Skin, in the Game (Tragedy of the Common, Part 2)

History really does repeat itself. While technology and the world have changed dramatically since the Wall Street of the 1980s, incentives and human nature have not.

This is an unplanned part 2 to my original post giving my take on the Elon vs Twitter saga, spurred by this recent Tweet that was amazingly coincidental to my posting of the classic “Wall Street” clip.

Without having to watch the full clip, here’s the quick text of Gordon Gekko, single largest shareholder of Teldar paper, making his acquisition pitch to the common stock share holders:

“Now, in the days of the free market when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company! All together, these men sitting up here own less than three percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than one percent. You own the company. That’s right, you, the stockholder. And you are all being royally screwed over by these, these bureaucrats, with their luncheons, their hunting and fishing trips, their corporate jets and golden parachutes.”

— Gordon Gekko (Michael Douglas), “Wall Street”

The point here is simple. When a board this large has collectively so little at stake in the company, things can become very complicated.

When you’re a board member with negligible shares for the company you serve, other proximal factors become dominant. You are not hell bent on raising the stock price the same way a large shareholder is. You’re fine taking the status quo salary and prestige associated with the position. And you are certainly not going to risk your reputation and your relationships to do the ugly things that often need to happen when a company is in trouble.

This is why Elon does things that make other people squirm, whether it is publicly taking on the SEC, the NTSB, the US Air Force, NASA, or even the President of the United States. It’s because survival is constantly at stake when your entire net worth is in these companies. Can you imagine a board member who is well connected to the government risking something like that? Of course not. They have little to gain and more to lose.

I’m not blaming them. It’s a ruthlessly logical calculation.

I have had board members beg me to shut down a company I used to work at because it looked like it might be too much of a headache. They’re ready to move on, and free up their time for other things. I’ve worked with government insiders who don’t want to threaten their existing relationships when the company really needs them to, as they can parlay those relationships for another project for another day.

For the entrepreneur, or anyone else with a large amount of dollar equity, there is no other day. Today’s the only one. Your entire family’s net worth is in the company, and you will do whatever is necessary to see it through. Those mindsets are different. You simply cannot expect the decision making to be the same in such diametrically opposed circumstances.

This is why this series is called “Tragedy of the Common.” Because while the shares are common, the interests are not.