This makes sense, yes

And this matters, enormously. The whole essence of shareholder capitalism is that there should be appropriate checks and balances so that the shareholder’s interests are protected. But when the real owner of an entity is literally unidentifiable by the entity itself, and also by that real owner – and that is now the norm- then this logic fails, completely. Not only is there no accountability by corporations, but the real shareholders do know that they can, or should, hold the entity to account. The whole logic of shareholder capitalism fails.

Therefore the entire economy should be run by some bloke in Ely by civil society.

32 thoughts on “This makes sense, yes”

  1. So the 100% shareholders do not know that they are shareholders in the business? In that case someone should have Power of attorney or, if not, then the Court of Protection should take over.
    M’Lud will, I trust, correct me if I’ve got it wrong.

  2. “when the real owner of an entity is literally unidentifiable by the entity itself, and also by that real owner”

    this is a beauty even by Captain potato’s lofty standards. So he is asserting that the entity cannot identify its owners – perhaps he has never heard of the compulsory register of members? – and that the actual owner does not know he is the owner – as if he never paid for the shares, perhaps?

    It’s not good enough to be drivel. It is perhaps worthy of newmy

  3. Mutual funds could apply.

    Not that I’m making excuses for him. I don’t know the context of his statement.

    ‘But when the real owner of an entity is literally unidentifiable by the entity itself’

    Every company I own stock in directly knows me.

    My VFIAX is blind, both to me and to the companies. Though Vanguard is surely holding S&P 500 company shares. Hence Vanguard is my rep, and the apparant owner to the companies.

    Regardless, Murph’s sweeping conclusions are ridiculous.

    As usual, his post starts with a No True Scotsman assertion: ‘The whole essence of shareholder capitalism is that there should be appropriate checks and balances so that the shareholder’s interests are protected.’

  4. There is always room for improvement. In the case of shareholder-owned companies, the solution is easy — require Directors to invest at least 20% of their total personal Net Worth in common stock of the company, in a trust fund where those shares cannot be sold until 3 years after the Director leaves the Board. Give the Directors skin in the game, so that they behave as long-term shareholders.

    Employees (such as the CEO) should be prohibited from being Directors, although the Directors of course will want to consult with the CEO and other officers prior to making decisions. And share buy-backs (aka stock price manipulation) should be prohibited.

  5. The assumption here is that accountability is expressed by voting.In fact it is expressed by the feet
    , not the hand , ie leaving/selling which is expressed in price. As we well know , democratic control is often fraudulent . I have democratic control over the local schools in the public sector via my votes ( in some useless sense ). It is an illusion clearly , in fact I have no control because they are a monopoly.
    Similarly I will gain valuable “sovereignty” in a week or two whilst losing relatively unimportant “Money ” .Wow I just cannot wait to exercise this new power ..happy happy fucking day BONG BONG fucking BONG

  6. “In the case of shareholder-owned companies, the solution is easy — require Directors to invest at least 20% of their total personal Net Worth in common stock of the company”

    Err – do you understand how and why limited liability came about?

    “Employees (such as the CEO) should be prohibited from being Directors”

    The CEO is always a director, he’s the “Chief Executive (as in Managing) Director”, in case we’re in Bongo land again with regard to American versus English.

  7. Total personal net worth.
    Hmmm…..

    That includes my pension? My house? My car?
    Can see problems sticking those into share ownership. Never mind major issues with being unable to sell for 3 years after leaving – may get some total idiots running things 2 years down the line and the money put in is wiped or much reduced in value.

    And what happens if say I get divorced – do I get to keep half my personal net worth with 40% of that stuck into a trust fund that cannot be touched? Great, how do I live? Where do I live?

  8. A couple of patrons are really handing it to Murphy on the Pettifor / Capitalism blog especially his dream of green bonds etc..he makes things up especially on numbers which his fine for his usual admirers. But then he walks into someone with some real knowledge he is left floundering and looks like a complete clown. He is full of bluster..

  9. Still looking forward to Newmania explaining why a centralised to Brussels policy of agricultural subsidies incident on owners by land-owned area is better than the two most obvious alternatives.
    It’s just the EU’s primary fiscal purpose.
    Explaining that the 10+ European territories that avoided post-war communism and EU membership are worse off than if they joined would also be welcome.
    Bong, bong, bongo!

  10. @ PF
    CEOs are USUALLY directors.
    The CEO is not *always* a Director. Investment Trusts normally have a board comprised solely of non-executives which makes it easier for them to sack incompetent or unsuccessful managers.
    Long ago when I started working for a Life Assurance Company it was very unusual for them to have any executives on the board and someone took the time to explain to me that our Chief Actuary had been appointed a Director (some years after he was appointed Chief Actuary) because he was so brilliant (one of the textbooks that he wrote was required reading for one of my actuarial exams).
    I was assured by one of my contemporaries who went to the second-best university but fitted the company mould far better than I that he really was that bright.

  11. John

    As always, we learn something new, and thanks..:) Forgive me, I was messing around in the more bog standard corporate world that I imagined Gavin was perhaps looking to solve.

    And of course one has the issue of all those that might be called / titled as “directors” within organisations but aren’t legally (Companies House) directors – and lots else similar according to sector and taste? And not shadow directors either.

  12. @ PF
    Thanks: yes, you are generally correct – I was just trying to avoid anyone else nit-picking.
    As for those called directors – they have sold their bodies to the company as they can be held liable for decisions that they did not even know about, let alone make

  13. Ritchie is pretty tetchy at the moment. Suspect it is a mixture of Prem Sikka getting the peerage he was expecting and his forthcoming departure from City University.

  14. Humour – Laugh or Cry

    Brexit Party MEP Alexandra Phillips rages at ‘Bonkers’ EU oikophobe’s astonishing’ Spudda future vision
    https://www.youtube.com/watch?v=6yXTdZh7ldU

    Woke Conservative MP aka Mizz Nut Case

    As the government launches an inquiry into sexual harassment in the workplace, reported in TCW yesterday, Minister for Women Victoria Atkins has revealed her personal harassment ordeal.

    ‘I had an individual email about my footwear,’ she said. ‘It was in a way that showed a great interest in my footwear. And that was something that made me feel uncomfortable.’

    Ms Atkins refers to women who have been harassed as ‘survivors’. What good fortune for us that she made it through this trauma.

    Is there any limit to what can be described as sexual harassment? Discuss

    21st Century sex scenes – a turn-off, or what?

    Who’s going to ensure RoPs comply?

  15. “they have sold their bodies to the company”

    That was given to me as a reason why the directors made so much money – nearly 50 years ago. Made sense. On the clock 24/7.

    “as they can be held liable for decisions that they did not even know about, let alone make”

    Held liable by whom? A court of law?

    If held liable by the company, any employee can be. In my (U.S.) corporation, directors were generally the president and the vice presidents. Big corporation; lots of VPs. The principle attributes of directors was that the could spend company money, as much as they felt right. The other thing – which I didn’t learn until after 15 years service – is that employees rules didn’t apply to them. Things I couldn’t do, they could.

    Anywho, I’m having difficulty imagining a US court holding a director liable for a decision, that is, any differently than any other employee. If a director says pour waste into a river, or a shift supervisor says pour waste into a river, it makes no difference.

    Not saying you are wrong, John, can you give examples? I’m here to learn.

  16. Many companies provide insurance for Directors specifically to shelter them from personal liability.

    Newmania is 100% correct that the main choice for the individual shareholder is to sell his shares rather than to try to vote in a new Board of Directors. OK for the individual, but what does this do to improve the business?

    There is a big issue with the “agency” problem — how does a company organize itself so that the interests of senior employees (eg CEO) are aligned with the interests of the owners of the company (shareholders)? Common policy has been for the senior employee (like the CEO) to award herself big stock options so that she wants to see the stock price go up near-term — buy back the stock if she has to, in order to be able to exercise the options and pocket the cash. This leads to a Boeing type of situation, where the executives run the business into the ground while goosing the share price, and then walk away with pockets full of cash while the shareholders suffer the consequences.

    There has to be a better way! Staying stuck in the same old rut of employees sitting on the Board and helping themselves instead of helping the shareholders is not an answer.

  17. Others have dealt with the bizarre suggestions re directors; I’m more intererested in this one:

    And share buy-backs (aka stock price manipulation) should be prohibited.

    If a company has surplus funds are you saying that they have to invest it, even if they have nothing good to invest in? It can’t give the money back to its shareholders’ for them to invest directly? And whilst it may increase stock prices it does nothing to the overall value of the company (short of telling the market that there may be more cash coming from this stock) – which is what all long term incentive plans are linked to.

  18. @ Gamecock
    Under UK law the Directors of the company are responsible for the conduct of the company and can be held personally liable. In practice this is rare unless they are in some way personally culpable, although the Inland Revenue can take a hard line on non-payment of tax by an insolvent company. https://www.businessdebtline.org/EW/steps/Pages/Getting_started_5_business_status_limited_companies.aspx https://www.bestcriminaldefencebarrister.co.uk/criminal-defence-barrister-blog/2015/october/06/personal-liability-of-directors-for-criminal-offences/
    I don’t know what US rules are.

  19. Thanks, John. I think you are right, and I just wasn’t aware of it.

    Some internet searching shows duties and responsibilities of officers and directors to be a very broad subject. Plus each state has their own rules. So times 50.

    In fact, comparing what I saw for here vs your second link, the US might have even more liability on directors. And the Enron case has brought heightened awareness of corporate governance.

    Even though I knew a number of directors, I wasn’t part of their world, so there are things such as liability that I never knew about. Kinda glad now that I was never promoted that high.

  20. John77 strangely wrote: “If a company has surplus funds are you saying that they have to invest it, even if they have nothing good to invest in?”

    The shareholder invests in a company (becomes a part-owner of that company) precisely because he assess that the company’s business will generate “surplus funds”. The shareholder is happy to receive his share of those surplus funds as “dividends”. Look it up!

    The money belongs to the owners of the company, not to the executive employees — who are merely agents for the owners.

    And yes, everyone understands that tax policies (perhaps encouraged by those same executive employees) make stock buy-backs more “tax efficient” than genuine dividend payments. That is a part of the same crony capitalism perversion of real capitalism.

  21. PF - add some characters to stop this shit happening

    Gavin

    “The money belongs to the owners of the company, not to the executive employees”

    A share buy back rewards the shareholders not the employees. The employees only gain to the extent that they were previously awarded options to buy shares or were awarded shares directly as part of a remuneration package (which is a quite different debate)? Think through both the money flows and the impact on the values of (remaining) shares?

    And yes, alternatively, dividends obviously.

    “And yes, everyone understands that tax policies (perhaps encouraged by those same executive employees)

    Very good! 🙂

    Posted too fucking quickly / now it’s duplicated because I remembered to C&P first / so let me also add: SORT IT OUT, TIM 😉 or more accurately, Richard. Tim can’t you throw him some more fucking peanuts or something.

    And again you mother fucker.

  22. PF: “A share buy back rewards the shareholders not the employees.”

    Not really. As you later note, PF, share buy backs reward those who hold stock options — which is generally the executive employees of the company. I am sure you are aware that the executive employees of too many companies see themselves as special, and don’t give a tinker’s damn for the ordinary employees — who generally do not gain from the buy back.

    Thanks to the buy back, the ordinary shareholder finds himself with an unrealized capital gain on a pricier stock. The only way to realize that gain is to sell his shares, and cease being an owner of the company. Quite different from a dividend, where the shareholder reaps the financial benefit of his wisdom in buying into that company at the same time as retaining his ownership.

  23. Gavin, Warren Buffet has an interesting perspective on whether it’s better to take dividends from a company with a high ROCE or to take income from periodic sales of shares. Terry Smith quotes it in his latest Fundsmith share letter. For now I can’t be arsed to give a link but, in the morning, I might be more cooperative

  24. Gavin

    “Not really.”

    With respect, what I said was a matter of fact – in the same way that an alternative dividend “rewards” the shareholder, in cash flow / realised return. It only rewards the employee *if* they have already been awarded shares in some form.

    With regard to capital gain versus dividend, yes, there’s a tax difference. No, the shareholder does not have to sell all or none of their shares, they can sell part. Hey, they might sell exactly the proportion that left them with same % as if they had been paid a dividend instead; I am sure you understand that?

    Dividend versus share buy back is a completely valid issue but relevant to issues such as tax / other and separate from the one you make above about employees gaining at the expense of shareholders. That benefit (to directors and senior employees, and corresponding dilution to shareholders) took place at the remuneration committee meeting, not at the share buy back / dividend declaration meeting.

  25. If you are suggesting that there are particular share option routes that might allow for earlier participation in the benefits via a share buy back (ie an earlier trigger of an option) versus a dividend (no such benefit yet, until the normal option date, or something like that), all depending on the specific circumstances in play, happy to entertain / accept that. But that would be a niche issue in terms of the bigger picture of the points above.

  26. Gavin,

    Apols for posting again, but mulling further one of your earlier comments above, I can also see your share buy back potentially increasing the dilution effect (whilst still at the “option” stage), compared to a dividend, but that really should be “at the margins” at most.

    One has to use some seriously one sided numbers for that to be materially distorting / further diluting the holdings of shareholders in favour of the option holders, and at which point the company involved may probably have far more serious issues with its management team than the T&Cs of its share option scheme….

  27. @ PF
    FYI the holder of a share option receives no dividends until the option is exercised. So he/she indirectly benefits from policies that restrict the payment of dividends in the intervening period whether it is through investing to grow the business and thereby increase future earnings at the expense of current dividends or whether it is through share buy-backs to shrink the number of shares and make each share worth more.
    So share buy-backs do favour option-holders at the expense of current shareholders – but the extent is usually marginal and insufficient to trigger a shareholder revolt.

  28. John,

    Yes, I agree, hence the comments above. And therefore, as you point out, in most ordinary circumstances it’s likely to be relatively marginal wrt any additional dilutive effect.

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