Just to let you know right off the bat that I’m not a fan of any of these.
Most seem to come off as anti-railroad.So how about a nationwide railroad shutdown for 5 years and let them wallow thru that mess if they think it’s bad now.If the shippers think that railroads are such a problem,why not find an alternative?Because for a lot of commodities there are none!If stockholders want immediate results on their investments,go play the lottery,horses,or dog races.And for the general public that think railroads are a nusance,cut them off from buying anything that goes by rail and see what they think of that.HA!
It is a popular misconception that corporations pander to “I want results now” shareholders. Most shareholders are in it for the long term, and are much happier with a long term profitability plan than they are with short term profits.
There certainly is a balance that a CEO or other management needs to negotiate in order to satisfy shareholders, employees, Wall Street, and the customers.
A very interesting trend now in the corporate world is that companies are being taken private by the large private equity firms such as Blackstone, Texas Pacific, KKR, and others. One of the reasons given is that as a private company Sarbone Oxley will be a factor. Another reason is that as a private firm the outlook shifts from short term results to long term.
Regarding the people who want short term results, those folks are usually speculators or traders and each have their own agenda. Traders are basically looking at trends (short term) and feel there will be an upward or downward movement very quickly. Speculators are looking at a little longer time frame and believe events will move the stock, such as a takeover.
As far as shutting down the railroads for 5 years. That would hurt a lot of folks including the employees. Negotiations between shippers and railroads are simliar to other companies…it only business and there are many factors that impact those discussions and agreements.
Corporations have been taken private in levered buyouts for a while. Remember the KKR takeover of RJR Nabisco in a LBO. Then generally after saddling the company with massive debt, the LBO firm sells the company in an IPO leaving the next shareholders with the concenquences of the debt (which in that case was essentially wrecking the company after the state tobacco litigation added in massive legal fees). Most of those companies being taken private are going to be back to being a public company in a few years - probably with large debt as the private equity firm walks off with big profits leaving the smaller shareholders holding the bag.
It goes back further than the 1980s, of course - pretty much back to the days of the robber barons like Jay Gould. As long as the markets existed, there are people who will manipulate them.
I second penncentral’s observations. May I add that I wish I had a dime or better, for every stock sell off by theoretically responsible individuals in advance of a impending sale by utilizing insider information…alot of these do not receive public scrutiny…Stock options are a recognized perk, and there’s a reason they are given instead of hard currency…they have a greater value. When it’s high-you sell. Let’s not forget CEO compensation being in range of a robber baron in many cases these days…In many a case, churning stock value by selling off or short shrifting of reinvestment in assets…John Snow was the windshield mascot for Wall Street.
When you take into account that the CEO’s and their ilk often are compensated in stock options, and have incentive packages tied to short term goals, there is an ocean of motive to play the short term like a dollar girl in a nickle dance hall.
CEO’s seldom have incentive packages tied to short term goals. That would imply that the board of directors don’t give a hoot about the long term prospects of the company.
I’m not saying that there aren’t some bad eggs out there - of course there are. But I’ve seen plenty of situations where a corporation was taking it in the shorts, but investors didn’t bail out because there was a long term plan in place to return to profitability.
Ok, but you are talking about an ailing company that is already reeling with the punches, and the stockholder’s willingness to weather a storm (hoping to avoid disaster) versus a healthy company that being milked like a cow.
The former is a game of survival, while the latter rhymes with “fillage”
KKR held on the RJR Nabisco for quite a long time. Henry Kravis has admitted it was not a “good deal” for KKR. They overpaid. The reason they overpaid is outlined in a great book called Barbarians at the Gate. They simply got caught up in the emotion of the moment. I would recommend reading the book.
KKR has been a pretty straight forward private equity firm. They generally purchase companies and hold on to them for a long time. Today’s LBO market is very different from that in the 80’s. Today there are often several private equity firms that join together to purchase a company. You seldom get the fever pitched bidding wars, although things are heating up over Office Equity right now (Sam Zell’s REIT).
Part of the reason there is little bidding up is that the private equity firms enlist the managements of the company, making them very large offers, in the form of equity to stay with the company once it is taken private.
Dont get me started on CEO compensation. It is very much out of control in certain instances. I do not blame thte CEO’s, but the Boards of Directors…they right the contracts.
There are indications things are changing tho, there has been a large turnover in CEO’s the last few years. Thus the need for performance NOW. Gotta increase profits and move the stock higher to stay on the job. Nardelli at Home Depot improved the results but the stock didnt move. That and his arrogant attitude cost him his job…with a nice “parting gift.”
One of the reasons economists don’t like “big” companies is because of control issues. This goes to an earlier thread about CEOs, Presidents, and Board Chairs. Early railroads rarely had a chairman of the board. For a good reason, the president was usually someone who owned a big chunk of the stock. The vice presidents were people who owned stock. The management of a corporation invariably reflected the ownership of a corporation.
As corporations became larger, two things happened. “Management” became more of a profession, rather than an automatic result of ownership. Too, as wealthy founders died, they tended to leave their wealth in the hands of idiotic second generations who knew how to spend it, but didn’t know how to make it. As corporations became larger, ownership interests naturally tended to become smaller and less influential.
Corporations gradually adopted a “Chairman” of the board, to represent the fact that the president of the company was no longer a dominant owner, and to give the board an independent executive authority.
Eventually corporations were not only managed by professional managers – they were controlled by them. Among thousands of stockholders, management – and often management alone – had the resources to gather proxies, to submit resolutions, to control the accounting and planning, to control the public relations about their own performance.
Referring to yet another thread, that on Max Lowenthal, one of the illuminating aspects of his book “The Investor Pays” was how management came to control the appointment of board members – people who often had little or no ownership stake at all in the compa
That was very well stated. All one has to do is check the Board of Directors biographical information in any proxy statement and you can usually trace the contacts. It is a pretty small world. I do believe that the boards are starting to take their responsibilities a bit more seriously as I stated above.
The problem, as I see it, is that Presidents used to be fairly large owners of the corporations. That situation has changed, as stated, due to death of the Presidents and wealth distribution thru the following generations. For quite awhile Boards have attempted to have the CEO’s manage as if they were “owners”. Certain companies in the 90’s required their senior management to own stock in the company several times their income. The managers seldom had that kind of money and often would borrow. In essence they became leveraged owners, very leveraged. Often those loans were thru the company and the trend became to forgive those loans. That didnt work.
We all know about stock options. I never quite understood the logic of simply tagging the stock options to the current price of the stock when the options were issued. Shouldnt the options have a strike price which would reflect an improvement in the company’s stock price?
A CEO (or any other receipient) could have options issued at $20 a share. Ten years later the stock is at $40 per share for a nice gain. But, 100% return in 10 years may not be a good return, particularly when compared to peer companies.
Now we have the ongoing scandles of backdating stock options to the lowest price of the year. This seems to be quite a problem. Steve Jobs at Apple seems to be getting a pass on his behavior, even tho he was the recepient of such back dated options.
Now, it appears the Boards are issuing loads of Restricted Stock. Will that work? As in the case of the stock options, the CEO is