Last Update - Mon Jan 20 2025
Information Slide:
IPO = Initial Public Offering (when a company changes from private to public ownership by offering stocks to the public)
C-suite = a term used to describe high-ranking executive titles in an organization (e.g., chief executive officer, chief operating officer, etc.) HWS RR 2023 (Round Robin) - Room D Round 5 CO | OW 84, 84 Business Youtube Linked (Timestamped): HERE Rebuttal Pool Risk:It refers to a group of individual risks that are combined to manage and distribute risk more effectively Their second harm was that companies are better off delaying their IPOs because they will figure out their ideas better. I think there are two reasons to not believe this. 1. The first is that I just don’t know if the actual fundamental premise that guides their extension—that it is easier to figure out things pre-IPO—is true at all. I think that there are very obvious empirical examples that the average reasonable voter does know: of companies that use the IPO as the vehicle to test out new ideas and to make those pivots. That is why Amazon did its IPO before it pivoted into being a cloud service. That is why Apple did its IPO before pivoting into personal computing. Frequently, this is a way that you can change the image of the company in the eyes of your investors and also raise slightly more money than you otherwise could on private markets to do that pivot. Groupthinking: Groupthink is a psychological phenomenon that occurs within a group of people in which the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome.It discourages creativity or individual responsibility. But last of all, an IPO enables you to have a board with multiple members who are not existing parts of the “groupthink” in companies that the Government themselves, on Closing Government, argue is a problem. Meaning that more people are likely to suggest new ideas or are more likely to suggest bringing in those outside consultants that OO said will get hired, and as a result, those new ideas are more likely to get tested and foregrounded. 2. The second thing I then want to address is why our extension is not logically contingent on Opening Opposition. Here’s what Opening Opposition says: they say founders are good, and insofar as we want to win the round, we are reliant on founders being as good as they say. The problem with this is that our case just says, look, even if we accepted that founders were actively worse at running companies in some marginal way compared to OG, like let’s say OG just slightly wins on that clash—maybe they do—it doesn’t matter. What matters critically on our side are the constraints that are placed on those founders that cause them to be better even if their intrinsic incentives were bad. The critical point from our side was that IPOs themselves solve for the problems that the Gov talks about. Activist Investors:Shareholder activism is a form of activism in which shareholders use equity stakes in a corporation to put pressure on its management. A fairly small stake (less than 10% of outstanding shares) may be enough to launch a successful campaign. The problems of accountability, for example, and the cults of groupthink are solved by the fact that you now have a board with a diverse number of people. You have representatives of BlackRock who own those index funds and are supposed to vote proxy for the people who own those things. You have representatives of activist investors who push you to do ESG things like, for example, buying carbon write-offs for your stuff. So, you have many more ideas that are being foregrounded. And of course, founders still retain control: they chair the meetings; their voices are heard a lot. But that groupthink is removed, and that’s what makes the Closing Government extension so nonsensical. Their extension One is that we get a delay. Their extension Two is additional reasons on top of Opening Gov why groupthink is a problem. But insofar as there is a delay in their IPOs, that is a longer period in which the company is private and therefore much more likely to be doing that groupthink for a longer period of time before the IPO. So, it’s not clear why extension two is not an additional reason why we shouldn’t want companies to be private. Second of all, I think that the distributional effects of earlier IPOs are massive. For one, it just means that those impacts happen sooner. Critically, the public gets to buy the IPO when it’s lower value, meaning they make a higher percentage-wise return if you’re a regular investor. But I think The second reason is that some companies will not IPO at all in Gov’s world, and that’s what they don’t refute at all out of Gov Whip. That very basic idea: look, you can be a big company now and never IPO. SPACs:A special-purpose acquisition company, also known as a "blank check company", is a shell corporation listed on a stock exchange with the purpose of acquiring (or merging with) a private company, thus making the private company public without going through the initial public offering process, which often carries significant procedural and regulatory burdens.Each SPAC has its own liquidation window within which it must complete a merger or an acquisition; past this deadline the SPAC will dissolve and return assets to its stockholders. In practice, SPAC sponsors often extend the life of a SPAC by making a contribution to the trust account to entice shareholders to vote in favor of a charter amendment that delays the liquidation date. Why are companies discouraged from going public in the status quo ? Second POI: “Sure, IPOs are also reduced when investors get cold feet after seeing IPOs fail from other previous examples. Isn’t it better to increase the success rate of IPOs?” No, it doesn’t reduce the IPOs. The IPOs are a market mechanism. What it does is it reduces the amount that people buy-in on day one of the IPO. Like two years ago, if you did an IPO, you sold immediately, and you made like 200% because IPOs were so frothy. The worst outcome in their world is that companies IPO a bit early and they get punished for it, right? They sell the stock, and then they just lose money, and that disincentivizes future IPOs from IPO-ing too early because they look at that company next door and they’re like, “Oh, they IPO-ed too early. If I want to double my money on day one from frothy markets, I should wait.” That is why their extension solves itself btw. If it is true that companies actually IPO too early, they look at the company that is most comparable to them, and they’re like, “Oh, screw it, I should wait to IPO because investors think that my early IPOs are a bad idea.” I think that removes Closing Government. The next thing I want to talk about is why it matters on a corporate governance level for our side to win. This is where I’ll bring in Opening Gov. I think Opening Gov does a very good job of establishing why founders sometimes have bad incentives and why their cults of personality can direct companies too much. But I think that there have been narrative changes in the tech and business world that have reduced the influence of these people. So when you see prominent examples, even if they’re exceptions to the case, of like CEOs Bezos putting Andy Jassy in instead, when you see examples like FTX imploding, or like that, it also creates a bit of a counter-narrative in the business world that says maybe we should be a little bit less trustful of these founders in the first place. So there are counter-veiling norms, and insofar as things go wrong and the markets react, they’re not like, “I’m going to keep taking risks if these people consistently are bad.” So there are market-based incentive mechanisms to a lot of their stuff. On their claim that founders like to keep their friends in charge, I’m just not sure. They certainly assert way too much why this is true, but this isn’t always a bad thing. Like Steve Wozniak being kept at Apple is the reason why they pivoted and invented all that new tech. Often their friends are very qualified and understand the business nuances that they thought too. So I’m not sure this is a problem. POI (From OG) Yeah, but it’s different norms. The norm that we’re talking about in the round is a norm about whether founders remain in control. The norm that I’m talking about is a norm about whether or not markets should have unlimited trust in those founders, which is an independent norm from what’s going on. It is just about what people in the investment world think, which is clearly independent. Weighing over Opening Opp: I do think that Opening Opposition does a reasonably okay job of establishing why there’s better governance sometimes. But the fair pushback is OG says if they’re on the board, they can still do some guidance and leadership, which ultimately then makes that a contingent question: do you think they’re actually going to use their position on the board to influence the CEO. Maybe they will, maybe they won't but if the board is public and if there's an IPO then we certainly know that they're that that founder on the board is now being constrained by other Representatives on the board who also have their ideas being platformed Conclusion But Two you also care about whether or not those companies are constrained. Every harm of gov is Amplified in terms of the founders running Cults of personality and little dictatorships when those companies stay private. We prove those companies would. Closing Gov literally did not refute that at all. We are very proud to oppose.
Max Rosen
Closing Government's big harm is market volatility. Even if we accept that this market volatility harms people other than the investors who accept that risk and buy the IPO very soon (not buy it way later on the secondary market), the average regular person who is exposed to the stock market is exposed to it via their pension fund or an index fund. The thing about these funds is that they own almost the entire market, so they pool risk. It doesn’t matter if individual stocks become slightly more volatile in Gov’s world because these investors are exposed to the entire market, and that volatility, while of course correlated, is hedged against by the fact that the average person who’s exposed to the stock is owning stocks to save for their retirement in 20 years. So, they probably don’t care much about volatility. Volatility actually leads to higher returns often in the long run, so presumably, they’re okay with this.
Since CG opposes founders keeping their CEO role, it incentivizes them to delay IPO (which will happen regardless if they want to expand), allowing the founder to better prepare- more profit/revenue, establish vision & innovation before they leave
The status of the IPO itself has become much less prestigious. There has been the rise of SPACs; private markets have become vastly, vastly more liquid, meaning it’s far easier to buy and sell those stocks and there’s less risk associated with remaining private. There’s been the growth of many more venture capitalists and stuff who are willing to give you money even if you don’t have the same balance sheet availability, etc., that public companies would. The implication of that—and I’ll get to that—
The aforementioned trends already push founders to not go public, CG’s case makes it worse.
The countervailing norm hold the founder (who remains in their key C-suite role) accountable and founder does it the other way round. Hence, it keeps the board balanced with vision and financial practicality.
“Of course, there are always competing norms. This is a debate about which form should be dominant. And insofar as ours has the best incentive, we obviously win.”
So the takeaway is then as follows: if we accept that governance is okay or at least a small margin on either side then what you care about is the average investor not even investor it's like a literal person who has a retirement account, getting exposed to the wealth of companies far sooner and a far better way. This is quite tangible in terms of just the literal money people have.