Shareholders Are Revolting

Command and Control

Ever since the joint stock company, the predecessor of the modern corporation, was invented shareholders have engaged in a love-hate relationship with the managers of their firms. At the heart of the battle is a matter of great importance for all investors – who owns and controls the companies they place their capital in?

The balance between shareholders and managers has see-sawed back and forth, but in recent years has swung down firmly in favour of the latter. Now, though, shareholders are fighting back. Shareholders are revolting, and not before time. Unfortunately, they need to be very careful what they wish for.

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Why There’s Never Been A More Dangerous Time To Invest

Facing the Big Guns

Tadas Viskanta, who writes and curates the excellent Abnormal Returns, recently penned an equally excellent article entitled There Has Never Been A Better Time To Be An Individual Investor. In this he cogently sets out a list of reasons why investing is cheaper and easier than ever before while caveating that our innate biases work against us when investing.

While agreeing with every word of the article, I think there’s danger for anyone executing anything other than the suggested default option of a low cost, globally diversified, occasionally rebalanced portfolio. Active private investors are engaged in an arm’s race with the securities industry and most of the big guns are facing the wrong way. The problem is that darned scientific method, which is why there's also never been a more dangerous time to invest.

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Frankenstein’s Corporations

Immortal Corporations

Back in 1819 the US Supreme Court, an august group not usually known as a centre of radical creationism, took the unusual step of inventing artificial life. Moreover they then, in a Frankenstein moment, added the proviso that their monstrous offspring should be blessed with immortality.

The object of this life-giving largesse was the hitherto humble corporation, which was suddenly invested with superhuman properties. Unfortunately the lawmakers couldn’t artificially imbue corporations with morality or a sense of justice so having made them indestructible they left the rest of the world to deal with an ethical dilemma that sees companies given human rights without needing, or expecting, to behave so as to deserve them. Back to the courts …

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Greed’s Not Good For Shareholders

Don't Aim to Maximise Shareholder Value

When we look at the genuinely successful business people of our time, that happy band of folks who’ve created true shareholder value, enriching themselves and their followers to an astonishing degree, we find an extraordinary thing. The vast majority of these people are not particularly interested in money and their companies are generally not dedicated to some New Age declaration of shareholder value maximisation.

Greed is not a quality that seems to drive the world’s greatest creators of shareholder value and creating shareholder value is not the aim of the companies that are best at it. In fact we can pretty much guarantee the alternative: wherever you find over-rewarded executives presiding over companies whose main aim is to increase their market capitalisation we should pick up our skirts and get the hell out of it. Corporate greed is bad for ordinary shareholders.

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