Comments on: How to Empower Shareholders and Improve Corporate Management in Two Easy Steps

By: Kevin Beck

Kevin Beck — Thu, 18 Feb 2010 21:45:04 +0000

I would like to offer two different ideas which I believe would also work the desired result:

1. Director's compensation will be paid only in stock or stock options, to be vested 5 years into the future;
2. Change the Internal Revenue Code so that:
a. Compensation in stock or stock options is not taxable until the stock is sold;
b. Repeal the capital gains tax.

I think these would have a much better effect of aligning shareholder's interests to that of managers and directors.

By: ron taylor

ron taylor — Fri, 29 Jan 2010 18:26:16 +0000

We do not " need " legal voting rights . We do need trustworthy analysts capable of assessing company actions that could significantly affect share value and thereby provide a reasonable basis for deciding whether to buy/sell – the ultimate vote .

By: george

george — Fri, 29 Jan 2010 18:24:35 +0000

I worked for a wastefull charity for a number of years, they depended on faith and ignored sound business practices, however his quote still upset me.

By: Paul Dueweke

Paul Dueweke — Mon, 25 Jan 2010 16:51:25 +0000

As for boards of directors — ha! The second biggest bunch of crooks in America. Talk about an establishment! For thirty years, I dutifully read and studied the directors meeting proxy statements for various corporations I owned stock in. For thirty years, I analyzed the issues and then voted prudently. For thirty years, I voted for six candidates for six vacant seats on the boards. The number of seats always equaled the number of candidates. But now I save time and am thru the proxy ballot in about thirty seconds. I simply look at how management advises me to vote and then vote the opposite. Voting for the candidates takes a little longer. I vote FOR ALL EXCEPT and then write in the numbers of all the candidates. But it makes absolutely no difference what or who I vote for or against. I even found a website a few years or so ago where some guy tracked all the proxy issues of all or some major part of the American corporations, like maybe the S&P 500 or something. He listed all these issues, like thousands of them, how management recommended to vote, and what the tally turned out to be. Do you know how many issues pass over the opposition of management. Not just zero, but absolutely, identically zero. As I recall, there was one issue that got over 20 percent of the vote. That was the highest. There were maybe a dozen with more than 10 percent, maybe a hundred with more than one percent, and then the masses with less than one percent. I cant remember what the website was now.

My favorite board is Disney. They hired a bum, Michael Ovitz, at some salary like 70 million or so. He was there 14 months and just about ran them into chap 11, so they fired him and gave him his 190 M severance package. Then they just reelected each other to the board and back to business as usual. Walt Disney was a dedicated visionary, and if he could see the bums running his company today, he'd probably strangle Mickey Mouse for just being a part of it.

By: Wheatie

Wheatie — Mon, 25 Jan 2010 15:19:55 +0000

Many shareholders vote with management because they do not understand what management is doing, they tell it in complicated methods and language. I do not give to charities anymore due to how much the charity CEO's make. A local regional charity CEO makes over $100,000. I am sure that a recent college graduate could handle running a local charity for half of that.

By: james

james — Sun, 24 Jan 2010 15:13:16 +0000

It's spelled Moron not moran.

By: Don Fishgrab

Don Fishgrab — Sun, 24 Jan 2010 05:01:16 +0000

The problem is the same in the political field as in the corporate world. Both constituents and share holders are ignored because management, and party control most of the funding. The Supreme court's decision makes the problem worse.

By: Viswa Ghosh

Viswa Ghosh — Sun, 24 Jan 2010 04:32:14 +0000

I liked the way Martin puts it- "Shareholder Capitalism" vs. "Managerial Capitalism". That "shareholder capitalism" will evolve into "managerial capitalism" is inevitable as the initial founders (Ford, Morgan, and even the latest ones like Bill Gates, Steve Jobs, et al) age and retire leaving the fate of the organizations in the hands of "competent bureaucrats."

Agency Theory is supposed to be dealing with the kind of 'conflict of interest' that Martin mentions, between shareholders and managers of a corporation. That the current rewarding structure (cash + stock options) of managers of corporations is not resolving this conflict has become glaringly evident during the last Wall Street crisis.

The other inevitable phenomenon is that middle classes (no matter how much their savings rise) will be forced to depend on institutional investors who many mutual and trust funds. Any small individual investor – who trades in the stock market – knows that the amount of data & information that is out there to be first acquired and then processed to come up with optimum portfolio management is simply not possible. Hence, individuals are and will be more and more forced to rely on the data/information acquisition and processing powers of institutional investors. None of us can simply cannot come out of this inevitability.

As far as I can see, there is no option other than having an umbrella policy to curb obnoxious bonuses offered to managers. An umbrella policy will insure that all sectors are equally impacted – unless the government by design wants to push more skilled and better brains into selected sectors, say away from Wall Street toward Green Tech innovative companies.

Obnoxiously high bonuses (in cash or in stock options) will have to be taxed at prohibitive rates – such as, 75% tax rate on cash amounts above USD 450K (the President's salary) and 90% of the value of stocks on the offer day if the valuation crosses USD 0.5 million.

The above figures are merely illustrative. Actuarial methods may be used to arrive at the exact formula to prevent bleeding of corporations and shareholder wealth by competent or incompetent managers. If greed cannot be curbed then entrepreneurship will be pushed more and more to the back burners and the very driving forces of capitalism – hard work, thrift and innovation – will be reduced to ashes.

Hope somebody listens.

By: Gerry C

Gerry C — Sat, 23 Jan 2010 19:56:39 +0000

May I make a recommendation on this issue. How about instead take any compensation over say $250,000 in a year to any manager or executive. And use it to buy as many shares on the open market based on the all time high price of the share.
Say the CEO of Citi gats $1,250,000 salary and bonus this year. He gets $250,000 in cash the rest gets divided by the "all time high" (let's say for example it was $50 per share before the market crashed) $1,000,000 / $50 per share = 20,000 shares. So the company buys him 20,000 shares of Citi at market price on a defined day (say 15 business days after the anniversary of his employment). Let's say it was $3.50 per share. That's $75,000. The remainder ($1,000,000 – $75,000 = $925,000 goes to pay back the individual shareholders who via special dividend with an ex-div date being 1 day before the shares are purchased for the CEO and all other managers.) Now the only way he get's to recoupe his loss on the shares to to actually amke the company grow. Then 6 years after he leaves the job (provided he makes sure his replacement is competant) he is allowed sell the shares.

By: Gerry C

Gerry C — Sat, 23 Jan 2010 19:42:15 +0000

Since you are mentioning money going to college endowments. The whole government funded higher ed system should be reworked. The more the government subsidies, the higher the cost. If you charge $10,000 per year tuition and the government come along and says education is too expensive, here's $10,000 per student, you will quickly find the cost rising to $20,000 per student.