Shareholders as owners? Humbug- not true!
I argued nearly for years that our current system of corporate operation was flawed and NOT working.
CEOs and boards are self-aggrandizing entities who work more to line their own pockets than they do to either reward shareholders or benefit communities or the USA.
It’s long been a mantra that corporate board are responsible to the owners of a company (ie. shareholders) and that if changes are needed on the boards or with company officers, shareholders can make these changes. This mantra has been used to deflect and derail any kind of corporate regulations proposed in the last few years.
Some thoughts:
a) corporations are LEGAL entities- entities created by the laws we the people generate- and as such these laws can be modified and corporations can be regulated as deemed necessary!! The “right” would have you believe some “market” mechanism can do this regulating and modification- but it can’t — especially if the laws have gradually been modified themselves to prevent this. One need only see that in the recent reforms passed in the wake of the financial meltdown that even a “say on pay” law was watered down to make it only a “recommendation” by shareholders for the level of compensation to their company’s CEO- Really? I thought these shareholders were owners! Apparently not. So even this aspect shows that enforcing “ownership” is a man-made feature- or not. (It’s ironic that the freemarket gurus would have opposed this -though they did- since isn’t “property” and “ownership” key aspects of capitalism and free market economics- yet they derailed a means to actually enforce an ownership feature in to the law)!
b) I’ve long argued that stockholders were NOT owners- that people only own the stocks in order to sell as soon as they see a decent profit margin generate from a stock price increase. Stocks are effectively de-linked from both corporate growth as well as, essentially, corporate profits. In fact a few years back I had a discussion with a online opponent who argued that he “bought Apple stock because he valued their products” (implying his ownership) but then in the next exchange he admitted he’d sell the stock as soon as a good gap accrued between his purchase price and the stock’s market price!
So along comes this article by Harold Meyerson which bolsters my initial views! I will quote a key section and you can read the rest for yourself!
Quote: “In the 1950s, a stock listed on the New York Stock Exchange was held, on average, for seven years, Fox and Lorsch write. Today, it’s six months. As much as 70 percent of the daily volume on the NYSE comes from high-frequency traders who hold a stock for roughly the same amount of time it takes a Higgs boson to disintegrate. Capital that impatient does not fund, discipline or measure the value of a company. The eclipse of the long-term shareholder has been accompanied by the eclipse of the individual shareholder. In the ’50s, more than 90 percent of the shares in U.S. corporations were held by individuals. Today, Fox and Lorsch estimate, individual shareholders own 30 to 35 percent. Investment funds that hold shares in many different companies often lack the resources to focus on a single corporation’s……”
The result is a collusion of boards and CEOs, gutting of USA based manufacturing, off-shoring and outsourcing, reduced income increases to the middle class and a casino on Wall St focused only on the shortest possible window in which to garner the most money.
Conclusion? Until we get a handle (via REGULATION) of the financial industry’s “tail wagging the dog” effect and until we actually REWARD ownership and PENALIZE gambling on stocks- this will NOT change.
Ideas I’ve offered up before with regards to stocks:
a) increase taxes on profits from stock sales for stocks held less than a year to 50%
b) reward stocks held more than 5 years, for example, by very low taxes such as the current capital gains tax of 15%
c) in between stock sale profits would be normal income tax levels
Changes to the issue of corporate governance are more problematic as it would be difficult to actually legislate pay levels for CEOs for example. But legislation could regulate who is on the boards so as to include people with voting power to be actual shareholder voices, consumer voices or even community voices for locations in which these corporations businesses are located. Additionally, legislation could require supermajority votes on some actions such as CEO pay or bonuses or parachutes. Additional regulations could require corporations publish other data such as a graph of CEO pay for their company compared to profits or business expansion. Data could be published and required for historical ongoing difference between lowest paid corporate employee and the CEO and other officers. Quarterly reports for all this data would at least bring into transparency what is occurring.
