> These days, those corporate insiders have a lot of their wealth tied up their company's stock.
Yes, that helps a bit to align incentives. In practice, it's only a start.
(It's especially interesting because investors these days tend to be broadly diversified and typically own shares in all the companies in an industry. Managers are typically highly concentrated.)
I think you're coming to the opposite conclusion I implied. Because corporate insiders' wealth is tied up in company stock, they are incentivized to optimize for the value of the stock, which may be counter to the long-term health of the company.
> [...], they are incentivized to optimize for the value of the stock, which may be counter to the long-term health of the company.
That would imply that shareholders are idiots. And especially that all hedgefunds are idiots as well. Otherwise you'd expect a lot of short-selling once the stock price exceeds the long term health, wouldn't you?
If everyone was rational and had full information, yes. But it can take a while for outsiders to catch on, and people are not fully rational. For two high profile examples, look at GE and Boeing. They had a reckoning, but it took a long time.
Yes, that helps a bit to align incentives. In practice, it's only a start.
(It's especially interesting because investors these days tend to be broadly diversified and typically own shares in all the companies in an industry. Managers are typically highly concentrated.)