Why would #7 happen if shareholders get wiped out? Surely, people on the board and other C suite executives are big enough shareholders that they would care if their equity went to zero.
> Why would #7 happen if shareholders get wiped out? Surely, people on the board and other C suite executives are big enough shareholders that they would care if their equity went to zero.
I remember reading about something called principal agent problem here in HN… I think almost ten years ago. It changed my life. I spend a lot of time thinking about it. Once you look it up, it is difficult to not see everything in life with this lens.
Basically, the shareholders are not in control. Management is. And the management class has a special interest to protect “their own”.
> I remember reading about something called principal agent problem...
A summary of the problem:
The principal–agent problem refers to the conflict in interests and priorities that arises when one person or entity (the "agent") takes actions on behalf of another person or entity (the "principal"). The problem worsens when there is a greater discrepancy of interests and information between the principal and agent, as well as when the principal lacks the means to punish the agent. The deviation from the principal's interest by the agent is called "agency costs".
Matt Levine frequently discusses the fact that losing billions of dollars means at some point, someone trusted you with billions of dollars. Which new employers (especially banks) look on favorably.
In particular, because the people are management who don’t lose anything when investors get wiped out. The solution is clawing back money that execs paid themselves with these embezzled (on a risk-adjusted perspective) funds.
You can apply the same thing to people management. Who cares if you're a shit manager, if you've managed 100 people that's still going to be looked upon more favourably than someone who's managed 20 people really well for a 100 person management position.
Applying it to execs is probably a simpler comparison. Shit exec means you were still an exec, so you can probably get hired somewhere else as an exec.
