stock market, so can't sell off. Selling off even privately to other employees (idle shareholders not allowed) will have a price discovery problem. Once you sell off, should your responsibilities be adjusted downward for your new level of equity holding.

Or do you not allow share trade at all, and only dividends payout is how shareholders benefit? How will management agree on levels of dividend payments -- one of them might want to keep reinvesting in business, another one might want to build a personal mansion from windfall dividends. How will there be any dividend payouts when companies don't make profits in early stages? Will managers really want to own equity or will they rather work for pay?

Etc.

In the long-term, salary will be replaced by dividends. How much dividend you earn (and consequently how much of the Company you own) will be decided in a way not too dissimilar to how salaries are decided now. Remember it will be a 360 degree process because every active contributor to the Company democratically elect the Management/CEO. There's no buying and selling. Ownership will be dynamic. Maybe last year you contributed less so you owned 0.013% and this year your performance has improved and responsibilities have increased so the system gives you 0.017% of the Company dividends.

As ownership is dynamic, concepts of buying and selling part or whole of the Business simply doesn't need to exist, public or private - the CEO can't suddenly say I am leaving the Company so I am selling the stocks to Mr. Chodu Adani and he will be the new CEO. No. When the CEO decides to leave the Company he simply ****s off. He earnt when he contributed. Now he ceases to contribute so he ceases to earn, people elect a new CEO - simple af. When you leave the Company, you stop getting dividends (and stop owning any part of the Business).

 

[Flem274*]

You are going on the wrong path by assuming that such comparatively low-risk and low-capital intensive businesses will have such high cost of debt.

Restaurants are pretty high risk. I don't know how they compare to the tech companies this thread focuses on, but having worked for numerous restaurants when I was young there is a very fine line between success and failure. You have so much competition.

 

[harsh.ag]

I mean virtually no legit investors put their money in restaurants even now, as a general rule (unless it's something special). They are done mostly as a passion project, for brand enhancement, or for money laundering.

 

[Burgey]

Sounds like most tech start ups then.

 

[NZTailender]

Restaurants are pretty high risk. I don't know how they compare to the tech companies this thread focuses on, but having worked for numerous restaurants when I was young there is a very fine line between success and failure. You have so much competition.

Isn't the failure rate above 50%?

 

[Daemon]

How do you police activity? What’s stopping people from handing out loans to get a position in the company where they do nothing and get dividends? I’m sure some companies would prefer that to potentially crippling interest.

 

[TNT]

In the long-term, salary will be replaced by dividends. How much dividend you earn (and consequently how much of the Company you own) will be decided in a way not too dissimilar to how salaries are decided now. Remember it will be a 360 degree process because every active contributor to the Company democratically elect the Management/CEO. There's no buying and selling. Ownership will be dynamic. Maybe last year you contributed less so you owned 0.013% and this year your performance has improved and responsibilities have increased so the system gives you 0.017% of the Company dividends.

As ownership is dynamic, concepts of buying and selling part or whole of the Business simply doesn't need to exist, public or private - the CEO can't suddenly say I am leaving the Company so I am selling the stocks to Mr. Chodu Adani and he will be the new CEO. No. When the CEO decides to leave the Company he simply ****s off. He earnt when he contributed. Now he ceases to contribute so he ceases to earn, people elect a new CEO - simple af. When you leave the Company, you stop getting dividends (and stop owning any part of the Business).

Lots of trap doors.

 

[weldone]

What’s stopping people from handing out loans to get a position in the company where they do nothing and get dividends?

Remember Management positions are decided directly or indirectly by votes. So, the situation you are describing is similar to a situation of having a Minister who just paid a lot of money to the ruling party but who doesn't work. Sure, that happens in society. But they actually have to try giving a fake impression of working in order to get votes. People can elect a better alternative when available - not different from a democracy.

 

[weldone]

Lots of trap doors.

please elaborate

 

[harsh.ag]

In the long-term, salary will be replaced by dividends. How much dividend you earn (and consequently how much of the Company you own) will be decided in a way not too dissimilar to how salaries are decided now. Remember it will be a 360 degree process because every active contributor to the Company democratically elect the Management/CEO. There's no buying and selling. Ownership will be dynamic. Maybe last year you contributed less so you owned 0.013% and this year your performance has improved and responsibilities have increased so the system gives you 0.017% of the Company dividends.

As ownership is dynamic, concepts of buying and selling part or whole of the Business simply doesn't need to exist, public or private - the CEO can't suddenly say I am leaving the Company so I am selling the stocks to Mr. Chodu Adani and he will be the new CEO. No. When the CEO decides to leave the Company he simply ****s off. He earnt when he contributed. Now he ceases to contribute so he ceases to earn, people elect a new CEO - simple af. When you leave the Company, you stop getting dividends (and stop owning any part of the Business).

1) This is taking incentives-disincentives to a whole other level with a whole host of associated politics coming in. Co-operate and you can have a larger pie. Not co-operate and you can a larger slice of a smaller pie.

2) If the owner/founder himself does not have any hope of having exposure to the high equity side upside, nothing will ever be founded.

Remember Management positions are decided directly or indirectly by votes. So, the situation you are describing is similar to a situation of having a Minister who just paid a lot of money to the ruling party but who doesn't work. Sure, that happens in society. But they actually have to try giving a fake impression of working in order to get votes. People can elect a better alternative when available - not different from a democracy.

Heh. No work would get done at this place.

 

[Daemon]

Remember Management positions are decided directly or indirectly by votes. So, the situation you are describing is similar to a situation of having a Minister who just paid a lot of money to the ruling party but who doesn't work. Sure, that happens in society. But they actually have to try giving a fake impression of working in order to get votes. People can elect a better alternative when available - not different from a democracy.

Sorry if I didn’t see this earlier but I suppose a key question is - How are votes distributed/weighted?

Assuming someone has >50% of the votes, they could go ahead and secure the loan/employ the idle creditor.

 

[weldone]

Sorry if I didn’t see this earlier but I suppose a key question is - How are votes distributed/weighted?

by ownership (and therefore also directly proportional to earning) - so it is a circular process - don't think anyone will have >50% votes except in a tiny tiny 3-5 member organization - don't think even CEOs will own much more than 5% in a large global Company

Example:
1. On 31-Dec-2018 everybody decides what %age of 2019 profits (not of 2018 profits - that decision was made 1 year back) to distribute as dividend and what %age to reinvest - by voting as per their 2018 ownership,
2. On 31-Dec-2018 everybody elects the CEOs with proportional votes (proportional to their 2018 ownership) and also decides what %age the CEO will own in 2019 (and therefore earn the same %age of distributable profits in 2019), subject to the constraint that his ownership can't be less than any other individual,
2. CEO then divides the remaining ownership among different teams. He decides the 2019 %age ownership of different team managers and overall 2019 %age ownerships for diff. teams subject to constraints a) no manager can own as much as CEO, b) no team member can own as much as manager.
3. Individual managers then distribute the team 2019 %age ownership among team members (and/or sub-teams as applicable) subject to the constraint that none of the team members can own as much as the manager,
4. And so on for sub-teams...
5. On 31-Dec-2019, everybody again votes as per their 2019 ownership to decide course of action for 2020.

This will be the broad process. Obviously there will have to be additional check-and-balances in the system. [For example, now even when a manager decides an employee's salary, other people e.g. peers of manager, manager of manager and HR gets involved in the process in some capacity. Similar check-and-balances will remain in the new system to ensure none of the small sub-teams start functioning like a complete autocracy.]

Wrote this post in a hurry from office - so probably not elaborated adequately. Can do a better job when I have time.

 

[Daemon]

So if I start my own company, I’ll be subject to losing it every year?