What would you give to have purchased 1,000 shares of Amazon's stock on Sept. 7,2001 at $8.51, four days before the terrorist attacks on the United States? The fourth quarter of 2001 earned for Amazon its first "real" profit, after seven years in business, and four years as a publicly traded company--four years and 15 quarters of losses.
And what would you give, as a director of a publicly traded company, to be able to approve your management's investments, experiments and "moonshots," with the promise that, for fifteen quarters you wouldn't be flogged by analysts and the business press, and pursued relendessly by activists who claim a better approach for maximizing the value of your company --provided that at the 16th quarter you turned a profit?
These are nice dreams.
Your $8,500 investment in AMZN would be worth $1.9 million today. And perhaps you'd enjoy your job as a board member far more, and not spend so much valuable board time worrying about the potential Amazonification of your core business, because you might have been able to weather, as Amazon's board did, the naysayers and short sellers of that company's early years, in the name of patience and seven-year outlooks.
Today, there are half the number of listed public companies in the U.S. than there were in 1996. And while it's easy to lay the blame on the increased costs and scrutiny created by onerous regulatory requirements, I think it's more the function of the external forces which can cause entrepreneurs like Elon Musk to famously melt down and threaten to privatize--forces which focus solely on maximizing shareholder value.
It's become common to denounce shareholder value as the driving force, and indeed, the only purpose, of the corporation. This concept, which Jack Welch in 2009 declared to be "the dumbest idea in the world," was championed by the economist Milton Friedman in the early 1960s, and took hold with tremendous force in the 1980s. Martin Lipton, founding partner of the law firm of Wachtell, Lipton, Rosen & Katz, and investment giants BlackRock, State Street, Vanguard, among many others, are fighting against the short-termism that has come to characterize today's corporation, but 1 doubt they will succeed without--dare I say it?--outside (read: government) intervention.
Sen. Elizabeth Warren's proposed Accountable Capitalism Act takes a very controversial stab at one form of possible government intervention, and in my view, goes way too far and not far enough...