If only changing corporations was like changing diapers. Imagine changing corporate culture by simply disposing of the messy bits, cleaning things up, and then hoping that a miracle happens and potty training was spontaneous. Corporations are changing, and while some of the evolutionary changes are welcome, some of the revolutionary changes are even better for innovation but maybe not so good for investors.
It is easy to forget, but corporations didn’t always exist. The idea of a corporation was an invention, just an idea that caught on. They’ve really only been around since the 1600s. The conquering Europeans landing in the New World predate pervasive corporate culture. International commerce spawned the concept as a way to spread risk and limit liability. Since then, the concept has evolved, but the core goal has remained: getting a bunch of people together to make money while reducing the chance of losing too much. It produced exploration, expansion and exploitation.
Under American governance, the goal was restated to “improve shareholder value”; and shareholder value was interpreted as maximizing the value, the wealth that each share represented. Each share of stock is treated equally (within a class of stock). The only way each shareholder is treated equally is if each shareholder held the same number of shares. Shareholders with more shares get more votes and it is possible for very few people, or even just one person, to control the fate of shares held by crowds of small investors.
Such a young system, young within anthropological timing, is bound to have flaws and imbalances. Evolution tweaks such entities and corporations have changed, usually through regulations that followed financial upheavals.
Our current system is flawed, but humans are imperfect and we could only devise a flawless system by chance. I’m willing to work within that system and invest within it because, for the most part, it works well enough. And I eagerly await stringent enforcement of the regulations and at least a few subtle yet pervasive modifications that could dramatically reduce society’s risk exposure. How about: shareholders only get to vote after they’ve held the stock for a year and a day, which would radically slow down corporate raiders. How about: require at least one human to be involved in each transaction, which would severely cripple flash trades. How about: eliminating naked short sellers, which sounds like naked shorts cellars, which actually isn’t as bad as the real thing, but is a topic too convoluted for me to go into here.
Corporations are a product of our social environment, and human environmental forces do not always require evolutionary changes. Revolutions happen too. At one time the concept of a corporation was revolutionary. Today there are new revolutionary concepts. I welcome them while recognizing that they may undermine my method of investing.
If you think you’re upset about the machinations of Wall Street, you might be surprised to learn that many wealthy people are even more upset. Unhappy people produce change. Within the realm of corporate America there are public companies (the kind we buy stock in) and private companies (corporations that are taken off the market). Are you wealthy and fed up with Wall Street hyenas? Buy up a public company, take it private, and run it the way you think best. (Playboy)
Did you create a company? Is it doing so well that it doesn’t need financing? Then there’s little reason to take it public. Some of the largest companies in the world are privately held. (Bechtel)
Did you foster an idea that is sustaining itself without having to chase profits? Then maybe you don’t need to turn it into a business. (wikipedia)
Maybe you run a company and want to redefine “shareholder value”. In that case you can turn your company into a b-corp, a new type of corporation recently legitimized in several states.
There’s even a revolution in entrepreneurship that ignores size, growth, and longevity. Kiosk companies, temporary incubators, flash firms are based on the idea of quickly creating, developing, producing, and selling a product, and then possibly closing down the business before it gets stodgy. Wired Magazine just ran an excellent article on Kickstarter, which I am exploring.
Maybe large corporations are no longer the most efficient means for production and wealth creation, though more properly, a few large corporations are providing the infrastructure for crowds of innovators to become entrepreneurs. Within the last several days I learned that my publisher would not be able to able to make my book, Dream. Invest. Live., available for Kindle. Amazon, the bookstore, the hardware provider, and the enabler, created a process where I was able to reformat the book myself. Uploading the right version of the Word document (which did take some experimentation to find) and a bit of patience and my book is now available for Kindle – and one less company was involved.
There was much talk two years ago about restoring our faith in the economy. Vast sums went to conventional institutions and organizations. I’m seeing the innovations outside those bounds, and many of those alternatives to public companies are happening in forms that are difficult to invest in. If that trend continues, stock investing may become an anachronism.
For now, I’ll keep my stocks. I’m hoping for significant evolutionary changes, and I won’t be surprised if the corporate changes are bigger because the companies became smaller. That would be revolutionary.