CLS Blue Sky Blog

All the traditional car companies in the west failed.

I think short term focus is far too rewarded in Western companies. In fact that's pretty much the only oversight given to the CEOs. The next quarterly report is all that matters. Even if you wanted to do the right thing and focus on long term goals office politics will ensure that a single down quarter where you focused on long term investments will be punished by those looking to move up. Pump the numbers each and every quarter and don't bother about long term visions since those aren't important for your career, bonuses and golden parachute. The big shareholders too aren't worried about the long term either since shareholders are fluid. Pump this quarter and they can move their investments to the next company before the rot sets in.

The companies that do extremely well in the West are those with singular stable long term leadership where the leaders have authority (or simply majority ownership) to take risks. Berkshire Hathaway, Meta, Nvidia, Amazon, Musks companies, Apple (under Jobs when he was around), etc.

This is partly why Tesla stock price is ridiculous. The competition is the traditional car companies which are extremely poorly run while Tesla is seen as a company run by a singular individual with more authority to take on longer term projects than just the next quarters goal. I think the market isn't correctly taking into account the possible mental illness from Musk but none the less there is merit to the…

I agree with your point about the Musk case. I believe it will be litigated again. Regardless of the corporation's domicile or either of our opinions on that issue, there is ambiguity and a scale factor that will likely result in further litigation.

The case that bothers me is the Moelis case. The West Palm Beach Firefighters' Pension Fund v. Moelis & Company case is troubling, because it’s a classic example of a Delaware court looking at a company’s governance structure and saying, “Wait a second, this seems bad,” even though it’s exactly what everyone signed up for. On February 23, 2024, the Delaware Court of Chancery ruled in favor of a minority shareholder against Ken Moelis. Yes, that Ken Moelis <https://en.wikipedia.org/wiki/Ken_Moelis>, the well-known investment banker whose name is literally the brand. Analysis of the case is located here: <https://clsbluesky.law.columbia.edu/2024/06/10/does-the-moelis-decision-warrant-a-quick-legislative-fix/?utm_source=chatgpt.com>. The court found that Moelis & Company’s governance structure—where Moelis, through his majority voting power, essentially controls the board—violated Delaware corporate law.

Now, imagine you’re a minority shareholder. You buy stock in Moelis & Company, a firm run by a guy named Moelis, with a governance structure designed to keep him in charge. Then, at some point, you look around and say, “Hey, wait a minute, this Moelis guy has too much control over the board!” Yes. That’s the whole point. That’s…

Here's the deal, since this issue comes up regularly in Hacker News comments:

It is 'not illegal' to time an announcement to benefit yourself if you have a 10b5-1 plan in place that automatically sells your stock on a fixed schedule. It's 'not illegal' in the sense that as long as you don't admit you did it, there's really no way to prove it and there's no legal framework for prosecuting you anyway. Lawyers call it 'disclosure timing' and it's one of those often-whispered-about loopholes for the rich.

No one admits to disclosure timing, but we all know that it is happening. We know this because on average trades made under 10b5-1 plans get better returns than trades not made under those plans. [1]

The law is full of ways for rich people to get richer if they have good lawyers. This is one of them. There's not much incentive to change it either - it is hard to prove, it is complex to explain to the public, and the kinds of people that benefit from it are the kinds of people in power.

One of the suggested routes to make the market more fair is to require those with 10b5-1 plans to make their scheduled trade dates public. This would at least give the market at way to guess at disclosure timing too. But again, there's no real political incentive to do this right now.

[1] https://clsbluesky.law.columbia.edu/2016/03/30/the-legality-of-opportunistically-timing-public-company-disclosures-in-the-context-of-sec-rule-10b5-1/

NB: I'm not a lawyer, so obviously don't do anything…

US-based companies and their directors do NOT have a legal, fiscal agent duty to always increase profit / share price. There is well-established case law around this. This Harvard Law précis of an academic book gives guidance on where to find the dry legal work that surrounds this legal position [1]. You are welcome to counter that Part I with your own legal constructs, but there are sound legal reasons it is structured this way.

There are dissenting papers [2] mostly revolving upon Dodge v. Ford Motor Company, but there are many intractable problems when you assert such primacy. Over what duration? As compared to which company? Accounting for intangibles? Valuation of non-monetary factors? Accounting for market gyrations? Primacy by what percentage? That dissenting paper glosses over much of the nuance of Stout's thesis [3], as well as case law ever since that point to the problematic practicalities of courts deciding how companies should carry out the distribution of the benefits of organizing stakeholders together.

So many people who should know better keep repeating this canard. Shareholders can certainly mount a challenge through corporate governance channels for example, but they fare poorly when mounting a challenge through the courts.

[1] https://corpgov.law.harvard.edu/2012/06/26/the-shareholder-value-myth/

[2] https://clsbluesky.law.columbia.edu/2022/04/26/why-we-should-keep-teaching-dodge-v-ford-motor-co/

[3]…

> We can't apply 1:1 laws to crypto precisely because of this.

I think in a lot of cases that's simply wishful thinking. They Howey test is actually a very good fit in the crypto space broadly, especially alongside the guidance from the SEC on how to interpret it with respect to digital assets. [1] Most tokens are just straight-up securities, what we're lacking isn't regulation but enforcement.

NFTs are likely not securities as they fail the Howey test. [2] Fractionalized NFTs, however, probably are securities.

> I can write a piece of code in a few minutes for all the collection I own, does not make it wash trading.

It's still wash trading, of course, it may not be a crime because it's not done against a security as I mentioned.

IMO it could be some other kind of fraud or civil matter already as you're enticing a purchase on the basis of intentionally misrepresenting past trades. If not, I agree, this might be a good area for some additional regulation, either here or in markets broadly (I'm looking at you, art and collectibles).

[1] https://www.sec.gov/files/dlt-framework.pdf

[2] https://clsbluesky.law.columbia.edu/2021/03/19/latham-watkins-discusses-whether-nfts-are-securities/

> Certainly, no one with any sense will be “donating” any money in OpenAI without some strong and specific guarantees of what they’re going to be getting in return.

And what about the taxpayer? What are these guys/gals fighting over if it isn't future profits?

Has anyone else read the reporting on the non-profit's corp structure?

> OpenAI also created a subsidiary of For-Profit-LP, OpenAI LLC (let’s call that “For-Profit-LLC”), of which Microsoft is a minority owner and For-Profit-LP is the majority owner. For-Profit-LLC’s operating agreement cautions that “it would be wise to view an investment in [For-Profit-LLC] in the spirit of a donation, with the understanding that it may be difficult to know what role money will play in a post-AGI [artificial general intelligence] world.”[0]

I really have no idea why companies like Microsoft are putting so much money into a for profit entity, and calling it like a donation. Am I just skeptical or is everyone winking at each other, and acting too cute by half?

[0]: https://clsbluesky.law.columbia.edu/2024/03/05/the-untold-nonprofit-story-of-openai/