More and more Americans own corporate stocks because of the development of mutual funds. Americans would rather invest in mutual or other funds than save money in savings banks.
Corporation stock prices are predicated upon the expectations of profits now or in the future. Profits are the bottom line on a corporation's financial statement. Generally salaries are the largest expense affecting the profit of a corporation. The salaries of those running a company are a part of that expense. Therefore, overpaying top executives is actually a drag on stock prices. A corporate board really concerned about seeing the company thrive, would give officers more reasonable salaries. That action would make bottom lines better. Lowering the expectations of future executives would then lower rewards.
The duty of the board of directors is to see that the company does well, primarily to benefit the company's stockholders. This does not seem to be the case based upon the past actions of many corporate boards. Boards seem to represent themselves and their own interests. Many board of directors give themselves golf club memberships. How do golf club memberships advance corporate interests? How does supporting charities and lobbying governments or political parties represent all stockholders interest? It may not be the desire of socially conscious stockholders to lobby the government at the disadvantage of the general public. Avoiding paying taxes may offend those shareholders who are patriotic. If the boards took actual votes from stockholders and obtained more than a plurality of support, then these expenses would be acceptable. Stockholders are the actual owners of the company, not the boards. There are nine members of the Supreme Court who hardly ever all agree. How can anyone expect all stockholders to agree on any issue? If the boards did not spend corporate money on non-business activities, stock prices would be higher and stockholders would have more in dividends. The stockholders could then personally support the activities that the corporations had previously supported.
It is understood that corporations do keep aside money to use for reinvestment or for potential growth. Expanding a business is a worthwhile and legitimate activity of any business.
How do stockholders react to perceived or actual abuses? They really can't! Stockholders only obtain proxy forms that offer a method of voting with stated candidates. The people who are chosen as candidates are insiders who will never rock the boat. Mutual fund managers, bank trust officers or others who manage large holdings of other owners will do better if the corporations in their group's portfolios do better. They can offer other names to be voted upon since they control large blocks of corporate votes. (This can actually be done now, but with little success.) That could then expand the basis of voting for other fund managers to support. This could potentially cause a change in corporate thinking and hopefully promote increases in the bottom lines of corporate profits, which would make stock prices higher. That would benefit everyone. Stockholders would have more spending money by way of larger dividends.
An example of what corporations face! Drug companies have been spending large sums in lobbying congress, in order to protect the prices of their drugs from competition. It can be assumed that a large minority of drug company stockholders are seniors, thus major consumers of drugs. Would these senior stockholders prefer seeing the companies they have stocks in making bigger profits or obtain lower prices for the drugs they rely upon? The answer to that question is lower prices. That answer probably goes for large pension or retirement funds that probably own drug company stock.
Maybe a better day will come where corporations will be more civic minded and support the nations needs as well as their own board members interests. Right now corporations seem to be serving their own parochial interests to the disadvantage of workers, stockholders or financially supporting the country that helped them initially thrive.
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