tag:theconversation.com,2011:/uk/topics/public-company-33051/articlespublic company – The Conversation2024-01-16T09:20:57Ztag:theconversation.com,2011:article/2209592024-01-16T09:20:57Z2024-01-16T09:20:57ZWhy the Post Office was able to bring private prosecutions in the Horizon IT scandal<p>The UK prime minister, Rishi Sunak, <a href="https://www.theguardian.com/uk-news/2024/jan/10/rishi-sunak-announces-plan-to-pass-law-quashing-horizon-post-office-scandal-convictions">has announced</a> that is government will introduce blanket legislation to clear sub-postmasters convicted of wrongdoing as a result of the Post Office Horizon scandal . </p>
<p>Between 1999 and 2015 – and potentially <a href="https://www.theguardian.com/business/2024/jan/07/post-office-suspected-of-more-wrongful-prosecutions-of-operators-over-horizon#:%7E:text=The%20Post%20Office%20is%20suspected,the%20Guardian%20has%20been%20told.">much earlier</a> – <a href="https://theconversation.com/the-post-office-scandal-is-possibly-the-largest-miscarriage-of-justice-in-uk-history-and-its-not-over-yet-211217">more than 700 sub-postmasters</a> were convicted of fraud, theft or false accounting. </p>
<p>Legal experts have long highlighted the Post Office’s litigious attitude and its cases relying, often exclusively, on evidence from the faulty IT system itself. Many victims <a href="https://evidencebasedjustice.exeter.ac.uk/false-guilty-pleas-and-the-post-office-scandal/">pleaded</a> guilty simply on advice that this was their best chance of avoiding prison. </p>
<p>That the Post Office was able to bring so many prosecutions – and to conduct them so appallingly – is because the company was not supervised. As a private company, and not a statutory body, it isn’t subject to government oversight. Just as any other public company or private citizen might, the Post Office brought private prosecutions. </p>
<p>As co-directors of the Criminal Law Reform Now Network, we have been working on a review of private prosecutions since 2019. Some do in fact serve the public interest, especially in areas where the police and Crown Prosecution Service (CPS) have effectively retreated under budget cuts. But when large companies and organisations such as the Post Office prosecute, they are not subject to accreditation and inspection or any other oversight.</p>
<h2>How private prosecutions are brought</h2>
<p>To bring a private prosecution, a person or company asks a magistrate to issue a summons against the accused person. If the applicant can show there is evidence, the magistrate generally will do so. </p>
<p>The magistrate does not assess that evidence, however, nor the likelihood of conviction. They do not decide whether there is any public interest in bringing the case. They do not ask why the police and CPS have not been involved. And they do not usually invite representations from the accused person. </p>
<p>When the accused person answers the summons, an ordinary criminal case ensues – not a civil case. The magistrate decides whether the charges are serious enough to be tried in the Crown Court. If convicted, the defendant risks prison. </p>
<p>Whoever brings the prosecution has the same statutory duties imposed on anyone who prosecutes, including disclosing evidence in their possession which might assist the case for the accused. This is one duty which the Post Office manifestly declined to perform, <a href="https://www.postofficehorizoninquiry.org.uk/news/sir-wyn-gives-determination-post-office-disclosure-failings">as has been highlighted </a> by statutory inquiry into the Post Office Horizon scandal.</p>
<h2>Safeguards for private prosecutions</h2>
<p>There has long been the possibility for the director of public prosecutions (DPP) – who, since 1986, is the head of the CPS – to take over a private prosecution or discontinue it. Since 2009, the policy has been to discontinue private prosecutions which do not meet the same core standards (that there be a realistic prospect of prosecution or that a prosecution is in the public interest) with which the CPS must comply.</p>
<p>However, it would normally be up to the accused person themselves to ask that the DDP or CPS should take it over, and the decision would still be made on the basis of the files in the possession of the private prosecutor. </p>
<p>We know of no case where any sub-postmaster actually asked the DPP to intervene. And even if they had, there is no particular reason to suppose that they would have intervened. Any case presented by the Post Office (which would likely have said nothing of its problems with the Horizon software) would have looked perfectly reasonable. </p>
<p>Crucially, because only one sub-postmaster would have approached the DPP at any given time, the CPS would have had no way of knowing the industrial scale on which sub-postmasters were being prosecuted across the country, almost all on the basis of contested evidence arising from the Horizon software (which, one hopes, would then have raised alarm bells). </p>
<p>As with the magistrates’ summons, the safeguard may be relatively effective in the case of an amateur prosecutor who doesn’t know what they are doing. But it is likely ineffective when, unknown to others, a large and reputable company is not acting properly but its case is well represented. </p>
<h2>Private prosecutions should be reformed, not abolished</h2>
<p>It is important not to look at private prosecutions entirely through the prism of the Post Office scandal. There are many crimes, including complex frauds and those involving infringement of copyright, where the police lack the resources or expertise to <a href="https://barristermagazine.com/private-prosecutions-the-quiet-battle-against-illegal-streaming/">investigate effectively</a>. Much the same can be said of the CPS. </p>
<p>Where wealthy and determined victims have the means to investigate and prosecute effectively, they may, in fact, be doing a public service. <a href="https://www.emmlegal.com/news/emm-secures-confiscation-order/">Some succesful private prosecutions</a> have led to confiscation orders being made against convicted defendants that have resulted in millions of pounds being handed over to the Treasury. </p>
<p>In recent years, many legal firms specialising in private prosecutions have formed their own Private Prosecutors’ Association. This has a <a href="https://private-prosecutions.com/code-for-private-prosecutors/">voluntary code of conduct</a>. </p>
<p>The justice select committee has recommended that anybody who is the subject of a private prosecution should at least be told this in clear terms and informed of their right to ask the DPP to consider taking over the prosecution. A broader problem is that the CPS is not at all equipped to review anywhere near the bulk of cases which could be referred to it.</p>
<p>The committee has also proposed that the government should consider a system for inspections. After all, both the CPS and the Serious Fraud Office are subject to statutory inspection. </p>
<p>This relates to a fundamental aspect of the scandal: no one had any power to compulsorily inspect the Post Office’s practices. For too long, those who were rightly suspicious of the Post Office – including several MPs – could not call upon anyone with power in the criminal justice system to take action. This vacuum should surely now be addressed.</p><img src="https://counter.theconversation.com/content/220959/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Private prosecutions can serve the public interest but the system needs better oversight and inspection.John Child, Professor of Criminal Law, University of BirminghamJonathan Rogers, Associate Professor in Criminal Law, University of CambridgeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1927992022-10-27T12:28:35Z2022-10-27T12:28:35ZElon Musk takes Twitter private – here’s what that means for the company and its chances of success<figure><img src="https://images.theconversation.com/files/491994/original/file-20221026-19-1q1c4p.jpg?ixlib=rb-1.1.0&rect=40%2C62%2C2955%2C1931&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Elon Musk has said he intends to complete his purchase of Twitter after earlier trying to wriggle out of the deal. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/VaticanMusk/2f4d17cc351b4e52aa8558ae7304a946/photo?Query=elon%20musk&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=1321&currentItemNo=62">Patrick Pleul/Pool via AP</a></span></figcaption></figure><p>Elon Musk <a href="https://www.bloomberg.com/news/articles/2022-10-28/musk-completes-44-billion-twitter-deal-ending-months-of-enmity?srnd=premium&sref=Hjm5biAW">has finally completed</a> his US$44 billion deal to acquire Twitter and take it private. </p>
<p>The <a href="https://www.bloomberg.com/billionaires/">world’s richest man</a> has already begun putting his imprint on the social network by <a href="https://www.wsj.com/articles/elon-musk-completes-twitter-takeover-11666918031?mod=hp_lead_pos1">firing four of its top executives</a>.</p>
<p>While most people are likely familiar with the idea of <a href="https://www.statista.com/statistics/270290/number-of-ipos-in-the-us-since-1999/">taking a private company public</a> – the process that allows individuals to buy and sell a company’s shares in the stock market – the reverse process is not as well understood and <a href="https://corpgov.law.harvard.edu/2022/08/14/should-your-company-go-private/">happens far less often</a>. </p>
<p>As a <a href="https://michiganross.umich.edu/faculty-research/faculty/erik-gordon">business and law professor</a>, I have been analyzing mergers, privatizations and other corporate deals for over two decades. The most common question I have been getting from students and faculty colleagues is why would Musk want to take Twitter private? Or more simply, what does it mean to go private? </p>
<p>The answers to these question help address a more interesting one: Will he succeed? </p>
<h2>Public vs. private</h2>
<p>Let’s start with the basic differences between a public and private company.</p>
<p>For starters, a <a href="https://www.cooleygo.com/glossary/public-company">public company is widely held</a>, meaning it has a lot of shareholders. Anyone can buy shares of most public companies, their shares trade on stock exchanges, and their market price is widely available on websites and apps. </p>
<p><a href="https://www.sec.gov/education/smallbusiness/goingpublic/exchangeactreporting">Federal securities law requires</a> public companies to disclose a lot of information about their operations and financial condition in <a href="https://www.sec.gov/files/form10-k.pdf">reports that are posted on the Security and Exchange Commission website</a>. Basically, anything that happens to a public company that’s of consequence to investors must be disclosed publicly. </p>
<p>A private company, on the other hand, <a href="https://corporatefinanceinstitute.com/resources/knowledge/finance/private-company/">is closely held</a>. It has few shareholders – sometimes just one. It usually is impossible to buy shares of a private company. When it is possible, it is difficult because shares don’t trade on exchanges. You have to find someone who is willing and able under restrictive securities laws to sell you their shares.</p>
<p>In addition, a private company is not required to file disclosures or anything else with the SEC.</p>
<p>Another key difference is the power the chief executive has. While public company CEOs have a lot of power, that power is constrained by things like a board of directors and rules on compensation. </p>
<p>Private companies have no meddlesome boards or rules governing compensation or other issues. And with few or no pesky outside shareholders, leaders of private companies don’t have to worry about the effect their decisions might have on the share price. </p>
<h2>Going private</h2>
<p>Many, if not most, companies begin their lives as a private company – perhaps in a family garage, as <a href="https://www.businessinsider.com/google-apple-hp-microsoft-amazon-started-in-garages-photos-2019-12">seems to be the case in so many startup origin stories</a>. </p>
<p>As a young company grows, <a href="https://www.forbes.com/advisor/investing/initial-public-offering-ipo">it needs more funding</a>, a problem often solved by doing an initial public offering that pulls in a lot of cash and opens up ownership to anyone. </p>
<p><a href="https://www.investor.gov/introduction-investing/investing-basics/glossary/going-private">Taking a company private</a>, as Musk did, reverses the IPO. The Tesla billionaire paid Twitter shareholders $54.20 a share, which is a 64% premium over the price Twitter stock was trading at a few weeks before Musk’s offer was disclosed on April 14, 2022.</p>
<figure class="align-center ">
<img alt="A white man in a suit sits in front of an old computer in a dorm room, as two others in street clothes stand in the door opening" src="https://images.theconversation.com/files/491992/original/file-20221026-6305-el39uc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/491992/original/file-20221026-6305-el39uc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/491992/original/file-20221026-6305-el39uc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/491992/original/file-20221026-6305-el39uc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/491992/original/file-20221026-6305-el39uc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/491992/original/file-20221026-6305-el39uc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/491992/original/file-20221026-6305-el39uc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Michael Dell, pictured wearing a suit in 1999 in the dorm where he started his eponymous computer company, took it private in 2013, later taking it public again for a huge profit.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RiseandFall/cf82774133a94ecabd3db2427cb2673c/photo?Query=Michael%20dell%20computer&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=28&currentItemNo=9">AP Photo/Harry Cabluck</a></span>
</figcaption>
</figure>
<h2>A success story</h2>
<p>So why would Musk or anyone want to take a company private? One key reason is control, which allows a buyer to impose his or her vision and singular strategy. </p>
<p>Now the shares have changed hands, Twitter is Musk’s to do with as he pleases – from reopening the accounts of <a href="https://www.cnbc.com/2022/05/10/elon-musk-says-he-would-lift-twitter-ban-on-donald-trump-after-deal-closes.html">former President Donald Trump</a> and Ye, <a href="https://techcrunch.com/2022/10/09/kanye-west-twitter-elon-musk">the artist formally known as Kanye West</a>, to <a href="https://techcrunch.com/2022/10/20/elon-musk-twitter-layoffs-wapo/">slashing the workforce</a> and firing executives.</p>
<p>That’s why Michael Dell decided to take the computer <a href="https://www.reuters.com/article/us-dell-buyout/dell-to-go-private-in-landmark-24-4-billion-deal-idUSBRE9140NF20130206">company that bears his name private in 2013</a>. </p>
<p>At the time, the <a href="https://www.investopedia.com/articles/markets/110915/dell-stock-doesnt-exist-here-why.asp">company was struggling</a> as personal computer sales slumped amid the rise of the smartphone. As <a href="https://www.sec.gov/Archives/edgar/data/826083/000119312513266621/d558010ddfan14a.htm">he explained in a securities filing</a>, Dell believed it was essential to quickly transform the company from primarily a PC maker to one focused on providing large organizations with entire information technology systems and managing them. </p>
<p>He said he couldn’t make the transformation as a public company because it would hurt short-term profits, which would likely cause the share price to fall. That in turn could harm consumers’ perception of Dell and lead to employee turnover.</p>
<p>In other words, Dell’s plan was perhaps too bold for a public company. But the strategy paid off – for him, his fellow investors and his company. </p>
<p>Dell himself <a href="https://www.forbes.com/sites/connieguglielmo/2013/10/30/you-wont-have-michael-dell-to-kick-around-anymore/">chipped in $750 million in cash</a> and over $3 billion in the form of his 16% stake in the company, with about $3.4 billion coming from other investors and $16 billion in debt.</p>
<p>By 2018, when the company went public for the second time, Dell’s <a href="https://www.ft.com/content/73ab2020-906c-11e8-b639-7680cedcc421">stake was worth $32 billion</a>, with similar large payouts for his co-investors. The <a href="https://www.statista.com/statistics/264911/dells-net-revenue-since-1996/">company thrived as well</a>, with sales and profits soaring after a period of low growth, as Dell predicted. Workforces often fall when a company goes private, but <a href="https://www.statista.com/statistics/264917/number-of-employees-at-dell-since-1996">Dell’s was up about 50%</a> in 2020 compared with 2013.</p>
<figure class="align-center ">
<img alt="a person in a coat walks past the front of a store with a Toys r Us sign over glass doors and signs reading clearance sale" src="https://images.theconversation.com/files/491993/original/file-20221026-23824-5gbu7p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/491993/original/file-20221026-23824-5gbu7p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/491993/original/file-20221026-23824-5gbu7p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/491993/original/file-20221026-23824-5gbu7p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/491993/original/file-20221026-23824-5gbu7p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/491993/original/file-20221026-23824-5gbu7p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/491993/original/file-20221026-23824-5gbu7p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Toys R Us went bankrupt in 2017.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/ToysRUsNewStake/fd082ebecdc643b78ff837b1e51bfd4a/photo?Query=toys%20r%20us&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=684&currentItemNo=17">AP Photo/Julio Cortez</a></span>
</figcaption>
</figure>
<h2>A classic fail</h2>
<p>But it doesn’t always end well. </p>
<p>In the early 2000s, Toys R Us <a href="https://www.latimes.com/business/la-fi-toys-r-us-leveraged-buyout-20180316-story.html">was in serious trouble</a>. Although e-commerce was still in its infancy, it was beginning to disrupt brick-and-mortar retailers, <a href="https://www.nytimes.com/2018/03/15/business/toys-r-us-bankruptcy.html">increasing competition</a> – especially in the market for children’s toys. A <a href="https://www.wsj.com/articles/SB113798030922653260">plan to sell its wares online via Amazon fizzled</a>, leaving Toys R Us way behind in e-commerce. Meanwhile, <a href="https://knowledge.wharton.upenn.edu/article/the-demise-of-toys-r-us/">its stores were growing old and shabby</a>, customer service was lousy and Target and Walmart were gaining market share.</p>
<p>In 2005, two buyout firms and a real estate trust <a href="https://www.businessinsider.com/the-tumultuous-history-of-toys-r-us-photos-2020-8#the-mounting-competition-led-to-the-eventual-closure-of-kids-r-us-14">won the bidding to take Toys R Us private</a> for $6.6 billion, using $5 billion in debt. Unlike Dell, who knew his business cold, Bain Capital, KKR & Co. and Vornado Realty Trust didn’t have much experience in the toy industry. And <a href="https://www.nytimes.com/2005/03/17/business/three-firms-are-said-to-buy-toys-r-us-for-6-billion.html">they followed a classic private equity strategy</a> of consolidation, closing marginal stores and cutting costs.</p>
<p>Also unlike Dell, Toys R Us never recovered. The <a href="https://www.theatlantic.com/magazine/archive/2018/07/toys-r-us-bankruptcy-private-equity/561758/">significant debt incurred</a> in the buyout saddled the company with large interest payments that <a href="https://www.washingtonpost.com/business/economy/analysts-toys-r-us-might-have-survived-if-it-did-not-have-to-deal-with-so-much-debt/2018/03/15/42752326-286a-11e8-874b-d517e912f125_story.html">left little money to invest</a> in remodeling stores or building a competitive online business. Toys R Us <a href="https://www.theatlantic.com/magazine/archive/2018/07/toys-r-us-bankruptcy-private-equity/561758/">filed for bankruptcy in 2017</a>, 12 years after going private.</p>
<p>As I see it, Dell had a plan that fit his company’s environment – a <a href="https://www.researchgate.net/publication/313924776_Strategic_Fit">key concept</a> in the study of business strategy. Toys R Us’ buyers did not. </p>
<p>**</p>
<figure class="align-center ">
<img alt="the Twitter bird logo appears in white on a large dark screen as people making trades at a stock exchange wander underneath" src="https://images.theconversation.com/files/491991/original/file-20221026-23859-h5s605.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/491991/original/file-20221026-23859-h5s605.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/491991/original/file-20221026-23859-h5s605.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/491991/original/file-20221026-23859-h5s605.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/491991/original/file-20221026-23859-h5s605.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/491991/original/file-20221026-23859-h5s605.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/491991/original/file-20221026-23859-h5s605.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Shares of Twitter had been trading far below Musk’s offering price until recently, with many believing it wouldn’t happen.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Musk-Twitter/bde3554cd27b43a79f448eb61f2e4b23/photo?Query=twitter&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=6361&currentItemNo=18">AP Photo/Seth Wenig</a></span>
</figcaption>
</figure>
<p>**</p>
<h2>Does Musk have a vision?</h2>
<p>So what does this all mean for Musk’s potential success at Twitter? </p>
<p>We still don’t know a lot about what he plans to do. </p>
<p>In <a href="https://www.sec.gov/Archives/edgar/data/1418091/000110465922045641/tm2212748d1_sc13da.htm">his April letter to Twitter shareholders</a>, he said, “I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy.” One could ask whether that is a business model or a statement of sociopolitical philosophy.</p>
<p>In any case, he said Twitter can’t “thrive nor serve this societal imperative” as a public company. He’s also tweeted that he would fight bots on the social network, let Trump and others rejoin and potentially let users <a href="https://thehill.com/homenews/ap/ap-technology/ap-musk-has-a-super-app-plan-for-twitter-its-super-vague">pay bills via tweet</a> – part of his <a href="https://evannex.com/blogs/news/elon-musk-s-long-term-goal-to-turn-twitter-into-a-super-app">“Project X” super app idea</a>. </p>
<p>More recently, The Washington Post <a href="https://www.washingtonpost.com/technology/2022/10/20/musk-twitter-acquisition-staff-cuts/">reported that Musk plans</a> to cut Twitter’s 7,500 employees by about 75% – though on Oct. 26 <a href="https://www.bloomberg.com/news/articles/2022-10-27/musk-tells-twitter-employees-he-doesn-t-plan-to-cut-75-of-jobs?srnd=premium&sref=Hjm5biAW">he told Twitter employees in San Francisco</a> that he wouldn’t get rid of that many. He also promised Twitter <a href="https://www.wsj.com/articles/elon-musk-will-face-an-early-twitter-challenge-preventing-advertiser-flight-11666871828">wouldn’t turn into</a> a “free-for-all hellscape.”</p>
<p>Musk understands the physics of launching rockets and the engineering behind building an electric car, but he doesn’t have deep experience running a social media platform or in building super apps. I believe he doesn’t have a thoroughly thought-out strategy that fits Twitter’s difficult environment.</p>
<p>What he does have a huge amount of debt. Last year, Twitter owed about $51 million in interest on its debt. After going private, the estimates are that Twitter will <a href="https://www.barrons.com/articles/things-to-know-today-51666781185">owe at least a billion dollars</a> annually on <a href="https://www.forbes.com/sites/dereksaul/2022/10/25/elon-musk-reportedly-tells-bankers-hell-buy-twitter-by-friday-deadline/?sh=72147cae4a4c">about $13 billion in new debt</a>. </p>
<p>In 2021, the <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/1418091/000141809122000029/twtr-20211231.htm#i2ad918c563304a7eb6717a12dcfcee58_76">company generated just $630 million</a> in cash from operations. That means Musk won’t have much cash to fund a super app or any other big ideas, unless he is able to attract additional investment in the company.</p>
<p>With the company in his hands, Musk can, of course, do what he likes. He can implement any free speech policy that suits his fancy. He can let Trump and Ye tweet. He can ban Tesla short sellers and anyone who questions his <a href="https://www.npr.org/2022/10/04/1126714896/elon-musk-ukraine-peace-plan-zelenskyy">foreign policy initiatives</a>. He can fire 75% of his staff in a heartbeat – something a public CEO would have a very hard time doing.</p>
<p>It’s too soon to tell if taking Twitter private will be a Dell-like success or a Toys R Us disaster. But <a href="https://techcrunch.com/2022/04/14/elon-musk-buying-twitter-ted-talk/">given Musk has said</a> he “doesn’t care about the economics,” it may not matter.</p>
<p><em>This article was updated to reflect deal was completed.</em></p><img src="https://counter.theconversation.com/content/192799/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erik Gordon does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Completing the $44 billion deal, following six months of turmoil, may be the easy part.Erik Gordon, Professor of Business, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1491012020-11-02T19:07:08Z2020-11-02T19:07:08ZA rushed move to virtual AGMs would disempower shareholders<figure><img src="https://images.theconversation.com/files/366638/original/file-20201030-18-gu9szn.jpg?ixlib=rb-1.1.0&rect=0%2C108%2C3415%2C2108&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Westpac AGM, 2019.</span> <span class="attribution"><span class="source">Mick Tsikas/AAP</span></span></figcaption></figure><p>Treasurer Josh Frydenberg appears to have backed down. </p>
<p>An extraordinarily rushed timetable that would have allowed investors and others just 12 days to comment on draft legislation permitting companies to hold virtual rather than face-to-face annual general meetings has been <a href="https://treasury.gov.au/consultation/c2020-119106">extended by seven days</a>, to the end of this week.</p>
<p>And Frydenberg has suggested he no longer supports it. He <a href="https://www.afr.com/chanticleer/hybrid-solution-should-end-virtual-agm-push-20201030-p56a80">now says</a> “reforms to the regulation of AGMs should enhance the ability of shareholders to interact with the board, not diminish it”. </p>
<p>The idea took hold when it became apparent COVID-19 would stop companies being able to hold physical meetings of shareholders. </p>
<p>In May the federal government announced a <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/making-it-easier-business-operate-during-covid-19">six-month temporary</a> relaxation of the Corporations Act rules to allow companies to hold online shareholder meetings. </p>
<p>The six months was later extended until <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/making-it-easier-business-operate-during-covid-19">March 22, 2021</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/366915/original/file-20201102-13-1cinelj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/366915/original/file-20201102-13-1cinelj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366915/original/file-20201102-13-1cinelj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=272&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366915/original/file-20201102-13-1cinelj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=272&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366915/original/file-20201102-13-1cinelj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=272&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366915/original/file-20201102-13-1cinelj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=342&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366915/original/file-20201102-13-1cinelj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=342&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366915/original/file-20201102-13-1cinelj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=342&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02303227-2A1260683?access_token=83ff96335c2d45a094df02a206a39ff4">In 2020 Westpac's AGM will be virtual</a></span>
</figcaption>
</figure>
<h2>Temporary relief was to become permanent</h2>
<p>Then, in a surprising development two weeks ago (on October 19), the federal government published <a href="https://treasury.gov.au/consultation/c2020-119106">draft legislation</a> to permanently allow companies to hold virtual-only shareholder meetings, including annual general meetings. </p>
<p>The reaction was caustic.</p>
<p>There are two main criticisms. One is focused on the process adopted by the government. The other is focused on the proposal itself. </p>
<p>The process was undoubtedly flawed. Twelve days — in the midst of the AGM season — is an exceptionally short amount of time to consider such important reform.</p>
<p>The more fundamental criticisms relate to what’s proposed.</p>
<p>We believe it will undermine the role of shareholder meetings in making company directors answer to shareholders.</p>
<h2>Shorter questions, fewer questions</h2>
<p>There is evidence this has already been happening. </p>
<p>At some AGMs, shareholders’ questions have <a href="https://www.afr.com/markets/equity-markets/geoff-wilson-to-lead-investor-army-against-virtual-agms-20201026-p568iu">been ignored</a>. </p>
<p>Others meetings have been <a href="https://www.theaustralian.com.au/business/leadership/investor-groups-pushing-back-on-virtual-agm-proposal/news-story/dcfe57c041a2e9b8941bf7c78bed9cf6">much shorter</a>.</p>
<p>The Australian Shareholders’ Association says a good AGM is an opportunity for <a href="https://www.australianshareholders.com.au/common/Uploaded%20files/MEDIA%20RELEASES/MR_27102020_ASA%20-%20shortcomings%20of%20online%20only%20AGMs.pdf">healthy discussion</a> and exchange of information and views. In contrast, a virtual meeting “is a sterile format where companies are able to ignore questions, and gloss over details”.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australia-is-ripe-for-shareholder-activism-69422">Australia is ripe for shareholder activism</a>
</strong>
</em>
</p>
<hr>
<p>In the US, the Council of Institutional Investors (representing institutional investors with more than US$45 trillion under management) <a href="https://www.cii.org/files/issues_and_advocacy/correspondence/2020/Virtual%20Meetings%20Letter%20_%20Corrected%20Copy_.pdf">has complained</a> to the US Securities and Exchange Commission about the virtual meetings held because of COVID-19 — calling them a “poor substitute for in-person shareholder meetings” that placed obstacles in the path of shareholders wanting to participate in a meaningful way.</p>
<h2>Hard evidence is emerging</h2>
<p>A <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3674998">study</a> published in August about virtual shareholder meetings during COVID-19 supports these concerns. </p>
<p>Research by Miriam Schwartz-Ziv examined the transcripts and audio recordings for 94 US corporations that held an in-person or predominately in-person meeting last year and a virtual meeting this year. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-limits-shareholder-activism-is-the-free-rider-problem-127232">What limits shareholder activism is the free-rider problem</a>
</strong>
</em>
</p>
<hr>
<p>The move to virtual meetings shortened the average meeting by 18%, decreased the time dedicated to providing a business update by 40%, and decreased the average time spent on answering questions by 14%. </p>
<p>Schwartz-Ziv says these findings:</p>
<blockquote>
<p>may suggest that not having visibly present shareholders, and perhaps not observing shareholders’ responses throughout the meeting, ultimately leads to less information communicated by the company to the shareholders</p>
</blockquote>
<p>Among the tactics used were company officials incorrectly stating there were no more questions and limiting questions to resolutions being voted on. </p>
<h2>Shareholders are increasingly active</h2>
<p>Right now shareholders are more active than ever, using AGMs to put matters such as climate change on the agenda. </p>
<p>This year’s <a href="https://www.smh.com.au/business/companies/breakthrough-moment-woodside-investors-revolt-on-climate-change-20200429-p54oe8.html">Woodside Petroleum AGM</a> made history when, for the first time in a major Australian listed company, a shareholder resolution requesting the company take action on climate change received more than 50% support from shareholders, even though the resolution was opposed by the company’s directors. </p>
<p>This type of activism, which is occurring in more companies, can indeed present challenges for directors who oppose the wishes of shareholders. Some of them might welcome an opportunity to limit questions. </p>
<h2>There’s no rush</h2>
<p>But that’s no reason for the government to facilitate it. The government’s proposal was rushed and poorly justified. </p>
<p>It would be better to debate the merits of permanently allowing what are called “<a href="https://www.afr.com/chanticleer/hybrid-solution-should-end-virtual-agm-push-20201030-p56a80">hybrid</a>” AGMs. This would involve a physical meeting along with online facilities for those who can’t be physically present.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">How Westpac is alleged to have broken anti-money laundering laws 23 million times</a>
</strong>
</em>
</p>
<hr>
<p>This year’s AGM season will give us enough experience with virtual shareholder meetings to allow a more informed decision on their merits during 2021. </p>
<p>There’s plenty of time.</p><img src="https://counter.theconversation.com/content/149101/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Ramsay receives funding from the Australian Research Council.</span></em></p><p class="fine-print"><em><span>Lloyd Freeburn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Already, under this year’s temporary provisions, the meetings have been shorter with fewer questions.Ian Ramsay, Professor, Melbourne Law School, The University of MelbourneLloyd Freeburn, Research Fellow, Centre for Corporate Law, Melbourne Law School, University of Melbourne, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/824012017-09-05T09:31:03Z2017-09-05T09:31:03ZCosta Rica’s Banco Popular shows how banks can be democratic, green – and financially sustainable<figure><img src="https://images.theconversation.com/files/184529/original/file-20170904-17912-puiaxz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Thomas Marois</span>, <span class="license">Author provided</span></span></figcaption></figure><p>A decade on from the 2007-08 global financial crisis, the majority of private banks <a href="https://theconversation.com/how-to-reshape-the-financial-system-first-ditch-the-idea-of-the-free-market-80908">have changed very little</a>. Most remain solely concerned with maximising their returns, while sustainable or social goals remain subservient to this. For conventional economists, anything else remains an impossible or distant dream.</p>
<p>But there is hope for a different kind of bank – one that is run democratically and with sustainable principles at its core. Costa Rica’s cooperative Banco Popular and of Communal Development (or BPDC) illustrates a viable and desirable alternative to the average private bank. While not without its own challenges, it offers a number of lessons for the rest of the world.</p>
<p>Banco Popular was established in <a href="https://www.youtube.com/watch?v=49G4q8lkcq4&feature=youtu.be">1969 by the Costa Rican government</a> to promote economic development. The bank emerged from a tradition of <a href="http://www.nacion.com/ocio/artes/Nuevo-repasa-revoluciones-sociales-ticas_0_1441255877.html">solidarity</a>, and continues to reflect that today. Its mission is to serve the social and sustainable welfare of Costa Ricans. </p>
<p>BPDC is a distinctive, public-like cooperative bank that is worker-owned and controlled. Any worker holding a savings account for over a year has the right to share ownership in it. It combines commercial and developmental functions with clients that include workers, peasants, micro-, small- and medium-sized enterprises, as well as communal, cooperative, and municipal development associations. </p>
<p>Since 2000, the bank has grown into a large financial conglomerate (Costa Rica’s third largest bank), offering the gamut of banking, pension, stock market, investment and insurance services. It has 103 branches nationwide and employs 4,300 people. Assets exceeded US$5.4 billion in 2016 with a net income of US$68m. Its <a href="https://orbisbanks.bvdinfo.com/version-2017420/Report.serv?_CID=792&context=1SBI6S6TVJPXTHO">return on assets averages around 1.5%</a>, showing high returns for a retail bank. </p>
<p>The bank benefits from a unique form of permanent capitalisation: employers contribute 0.5% and workers 1% of their monthly wages to it. After a year, 1.25% of these “obligatory savings” are transferred to each worker’s individual pension fund. The BPDC keeps the remaining 0.25% as a capital contribution.</p>
<p>The BPDC qualitatively differs from typical private banks. Its <a href="https://www.bancopopular.fi.cr/BPOP/getmedia/4fc9f0eb-f8c3-4d14-88e1-76cfc2877d0b/Reporte-de-Sostenibilidad-Conglomerado-Financiero-Banco-Popular-2016;">current mandate</a> incorporates a triple bottom line: the economic; the environmental; and the social. Earning financial returns is placed on a par with serving the environmental and social good.</p>
<h2>Democratic decision-making</h2>
<p>The BPDC is perhaps the most democratic bank in the world. It has a workers’ assembly as its highest governing body which represents the 1.2m workers-cum-savers serviced by the bank (20% of the population). The assembly is made up of 290 representatives selected from a wide range of <a href="https://www.bancopopular.fi.cr/BPOP/Nosotros/Asamblea-de-Trabajadores/Sectores-Sociales.aspx">social and economic sectors</a>. It gives strategic direction to the bank’s board of directors, which is composed of four members from the assembly and three from the government.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/184541/original/file-20170904-31235-cyl00e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/184541/original/file-20170904-31235-cyl00e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/184541/original/file-20170904-31235-cyl00e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/184541/original/file-20170904-31235-cyl00e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/184541/original/file-20170904-31235-cyl00e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/184541/original/file-20170904-31235-cyl00e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/184541/original/file-20170904-31235-cyl00e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">People power.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
</figcaption>
</figure>
<p>Popular consultation is a crucial part of the bank’s decision-making process. Its <a href="https://www.bancopopular.fi.cr/BPOP/getmedia/302d558a-3b0a-4cc0-bbb3-5421c3d939d4/08-Gobierno-Corporativo-JDN-2016-(version-FINAL-30-03-2017);">2017-2020 strategic plan</a> was informed by a three-year nationwide consultation, which reached nearly 1,500 participants across 11 regions.</p>
<p>The bank also puts a strong emphasis on gender equity. So at least 50% of the bank’s board must be women, earning the bank the distinction of being the first public organisation in Central America to establish at least 50% women in its decision-making bodies. The bank also has a Permanent Women’s Commission that makes gender equality a priority across the conglomerate.</p>
<p>What the BPDC is has much to do with its makeup.</p>
<h2>Acting sustainability</h2>
<p>The Banco Popular did not start out very green. But it has become a defining characteristic since 2014 when the left-leaning Citizens’ Action Party came to power and focused on making the economy <a href="http://www.unrisd.org/thinkpiece-utting2">promote social and environmental good</a>, as opposed to pure profit. </p>
<p>The bank has since developed speciality lending products, like eco-savings and eco-credits to help businesses fund more environmentally friendly projects. For example, earlier this year the bank helped finance the purchase and installation of residential solar energy panels. </p>
<p>On the developmental side, the BPDC supports local communal associations to provide sustainable water supply systems. It also works with regional energy cooperatives to finance everything from hydroelectric energy generation and energy-efficiency retrofitting, to conservation projects involving vulnerable nature areas.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/184513/original/file-20170904-16064-913a26.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/184513/original/file-20170904-16064-913a26.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/184513/original/file-20170904-16064-913a26.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/184513/original/file-20170904-16064-913a26.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/184513/original/file-20170904-16064-913a26.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/184513/original/file-20170904-16064-913a26.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/184513/original/file-20170904-16064-913a26.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A national park reclamation project part-financed by Banco Popular.</span>
<span class="attribution"><span class="source">Thomas Marois</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>The bank has also started to green itself. It tracks its own consumption of energy, strategises how to reduce its carbon impact, and reports this annually following the international, independent <a href="http://www.globalreporting.org">Global Reporting Initiative</a>. The bank’s pensions division has been certified as “carbon neutral” for four years running. </p>
<h2>Room for improvement</h2>
<p>Clearly, there is much to commend the Banco Popular as a model of alternative banking. But it is not perfect. Since its inception nearly 50 years ago, the bank has been the object of intense political power struggles and it came close to near collapse during the 1980s. Calls to privatise it are ever-present. </p>
<p>The struggle over effective control rages. Should the BPDC move towards complete worker control of its board or maintain continued government oversight, but with greater popular representation? The problem goes to the heart of how the public interest can and should be democratically represented in the bank.</p>
<p>Operationally, the Bank’s green portfolio needs expanding to be more sustainable. This will demand innovative thinking around green projects that have some kind of financial return. But how its green impact is practically measured has yet to be resolved.</p>
<p>Finally, there are burning strategic questions. The BPDC is relatively profitable. From a solidarity perspective, is this socially justifiable? Still, earning good returns enables the bank to fund more social projects through its subsidiary <a href="https://www.bancopopular.fi.cr/BPOP/Banca-Social">Social Bank</a>. Some might argue that the whole of the bank’s operations be geared towards this.</p>
<p>These hitches of governance, greenness and socialness are important, but the beauty of the BPDC is that they are resolvable within the democratic processes of the bank and Costa Rican society. For those banking on alternatives to the private profit-maximising dogma of most banks, the Banco Popular offers hope and direction.</p><img src="https://counter.theconversation.com/content/82401/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thomas Marois received funding in part from Transnational Institute, Amsterdam. </span></em></p>There is hope for a different kind of bank – that serves the public and shareholder good.Thomas Marois, Senior Lecturer in Development Studies, SOAS, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/723932017-02-17T02:00:00Z2017-02-17T02:00:00ZWhite House in turmoil shows why Trump’s no CEO<p>Throughout the 2016 presidential campaign, Donald Trump <a href="https://www.donaldjtrump.com/press-releases/donald-j.-trump-remarks-in-charlotte-nc">made much of his business experience</a>, claiming he’s been “creating jobs and rebuilding neighborhoods my entire adult life.” </p>
<p>The fact that he was from the business world rather than a career politician was something that <a href="http://www.usnews.com/news/the-report/articles/2015/10/01/donald-trumps-supporters-and-why-they-love-him">appealed to many of his supporters</a>.</p>
<p>It’s easy to <a href="http://hbswk.hbs.edu/item/what-ceos-do-and-how-they-can-do-it-better">understand the appeal</a> of a CEO as president. The U.S. president is indisputably the chief executive of a massive, complex, global structure known as the federal government. And if the performance of our national economy is vital to the well-being of us all, why not believe that Trump’s experience running a large company equips him to effectively manage a nation?</p>
<p>Instead of a “<a href="http://www.telegraph.co.uk/news/2017/02/16/us-politics-us-defence-secretary-james-mattis-says-little-doubt/">fine-tuned machine</a>,” however, the <a href="https://www.nytimes.com/2017/02/14/us/politics/trump-white-house.html">opening weeks</a> of the Trump administration have revealed a White House that’s chaotic, disorganized and anything but efficient. Examples include rushed and <a href="https://www.nytimes.com/2017/01/30/us/politics/trump-immigration-muslim-ban.html">poorly constructed executive orders</a>, a <a href="https://www.nytimes.com/2017/02/13/us/politics/donald-trump-national-security-adviser-michael-flynn.html">dysfunctional national security team</a> and unclear and <a href="https://www.nytimes.com/2017/02/14/us/politics/trump-white-house.html">even contradictory messages</a> emanating from multiple administrative spokespeople, which frequently clash with the tweets of the president himself.</p>
<p>Senator John McCain <a href="https://theintellectualist.co/john-mccain-nobody-knows-whos-charge-trumps-dysfunctional-white-house">succinctly summed up the growing sentiment even some Republicans are feeling</a>: “Nobody knows who’s in charge.” </p>
<p>So why the seeming contradiction between his businessman credentials and chaotic governing style? </p>
<p>Well for one thing, Trump wasn’t a genuine CEO. That is, he didn’t run a major public corporation with shareholders and a board of directors that could hold him to account. Instead, he was the head of a family-owned, private web of enterprises. Regardless of the title he gave himself, the position arguably ill-equipped him for the demands of the presidency.</p>
<h2>Public accountability</h2>
<p>Several years ago, I explored the distinction between public and private companies in detail when the American Bar Association <a href="https://www.amazon.com/Understanding-Your-Business-Clients-Fundamentals/dp/161438830X/">invited me to write</a> about what young corporate lawyers needed to understand about how business works. Based on that research, I want to point to an important set of distinctions between public corporations and private businesses, and what it all means for President Trump.</p>
<p>Public corporations are companies that offer their stock to pretty much anyone via organized exchanges or by some over-the-counter mechanism. In order to protect investors, the government created the Securities and Exchange Commission (SEC), which imposes an obligation of transparency on public corporations that does not apply to private businesses like the <a href="http://www.trump.com">Trump Organization</a>.</p>
<p>The SEC, for example, <a href="http://www.legalandcompliance.com/securities-resources/sec-requirements-for-public-companies">requires</a> the CEO of public corporations to make full and public disclosures of their financial position. Annual 10-K reports, quarterly 10-Q’s and occasional special 8-K’s require disclosure of operating expenses, significant partnerships, liabilities, strategies, risks and plans.</p>
<p>Additionally, an independent firm overseen by the <a href="https://pcaobus.org/">Public Company Accounting Oversight Board</a> conducts an audit of these financial statements to ensure thoroughness and accuracy.</p>
<p>Finally, the CEO, along with the chief financial officer, is criminally liable for falsification or manipulation of the company’s reports. Remember the 2001 <a href="http://www.investopedia.com/updates/enron-scandal-summary/">Enron scandal</a>? CEO Jeffrey Skilling was convicted of conspiracy, fraud and insider trading and initially sentenced to 24 years in prison. </p>
<h2>Internal governance</h2>
<p>Then there is the matter of internal governance.</p>
<p>The CEO of a public company is subject to an array of constraints and a varying but always substantial degree of oversight. There are boards of directors, of course, that review all major strategic decisions, among other duties. And there are separate committees that assess CEO performance and determine compensation, composed entirely of independent or outside directors without any ongoing involvement in running the business.</p>
<p>Whole categories of CEO decisions, including mergers and acquisitions, changes in the corporation’s charter and executive compensation packages, are subject to the opinion of shareholders and directors.</p>
<p>In addition, the <a href="https://www.sec.gov/news/press/2011/2011-25.htm">2010 Dodd-Frank Act requires</a> – for now – regular nonbinding shareholder votes on the compensation packages of top executives.</p>
<p>And then there’s this critical fact: well-governed firms tend to <a href="http://www.nber.org/papers/w15912">outperform</a> poorly governed ones, often dramatically. And that’s because of factors like a strong board of directors, more transparency, a responsiveness to shareholders, thorough and independent audits and so forth.</p>
<h2>Trump’s business</h2>
<p>None of the obligations listed above applied to Trump, who was owner, chairman and president of <a href="http://www.investopedia.com/updates/donald-trump-companies">the Trump Organization</a>, a family-owned limited liability company (LLC) that has owned and run hundreds of businesses involving real estate, hotels, golf courses, private jet rentals, beauty pageants and even bottled water. </p>
<p>LLCs <a href="https://www.thebalance.com/what-are-the-tax-advantages-and-disadvantages-of-an-llc-397768">are specifically designed</a> to offer owners tax advantages, maximum flexibility and financial and legal protections without either the benefits (such as access to equity capital markets) or the many obligations of a public corporation. </p>
<p>For example, as I noted above, a corporate CEO is required by law to allow scrutiny of the financial consequences of his or her decisions by others. As such, CEOs know the value of having a strong executive team able to serve as a sounding board and participate in key strategic decisions. </p>
<p>Trump, by contrast, as the <a href="http://fortune.com/donald-trump-businessman/">head of a family business</a> was accountable to no one and reportedly ran his company that way. His <a href="https://www.nytimes.com/2016/12/25/us/politics/trump-organization-business.html">executive team comprised</a> his children and people who are loyal to him, and his decision-making authority was unconstrained by any internal governance mechanisms. Decisions concerning what businesses to start or exit, how much money to borrow and at what interest rates, how to market products and services, and how – or even whether – to pay suppliers or treat customers were made centrally and not subject to review. </p>
<p>Clearly, this poorly equips Trump to be president and accountable to lawmakers, the courts and ultimately the voters. </p>
<p>Another important aspect of the public corporation is the notion of transparency and the degree to which it enables accountability. </p>
<p>A lack of transparency and reluctance to engage in open disclosure characterized the formulation of Trump’s immigration ban <a href="https://www.nytimes.com/2017/02/04/us/politics/visa-ban-trump-judge-james-robart.html">that was quickly overturned</a> in federal court. That same tendency toward secrecy was manifest throughout the campaign, such as when he refused to disclose much about his health (besides this cursory “<a href="https://www.nytimes.com/2016/09/16/us/politics/donald-trump-health.html">note</a>”) or release any of his <a href="http://www.cnn.com/2017/01/22/politics/kellyanne-conway-trump-tax-returns/">tax returns</a>. </p>
<p>While there’s no law that requires a candidate to divulge either health or tax status, that lack of transparency kept potentially vital information from U.S. voters. And Trump’s continuing lack of transparency as president has kept experts and advisers in the dark, leading to precisely the confusion, mixed messages and dysfunction that have characterized these early weeks. And, of course, this can quickly lead to a continuing erosion of public trust. </p>
<p>Trump, it should be noted, made one stab at a public company: <a href="https://theconversation.com/can-trump-create-millions-of-jobs-dont-bet-on-it-66104">Trump Hotels and Casino Resorts</a>. That was an unmitigated <a href="https://www.washingtonpost.com/business/economy/as-its-stock-collapsed-trumps-firm-gave-him-huge-bonuses-and-paid-for-his-jet/2016/06/12/58458918-2766-11e6-b989-4e5479715b54_story.html?utm_term=.d474b4bb5d11">disaster</a>, leading to five separate declarations of bankruptcy before finally going under, all this while other casino companies thrived. Public investors ignored all the signs in favor of the showmanship and glitz of the Trump brand and, as a result, lost millions of dollars. Trump allotted himself a huge salary and bonuses, corporate perks and special merchandising deals. </p>
<p>What is especially telling about this experience is that, rather than speaking on behalf of fiduciary responsibilities for the best interests of the corporation, <a href="https://www.washingtonpost.com/business/economy/as-its-stock-collapsed-trumps-firm-gave-him-huge-bonuses-and-paid-for-his-jet/2016/06/12/58458918-2766-11e6-b989-4e5479715b54_story.html">Trump noted</a>, “I make great deals for myself.” </p>
<h2>Multiplicity of voices</h2>
<p>There is no need to be overly naive here. </p>
<p>Some <a href="https://www.amazon.com/Discourse-Leadership-Appraisal-Bert-Spector/dp/1107049784/ref=sr_1_1_twi_har_1?s=books&ie=UTF8&qid=1487190488&sr=1-1&keywords=bert+spector">CEOs</a> also operate in a highly centralized manner, expecting obedience rather than participation from direct reports. All business executives expect a shared commitment from their employees to their corporate goals and value dependability, cooperation and loyalty from subordinates. </p>
<p>But the involvement of a multiplicity of voices with diverse perspectives and different backgrounds and fields of expertise <a href="https://www.amazon.com/Implementing-Organizational-Change-Theory-Practice/dp/0132729849/ref=sr_1_1?s=books&ie=UTF8&qid=1487190523&sr=1-1">improves the quality of resulting decisions</a>. Impulsive decision-making by an individual or small, cloistered group of followers can and often will lead to disastrous <a href="http://www.nytimes.com/2003/03/09/weekinreview/the-nation-nasa-s-curse-groupthink-is-30-years-old-and-still-going-strong.html">results</a>. </p>
<h2>What lies ahead</h2>
<p>Virtually every U.S. president, ranging from the great to the inconsequential and even the disastrous, have emerged from one of two groups: career politicians or generals. So why not a CEO president?</p>
<p>Without question, a background in politics does not guarantee an effective presidency. Abraham Lincoln, the consensus choice among historians for the <a href="https://www.washingtonpost.com/news/monkey-cage/wp/2015/02/16/new-ranking-of-u-s-presidents-puts-lincoln-1-obama-18-kennedy-judged-most-over-rated/?utm_term=.a8a054bce031">best president ever</a>, was a career politician, but so was his disastrous successor, Andrew Johnson. </p>
<p>Likewise, we can think of many traits of an effective corporate CEO that could serve a president well: transparency and accountability, responsiveness to internal governance and commitment to the interest of the overall corporation over and above self-enrichment.</p>
<p>Sadly, that is not Trump’s background. His experience overseeing an interconnected tangle of LLCs and his one disastrous term as CEO of a public corporation suggest a poor background to be chief executive of the United States. As such, “nobody knows who’s in charge” may be the mantra for years to come.</p>
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<p><a href="http://aom.org/">Bert Spector is an Academy of Management Scholar</a></p>
<footer>The academy is a funding partner of The Conversation US.</footer>
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<p class="fine-print"><em><span>Bert Spector is an Academy of Management scholar.</span></em></p>He campaigned on the notion that his business experience would equip him to ‘make America great again,’ but running a family company is poor training for the presidency.Bert Spector, Associate Professor of International Business and Strategy at the D'Amore-McKim School of Business, Northeastern UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/673732016-11-08T03:53:42Z2016-11-08T03:53:42ZEquity crowdfunding requires a rethink on company structure<p>The <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/8165.0Main+Features1Jun%202011%20to%20Jun%202015?OpenDocument">vast majority</a> of Australian companies are privately held. There are many advantages for this. Private companies face fewer regulations and lower requirements than public companies when it comes to reporting to shareholders, for example. </p>
<p>But new sources of funding are starting to blur the lines between public and private companies. As a result, we should consider introducing an intermediary form of corporation that sits between the two.</p>
<h2>The difference between public and private</h2>
<p>Private companies are not designed to raise funds from a large group of shareholders. In fact, <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s113.html">two of their key characteristics</a> are that they cannot raise capital from the public and they are limited to having 50 non-employee shareholders.</p>
<p>This is part of the reason why private companies face fewer regulations – they provide very little protection to shareholders. They are <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s250n.html">not required to hold an annual general meeting</a>, for instance, and <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s292.html">do not need to provide their shareholders</a> with financial statements or comment on the company’s performance. Further, a shareholder <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1072g.html">might find it very difficult to sell their shares in a private company</a> as this may require not only finding a buyer but also getting the board of directors’ approval. </p>
<p>Historically, when a company required more funds than 50 non-employees could provide, they would convert into a public company. Counting on a wider base of investors and owners, public companies are more heavily regulated, addressing many of these concerns.</p>
<h2>In comes crowd equity funding</h2>
<p>A new form of funding has come on the scene – crowd equity funding (CEF). It allows companies to raise funds from a large range of investors through an online portal. Investors receive shares in the company in return for their investment. </p>
<p>CEF has the potential to bridge the gap between private and public: it enables companies to access funds from many investors without going through the traditional fundraising regulation. But the <a href="http://treasury.gov.au/%7E/media/Treasury/Consultations%20and%20Reviews/Consultations/2014/Crowd%20Sourced%20Equity%20Funding/Downloads/PDF/CSEF%20Discussion%20Paper.ashx">current framework</a>, with restrictions like the <a href="http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5588">prohibition on private companies raising funds from the public</a>, <a href="http://www.camac.gov.au/camac/camac.nsf/0/3dd84175efbad69cca256b6c007fd4e8.html">creates a roadblock</a> to accessing this type of finance.</p>
<p>Recognising this, in 2015, the government <a href="http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5588">introduced a bill</a> to enshrine CEF in legislation. The bill limited CEF to a select group of public unlisted companies. Ultimately the bill lapsed and a new bill is expected to be introduced this year.</p>
<p>Limiting CEF to public companies does not take into account the important role private companies play in our economy. So the <a href="http://www.treasury.gov.au/%7E/media/Treasury/Consultations%20and%20Reviews/Consultations/2015/Crowd-sourced%20equity%20funding/Key%20Documents/PDF/Crowd-sourced-equity-funding.ashx">government is also assessing</a> whether CEF should be introduced to these types of companies. </p>
<p>But simply extending CEFs to private companies may not be ideal either. </p>
<h2>Why we can’t just extend CEF to private companies</h2>
<p>If the introduction of CEF to private companies is accompanied by raising the ceiling for investors and introducing more accountability in the system, the issue of investor protection will be moot. However, this could mean the death of private companies as we know it. With increased regulation, the cost of running a private company will rise. This type of business may no longer meet the need of people who are currently running closely held companies – which form the bulk of private companies. </p>
<p>Further, there is a need to distinguish between two types of private companies – the one that may never be interested in accessing CEF and the one that may in the future. For instance, a private company may be a useful engine to set up new general, social and environmental enterprises as this type of company is cheap and cost effective to run. However, with the growth of such businesses, access to finance may be problematic and conversion to a public company may not be an ideal either. Something in between could be the solution. </p>
<h2>A new form of company</h2>
<p>Any consideration of CEF should be accompanied with discussion on how to promote small and medium enterprises, and whether to do so may require the establishment of a new form of company. One that allows entrepreneurs to access CEF when they outgrow a private company, while also providing some protection to investors. </p>
<p>Designing such a company form will ensure Australia does not fall behind the rest of the world, and will promote a different type of entrepreneurship.</p><img src="https://counter.theconversation.com/content/67373/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marina Nehme receives funding from Centre for International Finance and Regulation.</span></em></p>New sources of funding are posing a problem to the way we categorise companies.Marina Nehme, Senior Lecturer, Faculty of Law, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.