Shareholder driven businesses almost eating themseves?

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The chief economist of the Bank England Andy Haldane was on Newsnight making an interesting point about business in the UK.

http://www.bankofengland.co.uk/about/Pa ... ldane.aspx

He was saying that that UK companies have been so keen to pay out dividends to shareholders that they are willing to eat into internal funds to do so, rather then to finance investment in future growth.

In the 70s remittance was roughly 10% of earnings now it is roughly 60%. Resulting is short-termism, as these shareholder aren't that loyal anyway, compared to the 70s where share typically were held them for around 7 years now it can be as little as half a second.

He made to point that the balance between other stakeholders like employees and customer needs to be made, and it can all be about dividends. If the business is really successful then there will be a large amount to go round anyway.

Whilst I think he has a point we mightn't agree on the solution. He said that it is in part due to corporate law. Now that is true but not for the reasons he stated. He want to use corporate law to drive more stakeholder driven re-investment.

To me incorporation is just a legal construct, it provides protectionism to business that become too big to fail. I would like to see more liability and competition, to ease the effect of big implosions. Also corporation law as it stands is an example of encouraging collusion, something I'm fundamentally against.

Stakeholder driven growth, can be incentivized after that. Where as using corporate law to force reinvestment is a blunt instrument.

Your thoughts.

The problem is the type of shareholders that hold a significant stake.
The law states corporations must maximize profits and returns to the shareholders.
If shareholders have enough voting power they can force bigger dividend if not forcing the company to return all of it's cash holdings to shareholders via a dividend.
If shareholders feel management hasn't acted well enough in their favor they can bring about lawsuits.

Are shareholders bankrupting Best Buy and Sears Holdings (includes Kmart)? Yes.
Best Buy's management is facing shareholders who are refusing to allow management to effectively run the company, instead they are demanding that management raise prices further to increase profits and profits margin. They are also trying to force cuts to store staff, to boost profits per store.
The shareholders are able to block management via the board of directors and in a long running federal court suit.
Sears Holdings is being ran into the ground because shareholders revolted forcing in new management that cow tails to them.

Apple is also seeing a shareholder revolt, though they started revolting prior to the launch of the iPhone, by trying to oust Steve Jobs and hi management.
Apple shareholders are calling for the removal of Tim Cook and company, in exchange for installing management who will act in the interest of the shareholders.
Apple shareholders claim that Apple isn't acting in their best interests and want Apple to boost prices to boost profits, while also liquidating their $200B+ cash holdings a huge a dividend.
Tim Cook is trying to block their lawsuit from heading to trail.

Obviously most companies want to be an attractive as an investment.

The problem is if there is a well meaning intervention on this, and it doesn't work it will a long time before a bill passes to correct/repeal, which is stopping firms from responding faster.

Short term investment is fine, but they shouldn't expect influence, and longer term investment could be incentivised.

I think it is only right if companies are to have less legal protections, then shareholder also can't have it all their own way either. What they should have is choice.

I thought about this kind of thing from a slightly different angle when the autoworkers unions were bankrupting companies like GM. I really consider any group of people who have rights without accountability as a kind of robber-baron class waiting to happen, ie. it's authority at no cost. Similarly to my thought that if union demands bring a company down that the union itself should be held accountable, it might be a situation as well with the majority owners of any company - be they hedge funds, holdings companies, or whatever else.

The point being though - our culture seems to break down anywhere that we don't have responsibilities matched to rights.

That I can agree. However many 'rights' aren't actually rights. There are far to many 'rights' and even 'properties' which are vague abstract concepts. People who advocate for them do see it but they are nothing protectionism in disguise. They are bad for everyone becuase it is a protection racket (collusion), in exchange for not having to compete.

Then there is that loaded word fundmantal. Fundamental right are important but there are very few of them. They can be reduce down into three.

- Freedom to thrive (protection against death, torture, etc)
- Freedom of expression (includes speech though I don't think the press should get special treatment over citizen)
- Freedom of determination (in other words there must be some kind of process for choosing leaders, or determining future however imperfect)

All other right are either derivative or not fundamental. I'm not saying you can't have non-fundamental right but you have consider what the implications are.

A right ceases to be just when one's right supersedes anther's. That is the principle of right in they can't limit the right of another.

I guess power without accountability is a better way to phrase it - rights is too generalized.