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Comment by cortesoft | Hacker News Reader

Companies need to be able to die, and extracting as much value from the dying company is worthwhile. The alternative is to let a company waste away, slowly bleeding out the last of their resources until their is nothing left. That is not good for the economy, and only prolongs the inevitable. This might feel morbid, but it shouldn't; companies aren't people.

Obviously the people at the company need to be taken care of, but that is a larger societal issue about how we deal with people who lose their jobs in general, not about companies that go out of business.

If the people making the largest bid for a company want to close it down, then that is probably the best thing to do; if it was really worth it to turn the business around, then someone else would offer more money to keep it going (or at least the same amount).

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> If the people making the largest bid for a company want to close it down, then that is probably the best thing to do; if it was really worth it to turn the business around, then someone else would offer more money to keep it going (or at least the same amount).

Do you really think this?

What if hedge funds just happen to get larger than anyone else in the spaces they operate in, precisely by executing this technique, such that there's no "someone else" who would offer more money?

An analogy: you're essentially saying that it's "the best thing to do" to date a vampire and let them suck out all your blood, because if there were a better partner for you to date than a vampire, surely such a partner would be more attractive than the vampire is, and would try harder to date you than the vampire is.

Now that doesn't sound right, does it? These vampire[-corporations] are supernaturally attractive [to shareholders] and are driven by their bloodlust to seduce people [i.e. board-members] far more effectively than regular human[-corporations] can manage.

> What if hedge funds just happen to get larger than anyone else in the spaces they operate in, precisely by executing this technique, such that there's no "someone else" who would offer more money?

Companies buy companies all the time. Hedge funds, in the grand scheme of things, are not that incredibly large compared to other companies. Also, companies making acquisitions have effectively unlimited funds to do so by taking out loans in order to buy companies. They can also buy companies without even exchanging money by converting stock in a larger ratio, effectively inflating the company's value in order to buy it. So what you're saying doesn't make sense.

> An analogy: you're essentially saying that it's "the best thing to do" to date a vampire and let them suck out all your blood, because if there were a better partner for you to date than a vampire, surely such a partner would be more attractive than the vampire is, and would try harder to date you than the vampire is.

Companies aren't people. If the board of investors wants to sell to a vampire it means that they're actually gaining the most value by selling to that vampire themselves. People need to stop looking at companies as monolithic wholes and actually as the sum intentions of the owners of the companies, the investors.

> People need to stop looking at companies as monolithic wholes and actually as the sum intentions of the owners of the companies, the investors.

This was my point. A vampire, mythologically, can compel a human to obey it: despite the human realizing that it'd really be a dumb idea to let something suck out all of your blood, it's still just really hard to resist letting the vampire do that. There is, I suppose, what might in modern language be called a "superstimulus"—something which causes some part of your brain to override the rest, despite the rest of the brain screaming "no."

Likewise, these hedge funds offer the ultimate opportunity to make a change that is good for investors at the expense of employees. The investors are the part of the brain that is compelled; the employees are the rest of the brain, screaming "no."

I've never heard of a co-op agreeing to be acquired by a hedge fund; have you?

> This was my point. A vampire, mythologically, can compel a human to obey it: despite the human realizing that it'd really be a dumb idea to let something suck out all of your blood, it's still just really hard to resist letting the vampire do that. There is, I suppose, what might in modern language be called a "superstimulus"—something which causes some part of your brain to override the rest, despite the rest of the brain screaming "no." You're viewing this as somehow negative. The investors gain by selling, they don't lose. There is no "sucking of blood" that occurs.

> Likewise, these hedge funds offer the ultimate opportunity to make a change that is good for investors at the expense of employees.

Employees are often part shareholders at these companies. They gain as well.

> I've never heard of a co-op agreeing to be acquired by a hedge fund; have you?

Try a google search, http://www.bbc.com/news/business-41344946

Just found out about the co-op group in the UK from reading this article. It seems like they are a member based co-op vs. an employee owned one and it looks like they were shedding their banking division to isolate the loss from the whole financial collapse. It does seem like employee owned companies would do more to preserve their jobs vs. scrap the business for short term profit. So while one could argue that some sort of reform of this would help buffer the pain being inflicted on employees moving towards more egalitarian models of ownership would seem to be a better goal in the long run.

> Likewise, these hedge funds offer the ultimate opportunity to make a change that is good for investors at the expense of employees.

That is true with or without hedge funds. Investors will always take actions that benefit themselves, no matter the cost to employees. Employees will always only benefit when that is a by-product of the investors benefiting.

Protecting employees is something that is important, but preventing hedge funds from buying companies is not how you protect them.

The validity of your last sentence depends on what hedge funds are, I think. My understanding is that these days the defining characteristic of hedge funds, as opposed to mutual funds, is the lack of regulation. In that case, I suggest things could be different without hedge funds, or with a different set of regulations for them.

It may not involve hedge funds per se, but you made me think of the saga of Diamond Foods. It was founded as a co-op in 1912, became a public company in 2005, and rapidly pursued growth at any cost, until an accounting scandal brought them back to earth in 2012.

It's a depressing story about how doing something well year after year isn't good enough, so someone is found to strap rocket engines on and shoot for the moon, in an effort to please investors, and it turns out to be a fraud (litigation over which is still ongoing). The end result was a merger into Snyders-Lance.

This resonates with me, because Diamond brand shelled walnuts are what I always used for baking, but when they were pursuing growth they were expanding into snacks, and I presume their current owner is primarily concerned with that market.

Source: https://en.wikipedia.org/wiki/Diamond_Foods

I mean, the vampire is paying you...so it's really more like selling plasma or organs or something.

The analogy falls apart completely unless you attribute some inherent value to a corporation's existence like you would to human life.

What value does a corporation have beyond the economic value that it produces?

A good corporation is a bunch of gelled teams who are at home with one-another and enjoy working together. Destroying the corporation usually results in the dissolution of the component teams, one way or another.

That's the real loss—not just in terms of human happiness, but also in terms of per-capita economic productivity. It's like rewriting software: by starting from scratch, even with the same libraries, you're throwing away all the hard-fought knowledge of the optimal arrangements of, and interactions between, those components.

And, since people find their own optimal arrangements/interactions over time, rather than being placed into such arrangements by some sort of "org-chart architect", there's no one with a top-down view who can salvage the most useful arrangements/interactions at the destination.

A hedge fund might take a particular gelled team and sell them off "as a unit" to some company; but what that company will be getting is a box of lego with no instruction manual for how it goes together.

> A good corporation is a bunch of gelled teams who are at home with one-another and enjoy working together. Destroying the corporation usually results in the dissolution of the component teams, one way or another.

A gelled team that works well together making obsolete copiers or film cameras is a waste of resources.

That's correct. When a company's assets are worth more than the company as a business, it is appropriate to reallocate those assets to something more productive.

No, it's not. Virtually every startup has assets (i.e. employees) worth more than company business (i.e. zero revenue). It is super important to distinguish between dieng company vs sick company vs growing company. If there was someone who killed every human for their teeth and bones when they fail to be productive because of sickness , you won't consider that as wise business choice.

The investors certainly believe the company is worth more than the money they are investing, or they wouldn't invest. (Revenue isn't how a business is valued anyway, even in a mature business.) A startup's value is based on future anticipated ROI.

My point stands.

Yes, the GP is right and I think you are talking at cross purposes. In finance, employees are not considered assets and companies with no revenue are not necessarily considered to have no value.

to use an analogy...

What is the difference between a natural death, physician assisted suicide, a government sanctioned execution, manslaughter, and murder?

Companies should die off from competitive pressures. It is hard to build a company and many thousands of people rely on a company like Xerox for their welfare. I think there is a problem with the wanton destruction of companies so that a small group can take dicerolls on whether or not capital can pay down debt over the short to medium term. I'm all for activist investors, but Icahn has always been more of a vulture. His self dealing in the TWA fiasco was particularly egregious.

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