originally posted by: MALBOSIA
Publicly traded corporations have an obligation to their shareholders to obtain maximum achievable profits. Private companies have to compete with
The definition of the business purpose is "To increase shareholder value over the long term." That has been the historical obligation of management,
and why there were so many companies with long and storied histories from the turn of the (last) century up until about the 1980s.
In the "Greed is Good" era, management was rewarded not for administering policies and strategies that would increase shareholder value with
consistency and low variability over the long haul, but for increasing share price in the short term. This occurred about the same time that
individuals were enticed to participate in the casino--the Stock Market--by being inundated with tales of fabulous wealth, easily gained.
If you were to plot the holding time of individual investors over a period from, say, 1900 to 2000 I think you would find that the period between buy
and sell grows shorter with every decade, culminating in the day-trading phenomenon of the 1990s and .com boom years. Investors were replaced by
gamblers who wanted to get in and get out quickly with big gains. Shareholders, by and large, were no longer interested in long-term strategies.
Management, in parallel, were no longer interested in the long-term viability of their organizations, only in how much value could be converted to
personal wealth and how quickly they could accomplish this.
Now we have management being rewarded handsomely for performance of non-GAAP measures. Essentially, made up numbers that can be manipulated and spun
lead to bigger payouts. Share price is a secondary consideration as long as you can deliver EBITDA, EVA or whatever the measure du jour happens to be.
Compounding the problem, Boards of Directors are populated by professional executives who are in on the game. They sit on each others' Boards and
ensure that everyone is getting a piece of the action; "you rub my back, I'll rub yours."
If you were to look only at GAAP performance for most large, public companies, the story is far different than what is reported in the financial news
by those same corporations' marketing, er, financial staff. The individual investor who fails to grasp that they're not going to win over the long
term in a rigged marketplace get steamrolled. The shareholders who are in it for the long term get steamrolled. The employees get steamrolled. The
only ones who make out like bandits are the professional management types who cycle through revolving doors at the top of peer companies and
Even the old school institutional investors were getting fleeced for a while by the start up high frequency trade crowds. Now the old school
institutions are either running captive HFT arms, or are in cahoots with 'partner firms' who front-run the individual, retail trade.
If you can dedicate the time to actively managing your portfolio, you can still make gains. But you will have to play the short-term share price game
and the amount of time invested and stress realized is staggering. The historical business purpose has been relegated to the history bin. And not for
the betterment of society at large.
Corporations are not evil or bad. The people who run them can be, though. Just my two cents.