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Lawsuit against Meta invokes modern portfolio theory to protect shareholders

corpgov.law.harvard.edu

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Re: Lawsuit against Meta invokes modern portfolio theory to protect shareholders

#81

Post by seanhunter »

gfaster wrote: post #69
pevey wrote: post #58

Earlier quoted context omitted.

I think what they are really trying to do here is come up with a legal theory that internalizes what economists call "externalities." One economic actor, in doing what is in its individual best interest, creates negative effects that may be much, much larger than the positive effects. We're not talking about Coke taking market share from Pepsi, which is analogy I saw elsewhere. A better analogy would be Company A tha…

How nice would it be if corporations were held accountable for externalities? You'd almost immediately have all the big fossil fuel companies, automotive manufacturers, and likely banks sued into oblivion for defrauding shareholders. IANAL, but I don't think this will hold up.

There is a theory in economics that the government could do this by imposing taxes on negative externalities.[1] The purpose of these "Pigovian taxes" is to make society whole for these negative externalities and ensure that over time the prices of goods reflect their total marginal costs, not just the direct costs to the producer. Of course there are practical problems in estimating the right level for these taxes accurately.

[1] https://www.economicshelp.org/blog/glossary/pigovian-tax/

Re: Lawsuit against Meta invokes modern portfolio theory to protect shareholders

#82

Post by Kranar »

jbombadil wrote: post #79
Kranar wrote: post #52

Earlier quoted context omitted.

I know I should interpret every comment in good faith, but it really is hard to understand how you can read my comment and make such a reply. It feels like you didn't actually take the time to understand what I said or even read the article before commenting. At any rate, if a company found a cure for cancer the stock market would absolutely skyrocket in a way almost never before seen. It's unbelievably hard to imagi…

Legit question: is it "detriment to a generic diversified portfolio" or "detriment to a specific diversified portfolio"? (As in if my portfolio is diversified and it got decreased in value I have grounds to sue)

The complaint in the article says that Meta is required to consider the impact of its actions on the diversified portfolios held by its shareholders. The plaintiff asserts that it's not about having a detrimental impact on a generic diversified portfolio but rather the various diversified portfolios held by its shareholders.

The specific complaint is that Meta ignored the concerns raised by its shareholders about the impact of its actions on the broader portfolios held by its shareholders.

Once again I do not think this case has merit, and lawsuits of this nature almost always fail, but we should at least take some time to understand what is actually being pled so that we can object to it with a firm standing.

Re: Lawsuit against Meta invokes modern portfolio theory to protect shareholders

#83

Post by mirod1 »

The lawsuit doesn't argue that Facebook actions hurt specific portfolios from their shareholders.

It claims that it hurt a typical diversified portfolio. One that FB shareholders should have, according to the Modern Portfolio Theory (MPT). It notes that the MPT is not only commonly accepted, it is in fact used to write laws and regulations: "Before the advent of MPT, “legal lists” prohibited many fiduciaries from owning common stock".

So if the MPT is indeed a cornerstone of modern economics, and modern laws, the natural conclusion is that it should be considered when looking at the fiduciary consequences of a company decision.

Facebook case shows the problem very clearly, because both of the scale of the impact of the company on the World in general, and the structure of its governance, where the majority vote holder interests are not diversified, which makes them diverge significantly from all the other shareholders interests.

As I understand it, it's a bit of legal jiu-jitsu: it takes the MPT, which so far has been used to allow more actors to invest in stocks, and so accepted readily by business and legal actors. It then uses it to extend the responsibility of companies to some externalities.

It may or may not succeed, but it doesn't seem completely insane. At the very least the discovery process could be used to show to which extend Facebook knows about features that have a clearly negative effect on society in general, and chooses to implement them anyway.

Re: Lawsuit against Meta invokes modern portfolio theory to protect shareholders

#84

Post by JustLurking2022 »

Honestly, the whole business of shareholders suing companies is a bit crazy given they were also the beneficiary of any ill-gotten gains and, ultimately, any damages come out of the share price.

I realize in this case it's effectively one subset if shareholders trying to get paid at the expense of other shareholders but it feels like there should be a higher bar for this type of litigation.

Re: Lawsuit against Meta invokes modern portfolio theory to protect shareholders

#85

Post by djbebs »

xivzgrev wrote: post #66
anigbrowl wrote: post #14

Anyone who invested in Facebook directly (rather than via a managed or exchange-traded fund of some sort) did so with the expected awareness that all the voting stock was controlled by Zuckerberg personally. Effectively, FB is a corporate dictatorship and it's hard to have sympathy for people who put money into it during the good times and are now surprised to discover that they made a bad investment decision. https:…

This. Show me an investor complaining about Facebook’s corporate governance And I’ll show you someone who doesn’t think investment decisions through

Sounds like if they are complaining, they've thought it through...

Re: Lawsuit against Meta invokes modern portfolio theory to protect shareholders

#86

Post by msh »

celestialcheese wrote: post #64
pevey wrote: post #58

Earlier quoted context omitted.

I think what they are really trying to do here is come up with a legal theory that internalizes what economists call "externalities." One economic actor, in doing what is in its individual best interest, creates negative effects that may be much, much larger than the positive effects. We're not talking about Coke taking market share from Pepsi, which is analogy I saw elsewhere. A better analogy would be Company A tha…

You could make this argument that Apple has done this with their IDFA changes. Wipe out the public water source (data attribution) to benefit their internal apple ads (new DSP + Apple app and search ads). Overall portfolio effect of that IDFA change has been extremely negative for every company but Apple. Should I as a shareholder of both Apple, Meta and Google be able to sue Apple for their changes?

You could just as well argue that apple have done a public good by preventing pullution (data sharing) by other companies.

Re: Lawsuit against Meta invokes modern portfolio theory to protect shareholders

#87

Post by dplgk »

mirod1 wrote: post #83

The lawsuit doesn't argue that Facebook actions hurt specific portfolios from their shareholders. It claims that it hurt a typical diversified portfolio. One that FB shareholders should have, according to the Modern Portfolio Theory (MPT). It notes that the MPT is not only commonly accepted, it is in fact used to write laws and regulations: "Before the advent of MPT, “legal lists” prohibited many fiduciaries from own…

You had me at first but then overplayed your GPT hand.

Re: Lawsuit against Meta invokes modern portfolio theory to protect shareholders

#88

Post by drewm1980 »

gfaster wrote: post #69
pevey wrote: post #58

Earlier quoted context omitted.

I think what they are really trying to do here is come up with a legal theory that internalizes what economists call "externalities." One economic actor, in doing what is in its individual best interest, creates negative effects that may be much, much larger than the positive effects. We're not talking about Coke taking market share from Pepsi, which is analogy I saw elsewhere. A better analogy would be Company A tha…

How nice would it be if corporations were held accountable for externalities? You'd almost immediately have all the big fossil fuel companies, automotive manufacturers, and likely banks sued into oblivion for defrauding shareholders. IANAL, but I don't think this will hold up.

There is a documentary called "Duty of Care" about lawsuits along these lines. Governments are getting sued for endangering their own citizens through inaction on climate change. Similar lawsuits are being brought directly against oil companies.

Re: Lawsuit against Meta invokes modern portfolio theory to protect shareholders

#89

Post by mirod1 »

dplgk wrote: post #87
mirod1 wrote: post #83

The lawsuit doesn't argue that Facebook actions hurt specific portfolios from their shareholders. It claims that it hurt a typical diversified portfolio. One that FB shareholders should have, according to the Modern Portfolio Theory (MPT). It notes that the MPT is not only commonly accepted, it is in fact used to write laws and regulations: "Before the advent of MPT, “legal lists” prohibited many fiduciaries from own…

You had me at first but then overplayed your GPT hand.

I was actually nearly going to add a notice that the post had _not_ been generated by an AI.

It does say something about the current state of AI that at least 2 people had the same thought.

Re: Lawsuit against Meta invokes modern portfolio theory to protect shareholders

#90

Post by ceejayoz »

spiderice wrote: post #73
ceejayoz wrote: post #62

Earlier quoted context omitted.

All three of those were acquisitions, which seems to sorta prove the point.

The Quest 2 was not an acquisition. Oculus was an acquisition. Then, over 6 years later, the Quest 2 was released. Not sure anyone can claim that FB didn't have a huge role in inventing the Quest 2 after 6 years of building up to it.

I’ve got both Quests. The 2 is nice, but it’s not very different from the first gen; upped specs and resolution. The first gen was nice; separating it from the PC was important, but it’s still hard to see it as that innovative over the Rift predecessor it largely inherited from.
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