SoftBank Lets Companies Share Its Vision

I talk sometimes about a simple model of corporate finance in which a company does a thing, the thing generates cash, and the cash is not necessary to do more of the thing the company does. So the cash needs to be reinvested, and the question is just who gets to reinvest it. Perhaps the managers of the company should reinvest it: The fact that the company makes a profit suggests that they are good at operating profitable businesses, so they might as well open some more businesses. Or perhaps the managers should return the money to their shareholders: The shareholders are, these days, mostly professional investors whose job is to allocate capital to its most profitable uses, while the managers’ specialty is operating the particular business that they operate, and if they expanded into some other business they’d probably just waste the money.

This is, it seems to me, a deep and interesting conflict; there are good generic arguments for letting the managers invest the money, and other good generic arguments for returning it to shareholders, and of course there is no generically correct answer, and what each company should do will depend more or less on how good its managers are at choosing investment opportunities.