This is relevant to the interests of both the most ardent capitalists and socialists. De-regulation and mis-regulation, crafted under the influence of targeted lobbying, is destroying value in...
This is relevant to the interests of both the most ardent capitalists and socialists. De-regulation and mis-regulation, crafted under the influence of targeted lobbying, is destroying value in enterprises.
In combination, these regulatory changes increased the incidence of predatory value extraction in the U.S. economy. For more than a decade, major public corporations have routinely disbursed to shareholders nearly all of their profits, and often sums equivalent to more than their profits, in the form of stock buybacks, dividends, and deferred taxes while investing less for the future and undertaking restructuring simply for the sake of reducing costs. It is now increasingly difficult to find incidents in which management rejects hedge fund activists’ proposals outright and risks proceeding to a showdown proxy vote in a shareholder meeting.
[A good chunk of the misery in my workplace over the past year is precisely due to predatory hedge fund intervention, which is now resulting in a massive stock buyback that's going to saddle a formerly functional company with major debt.]
A large problem in general in my opinion is that a lot of people do not care about the long run. Sustainable profit is not the goal of shareholders anymore. Policy makers should disincentivise...
A large problem in general in my opinion is that a lot of people do not care about the long run. Sustainable profit is not the goal of shareholders anymore.
Policy makers should disincentivise short term investments by increasing taxes on the proceeds. Doing this would make it less profitable and thus hopefully encourage long term thinking.
I would agree with you in this respect, but also add that there was a sea change in the philosophy of U.S. capitalism in the 1970's around maximization of shareholder value being the purpose of...
I would agree with you in this respect, but also add that there was a sea change in the philosophy of U.S. capitalism in the 1970's around maximization of shareholder value being the purpose of publicly held enterprises. The gradual change in regulation towards this end has made possible a wide range of predatory practices, not just hedge fund blackmail.
The Tobin Tax and other proposals have been made to limit short-term holdings, but even institutional investors who are supposedly seeking long-term value are influenced by the idea that the profits must be disbursed to shareholders rather than invested in the company, its employees, its products, and the community.
One problem with keeping profits inside of the company is that there often is no project that makes sense to develop and that further investments sometimes make a company too big and complex. If...
One problem with keeping profits inside of the company is that there often is no project that makes sense to develop and that further investments sometimes make a company too big and complex. If you look at apple for example they have reserves in the hundreds of billions of dollar which have not been payed out to shareholders but rather are parked in off shore accounts.
Its on managers to find the proper balance between further investments and paying out of profits. If they do not have funds available within the company they are less attractive to hedge funds and the likes to target.
A tax alike to the tobin tax would be optimal, but I sadly do not currently see the political climate where something like this could be achieved. The rollback of regulations could be a more achievable goal.
Apple isn't the only model for what enterprises do; software companies are outliers for relatively low capital requirements to perform their business functions. Apple has outsourced everything it...
Apple isn't the only model for what enterprises do; software companies are outliers for relatively low capital requirements to perform their business functions. Apple has outsourced everything it can possibly outsource; they've let China capture any benefit from manufacturing innovation. The company appears to be suffering from the idea stagnation that arises when your business model is comfortable, and it's unnecessary to innovate to maintain cash flow or market share.
"Keeping profits inside the company" also includes adequate staffing; wages, benefits and employee training; research and development; capital maintenance; market development; operational efficiency improvement; and a host of other activities.
If I wasn't working for a company in the midst of this, I could provide a long list of direct examples of the damage done when a hedge fund decides it's time to eat a profitable company alive, not least of which is forcing a billion dollars of debt solely to buy back shares. This creates the kind of business instability that's killed companies like Toys'R'Us.
For example, I'm quite aware that the involved predatory hedge fund in my company's case was intentionally spreading false financial stories to encourage reduction in the share price (and benefit from a short position) before buying a substantial block of shares. As an employee shareholder, this has a direct impact on my livelihood.
I'll ask why you believe deregulation is desirable in this environment. That seems like the kind of unconsidered received wisdom that arrives from political messaging, not economic theory.
Sorry, I misspoke, the reintroduction (not rollback) of regulation is a more achievable goal in my opinion. That is a very good point, involving employees closer in reaping the benefits of their...
Sorry, I misspoke, the reintroduction (not rollback) of regulation is a more achievable goal in my opinion.
That is a very good point, involving employees closer in reaping the benefits of their work is directly beneficial to retention and motivation, which both benefit the business and shareholders over the long term. Initiatives like the co-operative where employees are direct members and influence the business decisions are definitely worth a look.
A closer look on activist investors by the SEC for example would be good. Settling a company with too much debt for them to handle and then presenting them as still viable is dishonest at best, and could even be illegal at worst.
There are interesting parallels here with political democracy, and the core of the issue seems to be the apathy of the majority. When someone doesn't care, they're less likely to seriously...
There are interesting parallels here with political democracy, and the core of the issue seems to be the apathy of the majority. When someone doesn't care, they're less likely to seriously investigate claims about their options, and so they're much easier to manipulate. Small groups of people can achieve outsized influence just by talking to enough people. Mandatory voting exacerbates the problem.
The other interesting parallel is opacity. It's difficult for minor shareholders to grasp what's actually underpinning a company's success or failure when the board, institutional shareholders,...
The other interesting parallel is opacity. It's difficult for minor shareholders to grasp what's actually underpinning a company's success or failure when the board, institutional shareholders, and other power players are the only ones who can see deeper than a prospectus or quarterly reports. The article notes that even institutional investors are neglecting their duties to do anything other than vote.
It's all sunshine as long as profits are strong and growing, but the panic response of big investors at the least hint of negative change makes things much worse.
This is relevant to the interests of both the most ardent capitalists and socialists. De-regulation and mis-regulation, crafted under the influence of targeted lobbying, is destroying value in enterprises.
[A good chunk of the misery in my workplace over the past year is precisely due to predatory hedge fund intervention, which is now resulting in a massive stock buyback that's going to saddle a formerly functional company with major debt.]
A large problem in general in my opinion is that a lot of people do not care about the long run. Sustainable profit is not the goal of shareholders anymore.
Policy makers should disincentivise short term investments by increasing taxes on the proceeds. Doing this would make it less profitable and thus hopefully encourage long term thinking.
I would agree with you in this respect, but also add that there was a sea change in the philosophy of U.S. capitalism in the 1970's around maximization of shareholder value being the purpose of publicly held enterprises. The gradual change in regulation towards this end has made possible a wide range of predatory practices, not just hedge fund blackmail.
The Tobin Tax and other proposals have been made to limit short-term holdings, but even institutional investors who are supposedly seeking long-term value are influenced by the idea that the profits must be disbursed to shareholders rather than invested in the company, its employees, its products, and the community.
One problem with keeping profits inside of the company is that there often is no project that makes sense to develop and that further investments sometimes make a company too big and complex. If you look at apple for example they have reserves in the hundreds of billions of dollar which have not been payed out to shareholders but rather are parked in off shore accounts.
Its on managers to find the proper balance between further investments and paying out of profits. If they do not have funds available within the company they are less attractive to hedge funds and the likes to target.
A tax alike to the tobin tax would be optimal, but I sadly do not currently see the political climate where something like this could be achieved. The rollback of regulations could be a more achievable goal.
Apple isn't the only model for what enterprises do; software companies are outliers for relatively low capital requirements to perform their business functions. Apple has outsourced everything it can possibly outsource; they've let China capture any benefit from manufacturing innovation. The company appears to be suffering from the idea stagnation that arises when your business model is comfortable, and it's unnecessary to innovate to maintain cash flow or market share.
"Keeping profits inside the company" also includes adequate staffing; wages, benefits and employee training; research and development; capital maintenance; market development; operational efficiency improvement; and a host of other activities.
If I wasn't working for a company in the midst of this, I could provide a long list of direct examples of the damage done when a hedge fund decides it's time to eat a profitable company alive, not least of which is forcing a billion dollars of debt solely to buy back shares. This creates the kind of business instability that's killed companies like Toys'R'Us.
For example, I'm quite aware that the involved predatory hedge fund in my company's case was intentionally spreading false financial stories to encourage reduction in the share price (and benefit from a short position) before buying a substantial block of shares. As an employee shareholder, this has a direct impact on my livelihood.
I'll ask why you believe deregulation is desirable in this environment. That seems like the kind of unconsidered received wisdom that arrives from political messaging, not economic theory.
Sorry, I misspoke, the reintroduction (not rollback) of regulation is a more achievable goal in my opinion.
That is a very good point, involving employees closer in reaping the benefits of their work is directly beneficial to retention and motivation, which both benefit the business and shareholders over the long term. Initiatives like the co-operative where employees are direct members and influence the business decisions are definitely worth a look.
A closer look on activist investors by the SEC for example would be good. Settling a company with too much debt for them to handle and then presenting them as still viable is dishonest at best, and could even be illegal at worst.
There are interesting parallels here with political democracy, and the core of the issue seems to be the apathy of the majority. When someone doesn't care, they're less likely to seriously investigate claims about their options, and so they're much easier to manipulate. Small groups of people can achieve outsized influence just by talking to enough people. Mandatory voting exacerbates the problem.
The other interesting parallel is opacity. It's difficult for minor shareholders to grasp what's actually underpinning a company's success or failure when the board, institutional shareholders, and other power players are the only ones who can see deeper than a prospectus or quarterly reports. The article notes that even institutional investors are neglecting their duties to do anything other than vote.
It's all sunshine as long as profits are strong and growing, but the panic response of big investors at the least hint of negative change makes things much worse.