How do you draw that line, though? Say I start a business and own it 100%. Should I be allowed to pay myself? What if I'm already a billionaire? What if I buy it instead of start it? What if it's a few friends + me instead of solo?
You seem to be implying that raising questions about how we do things is silly because regulation would be overwhelmingly complicated and infeasible.
However, if it's a public company, (which is just one possible abstract entity) then there are all sorts of rules and complications when there are one or more large investors.* Given these rules and regulations exist, it's not unreasonable to consider whether they should be changed slightly in pursuit of the public good.
*I'm thinking of stuff I've read about CBS v. Redstone in Matt Levine's column, where the board of CBS was trying to get rid of its controlling shareholder. They seem to have failed, but it was a fight.
I would suggest that a couple places to start would be eliminating things that are purely about value transfer and extraction.
1) Not allowing a purchaser to transfer debt from that purchase to the newly purchased entity.
2) Not allowing a company to pay fees for service to any corporate entity that has a conflict with a board member. The board members get paid to give advice...
Yes I'm aware these are imperfect solution, yes there are loopholes, yes these things rarely work...but those two practices seem to be particularly rife for abuse.
#1 is not unique to corporate acquisitions. Think of it like a real estate mortgage. You can buy an apartment complex with 25% down and finance the other 75% as long as the building produces 1.25x the debt payment in free cashflow. The key is having enough cushion in the cahsflow to account for value-add "repairs" like remodeling stores or launching a new product to maintain/grow cashflow.
If an LBO is done properly, like Michael's, it's a win for everyone. Old shareholders don't lose their shirt due to an unsustainable valuation tanking, lenders get paid back, and new shareholders aren't tied to the same old valuation because they financed the acquisition and only invested a percentage of the sale price. The trick is identifying which poorly-performing companies are just overvalued and can be transformed into strong performers at a different price-point, and which companies are just headed for the gutters.
