Shareholder’s Best Interests

To me it’s kinda funny, the attitude showing a n***a driving
But don’t know where the fuck he’s going, just rolling
–Easy E, “Straight Outta Compton

Recently, major shareholders and board members of the legendary, but now troubled, retail chain JCPenney have been fighting over the best direction of the company. 18% shareholder and hedge fund manager Bill Ackman proposes removing current CEO Mike Ullman and opening a search for a new CEO. Meanwhile, Starbuck’s founder Howard Schultz counters that suggesting such a thing is despicable, especially when the company’s current position is Ackman’s fault. Meanwhile, the spat climaxed with Ackman resigning from the JCPenney’s board of directors on August 12th and subsequently divesting his holdings.

While observing this, a friend of mine asked me a question: “Aren’t they both highly motivated to do what’s in the best interests of shareholders? Why are they pulling the company in different directions?” What an excellent question.

Despite appearing to have totally aligned interests, these two can’t seem to agree on anything. Beyond that, they have almost no regard for each other’s opinions. How can that be? Is one of them an idiot? Is Howard Schultz soft? Is Bill Ackman despicable? Certainly, both have been quite successful in their careers. Why the sharp disagreement about the future of the franchise?

There are at least two major reasons why these two do not agree. The first is time horizon. If your objective is to restore JCPenney to its former glory, then your time horizon is “as long as it takes”, and you stand to lose nothing if you are wrong. Conversely, you might come up with an entirely different strategy if your objective is to get the stock price up long enough to get your money out. It is often the case that conflicting time horizons among shareholders lead to sharp disagreements about the right leadership for a company. One might assume that Howard Schultz, as an entrepreneur and former CEO with no financial stake in the company, has a longer time horizon than Ackman who has a huge stake in a good short-to-medium term outcome. As a result, Schultz may be more focused on making hard decisions in the short-term, even if those decisions cause a temporary decrease in the stock price. Ackman, on the other hand, will have to answer to his own shareholders if he takes such a short-term hit, so he has a real incentive to employ a strategy that yields a monotonically increasing stock price.

The second reason is that almost nobody knows what’s in the shareholder’s best interests when it comes to corporate strategy. Specifically, the right answer for JCPenney isn’t actually clear to anybody. When a company goes into a spiral, better execution on the current path will not work. Therefore, a new path must be chosen. Choosing a new path for any company is extremely difficult. Choosing one for a business as old and large as JCPenney is rocket science. When Apple was winding down the drain in the late 1990s, nobody other than Steve Jobs thought that further vertically integrating the product line was the right strategy. Every publication, analyst and reporter considered it self-evident that Apple needed to become more horizontal to compete with “PC economics”. It turned out that the right answer wasn’t obvious. It was so complicated that only the founder of the company and perhaps the greatest CEO of our time came up with it. Certainly no board member or shareholder had the answer.

Similarly, when I was CEO, I radically changed the direction of my publicly held company in 2002. Nearly all of my shareholders promptly gave me a vote of “no confidence” and sent Opsware’s stock plummeting from $2/share to $0.035/share. By 2007, I sold the company to Hewlett-Packard for $14.25/share. It seems that all of my shareholders voted with their wallets and against their own best interests.

It’s not clear that it’s possible for any outside board member or shareholder to have enough knowledge to pick a company’s new direction accurately. I was working 16 hours/day on the problem and I barely knew enough to make that decision. As a result, the best that outside parties can do is vote for or against the CEO. Clearly that’s not easy when you don’t know where the company should be headed.



The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see for additional important information.

Want more a16z?

Sign up to get our best articles, latest podcasts, and news on our investments emailed to you.