A casualty in the patent wars

Posted Jul 15, 2012 13:14 UTC (Sun) by nix (subscriber, #2304) [Link]

a board of directors who care nothing about the technology or the market place except specifically how well they are profiting from it.

That's true of some boards and less true of others -- although as far as I can tell most directors seem to have so many other seats on boards that I can't see how they could spend any useful amount of time on any of them.

I suspect what we actually have is a much simpler system, where the CEO and/or Chairman are technically responsible to the Board of Directors, but the board members are too busy or the board is packed with milquetoasts, so the CEO and Chairman can do whatever they like (unless they screw up really badly, but the board will almost never notice this ahead of time, even if the CEO does something utterly idiotic). In turn the Board is theoretically responsible to the shareholders, but the shareholders are either proxy votes given to the chairman or institutional shareholders who don't care about anything but profits (which is reasonable given that they are almost certainly in a different field of business). And often shareholder votes have no power anyway, making a complete joke of the alleged power of the shareholder over the corporation.

So what we have is a nice simple system with an almost-all-powerful dictator CEO/Chairman, a system for disposing of CEOs/Chairmen who foul up (by board vote), and another system for disseminating the profits in exchange for equity without conferring anything but technical 'ownership' and certainly not any real measure of control (unless you own the majority of the shares and kick out the CEO, in which case you're replacing one dictator with another who might be more amenable because you have a knife to his throat). This system works surprisingly well given what a lash-up it is, but shareholder democracy it is certainly not.

I note that the one part of the system theoretically in place which sometimes does survive in practice is the fiduciary responsibility to the shareholders, probably because the shareholders can sue if they think you've violated it. This is another of those things that would be a good idea *if* all shareholders were very-long-term-holding saints who understood that immediate loss may lead to future profit or that burning down your neighbourhood isn't good if you're selling to your neighbours, but isn't working well in practice because most shareholders are too short-term for that. As far as I can tell, the only companies that don't get converted into short-term thinkers by this are those that are closely held (e.g. new firms), those that are doing so well that nobody dares protest (Apple in the last decade), or those that have sufficiently charismatic CEOs that shareholders don't dare protest. I suspect *this* is the real reason for the Cult of the Charismatic CEO: if you get one and you're lucky enough, for a while you can concentrate on long-term growth rather than the next quarter's numbers. Though even then, charismatic replacement CEOs with brains seem to be rare as hen's teeth and a lot harder to find than a founder nobody will dare interfere with.