BlackRock’s Chief, Laurence Fink, Urges Other C.E.O.s to Stop Being So Nice to Investors

[dismal]

Hint: it's the presumption that it's the job of the CEO of Company A to manage the entire investment climate for you. It's the job of the CEO of Company A to either find good internal uses for the cash or return it to the shareholders.

What do you mean "return it to investors?"

That implies the cash came from the investors and that they have some claim on that cash.

It didn't and they don't.

Uh, yeah they do. The general concept of a corporation is that the shareholders are entitled to the residual cash and the CEOs job is to look out for their interest in this regard.

There are lots of times CEOs fail to do this, but sending cash to shareholders it about as opposite from one of them as it gets.

 

[dismal]

They're just making profits and giving them to shareholders, which isn't in the best interests of either the shareholders or the companies involved.

Cite?

 

[ksen]

What do you mean "return it to investors?"

That implies the cash came from the investors and that they have some claim on that cash.

It didn't and they don't.

Uh, yeah they do.

So as a shareholder I can walk in and demand my portion of the cash? If I can't then I have no claim on that cash.

The general concept of a corporation is that the shareholders are entitled to the residual cash and the CEOs job is to look out for their interest in this regard.

Shareholders are entitled to nothing. Can you provide any evidence that shows they are entitled to anything?

There are lots of times CEOs fail to do this, but sending cash to shareholders it about as opposite from one of them as it gets.

I'm not sure what this sentence means.

 

[dismal]

Uh, yeah they do.

So as a shareholder I can walk in and demand my portion of the cash? If I can't then I have no claim on that cash.

They have a special name for this sort of argument. It's called a "false dichotomy". Shareholders may cede or delegate certain decisions to directors or managers. Or they may not. When my firm is the primary shareholder, the answer is generally yes we do have the right to demand our portion of the cash be paid out of the company.

If you buy a single share of stock you in a public corp you will not likely be able to force dividends but you will likely have the ability to vote your share in favor of a director who will do so.

Corporate law also limits the amount of discretion directors/managers have over the corporations money and protects minority shareholder's rights to receive cash flow. However, I'm sure you don't actually give a crap about the specifics of this.

 

[ksen]

So as a shareholder I can walk in and demand my portion of the cash? If I can't then I have no claim on that cash.

They have a special name for this sort of argument. It's called a "false dichotomy". Shareholders may cede or delegate certain decisions to directors or managers. Or they may not. When my firm is the primary shareholder, the answer is generally yes we do have the right to demand our portion of the cash be paid out of the company.

The right to demand is not the same thing as having a legal claim.

Can the corporation tell your firm "no" if your firm demands a payout?

If you buy a single share of stock you in a public corp you will not likely be able to force dividends but you will likely have the ability to vote your share in favor of a director who will do so.

Which I don't dispute. However being able to vote in directors that will give in to your demands of corporate cash is not the same thing as you, as a shareholder, having any right to that cash barring a liquidation event or a declaration of dividend by the board.

Corporate law also limits the amount of discretion directors/managers have over the corporations money and protects minority shareholder's rights to receive cash flow. However, I'm sure you don't actually give a crap about the specifics of this.

I do give a crap which is why I'm pushing you for specifics since I think you are vastly overstating your case.

Please cite this corporate law that says shareholders have a right to receive cash flow.

===============

Also leftover from my last post:

The general concept of a corporation is that the shareholders are entitled to the residual cash and the CEOs job is to look out for their interest in this regard.

Shareholders are entitled to nothing. Can you provide any evidence that shows they are entitled to anything?

 

[Togo]

They're just making profits and giving them to shareholders, which isn't in the best interests of either the shareholders or the companies involved.

Cite?

That they just making profits and giving them to shareholders? Or that this isn't in the best interests of the shareholders as per the opinion expressed by Laurence Fink that we're all discussing?

Uh, yeah they do. The general concept of a corporation is that the shareholders are entitled to the residual cash and the CEOs job is to look out for their interest in this regard.

Cite?

I've heard of the theory that companies should be managed in the interests of the shareholders, but I'm pretty sure it's nothing to do with the 'general concept of a corporation'

So as a shareholder I can walk in and demand my portion of the cash? If I can't then I have no claim on that cash.

They have a special name for this sort of argument. It's called a "false dichotomy".

Nah, he's right. You're equivocating between ownership capital and expectation of dividends.

Shareholders may cede or delegate certain decisions to directors or managers. Or they may not.
When my firm is the primary shareholder, the answer is generally yes we do have the right to demand our portion of the cash be paid out of the company.

And the company can refuse, if it can be proven that the cash doesn't exist. There is a legal limit to the extent that you can loot the company to your own benefit, although that bar is pretty high. But the law recognises a great many stakeholders with claims on the cash of a company, including bondholders, employees, contractual obligations and subsidiary interests. Shareholders are fairly near the bottom of this list.

This is why directors have so many regulatory obligations they have to fulfil, and thus why shareholders, while the they can fire and hire suitable people, can't necessarily step into the role themselves.

Corporate law also limits the amount of discretion directors/managers have over the corporations money and protects minority shareholder's rights to receive cash flow. However, I'm sure you don't actually give a crap about the specifics of this.

Given that a legal obligation to the director to protect minority shareholders from majority shareholders somewhat undermines the idea that the company's money is already the shareholder's money, I'd say it's reasonably important.

 

[dismal]

Shareholders are entitled to nothing. Can you provide any evidence that shows they are entitled to anything?

http://corporations.uslegal.com/shareholder-rights/

 

[Alcoholic Actuary]

Here..

I don't bother trying to keep up with the minutiae of the US tax code, so I have no idea whether taxes on US companies have increased or decreased overall; But the presence of a crapton of cash that companies and investors can't find a home for suggests that it would certainly do no harm to raise those taxes a little.

It's not a 'talking point'; it is a conclusion drawn from the evidence presented in this thread.

If the stuff posted in the thread so far is wrong, then you need to take that up with the people who posted it.

Where are you getting that "shareholders can't find any worthwhile investments to make"?

It is implied by this line from the OP:

he argues that “with interest rates approaching zero, returning excessive amounts of capital to investors” isn’t helpful because they “will enjoy comparatively meager benefits from it in this environment.”

Taxes are the highest they've been since 1986. Corporate taxes have pretty much been left alone for decades.

OK.

So it seems that there are three things that could happen with the cash corporations have in the bank:

1) They could invest it, but they can't find any worthwhile investments to make;
2) They can give it to their shareholders, but the shareholders can't find any worthwhile investments to make with it either; or
3) They could have paid it in taxes, but the government didn't take it from them in taxes.

Presumably the government simply doesn't want any more money. There is no government debt; There are no under funded government programs; and there is nobody anywhere in the country who could benefit more than the managers and stockholders of the corporations, if the money was transferred to them.

It's an unsolvable problem.

As my charts demonstrated, shareholders are finding other investments - fixed non-residential investment continues to reach new highs and venture capital investment is the highest in a decade.

And yet companies are swimming in cash, and Laurence Fink reckons giving it to shareholders is a poor plan because they have nowhere to invest it that will produce good returns in the current economic climate.

Something doesn't add up.

Hint: it's the presumption that it's the job of the CEO of Company A to manage the entire investment climate for you. It's the job of the CEO of Company A to either find good internal uses for the cash or return it to the shareholders.

Actually I'd say it's the investor's job to determine how best to deploy his own capital. If an investor doesn't like the return a company is providing or the direction they are heading, he is free to take his capital elsewhere at any time.

Fink is correct. Special dividends and buybacks are a white flag from any corporation. The message is "we don't need/want your money".

aa

 

[dismal]

Fink is correct. Special dividends and buybacks are a white flag from any corporation. The message is "we don't need/want your money".

aa

ZMFOG it's not "their" money!!11[/ksen]

But you are right it is exactly a message (not even a message so much as a demonstration) that we do not have uses for this money that we feel will return greater than our cost of capital.

The part that is wrong is the presumption this is a bad thing. This is exactly what you want your CEO to do when he does not have uses of the money that will return greater than the cost of capital.

You don't want him to pretend he has great investments and piss the money away. This is why investors generally react favorably to this particular message.

They can redeploy the money to other CEOs who are sending the message they have good uses of the money on their own.

 

[ksen]

Shareholders are entitled to nothing. Can you provide any evidence that shows they are entitled to anything?

http://corporations.uslegal.com/shareholder-rights/

Thank you.

So shareholders have the following rights:

1) They can vote on certain issues the Board allows them to vote on,
2) They have the right to sell their shares,
3) They have the right to dividends declared by the Board,
4) They have the right to elect Board members,
5) They have the right to inspect the corporation's books,
6) They have the right to sue for wrongful acts.

My use of the word "anything" may have been too broad since we've been talking about, and the OP is about, the corporation's cash.

Nothing in your link shows that shareholders have any rights to corporate cash flow outside of what the Board has approved or if there are assets remaining after a liquidation event.

I appreciate your posting a link to debunk my use of the overly broad term "anything". However you still haven't provided any evidence that shareholders have any right, outside of the limited cases I've already mentioned, to the cash of a corporation.

If the corporation is sitting on piles of cash the shareholders have no claim upon that cash. To characterize dividend payments as "returning" cash to shareholders is wrong because unless they were involved in buying IPO shares the shareholders have not given any cash to the corporation so there is nothing to return. Dividends are a gift by the Board to shareholders which can be stopped at anytime since shareholders are not owed dividends until they've been declared and Boards are under no obligation to declare dividends ever (unless of course there are corporate by-laws requiring the payment of dividends).

 

[ksen]

Fink is correct. Special dividends and buybacks are a white flag from any corporation. The message is "we don't need/want your money".

aa

ZMFOG it's not "their" money!!11[/ksen]

Fuss and whine all you want about it but it's not the shareholder's cash until the Board says it is.

You don't want him to pretend he has great investments and piss the money away. This is why investors generally react favorably to this particular message.

Except for this investor with $4 trillion in assets.

They can redeploy the money to other CEOs who are sending the message they have good uses of the money on their own.

You mean they can deploy that money to the other CEOs that are sitting on so much money they can't figure out how to invest it in their businesses?

Sounds like an awesome plan.

 

[Axulus]

If the corporation is sitting on piles of cash the shareholders have no claim upon that cash. To characterize dividend payments as "returning" cash to shareholders is wrong because unless they were involved in buying IPO shares the shareholders have not given any cash to the corporation so there is nothing to return. Dividends are a gift by the Board to shareholders which can be stopped at anytime since shareholders are not owed dividends until they've been declared and Boards are under no obligation to declare dividends ever (unless of course there are corporate by-laws requiring the payment of dividends).

A "gift" is receiving without having to give up anything in return. To acquire a share, you have to give up something, so it is not a "gift".

A pile of cash building up either means that management wants a buffer for a downturn or is unable to find anything profitable to invest into. Are you saying that management should piss the money away on losing investments instead of the next most obvious use, return it to shareholders and let them figure out what to do with it?

 

[Axulus]

You mean they can deploy that money to the other CEOs that are sitting on so much money they can't figure out how to invest it in their businesses?

Sounds like an awesome plan.

https://www.equitynet.com/browse-companies/popular/

http://www.ft.com/topics/themes/IPOs

http://blogs.wsj.com/venturecapital...se-funding-more-than-vc-firms-are-study-says/

https://www.sba.gov/content/sba-hits-another-lending-record-fy-2014

 

[ksen]

I'm pretty sure there are more options than "piss the money away" and "give it to shareholders" (which btw is another form of "pissing it away" since dividends do not provide a return to the corporation or help it improve profitability).

 

[Trausti]

If the corporation is sitting on piles of cash the shareholders have no claim upon that cash. To characterize dividend payments as "returning" cash to shareholders is wrong because unless they were involved in buying IPO shares the shareholders have not given any cash to the corporation so there is nothing to return. Dividends are a gift by the Board to shareholders which can be stopped at anytime since shareholders are not owed dividends until they've been declared and Boards are under no obligation to declare dividends ever (unless of course there are corporate by-laws requiring the payment of dividends).

A "gift" is receiving without having to give up anything in return. To acquire a share, you have to give up something, so it is not a "gift".

A pile of cash building up either means that management wants a buffer for a downturn or is unable to find anything profitable to invest into. Are you saying that management should piss the money away on losing investments instead of the next most obvious use, return it to shareholders and let them figure out what to do with it?

Dunno. If you're in favor of big government that probably makes sense.

 

[Axulus]

I'm pretty sure there are more options than "piss the money away" and "give it to shareholders" (which btw is another form of "pissing it away" since dividends do not provide a return to the corporation or help it improve profitability).

How are you "pretty sure" of that? Do you know something that teams of executives at Apple and Google, et. al. who spend their entire working days looking for options, are apparently unaware of? You've found the brilliant profitable investments they've been too blind to discover themselves?

How is sending money to shareholders "pissing away"? You do realize that dividends are not an expense but rather a transfer of funds to the owners of the company who, you know, invested in the company to earn profits and eventual cash flows.

 

[ksen]

I'm pretty sure there are more options than "piss the money away" and "give it to shareholders" (which btw is another form of "pissing it away" since dividends do not provide a return to the corporation or help it improve profitability).

How are you "pretty sure" of that?

"Pretty sure" was sarcasm.

Do you know something that teams of executives at Apple and Google, et. al. who spend their entire working days looking for options, are apparently unaware of? You've found the brilliant profitable investments they've been too blind to discover themselves?

How do you know there are no profitable investment opportunities that have been presented but shot down because:

1) a lot of their cash is being sheltered overseas and they don't want to touch it for fear of having to pay some taxes on it, or

2) that the big shareholders (i.e. the CEO, board members and dismal Carl Icahn) want to give that cash to themselves instead?

How is sending money to shareholders "pissing away"?

I already explained why I think that in my parenthetical.

You do realize that dividends are not an expense but rather a transfer of funds to the owners of the company who, you know, invested in the company to earn profits and eventual cash flows.

Yes, so? Shareholders aren't owed a return or a piece of the cash flow.

 

[Axulus]

How do you know there are no profitable investment opportunities that have been presented but shot down because:

1) a lot of their cash is being sheltered overseas and they don't want to touch it for fear of having to pay some taxes on it, or

In other words, it would be pissed away because of tax law. I'm glad we agree that reform is needed.

2) that the big shareholders (i.e. the CEO, board members and dismal Carl Icahn) want to give that cash to themselves instead?

Can you provide a cite to Carl Ichan or others like him shooting down proposed investments by management at these companies?

Yes, so? Shareholders aren't owed a return or a piece of the cash flow.

As owners of the company (like Carl Ichan) they are owed it once the board declares it, and it is perfectly within their right to persuade the board to do so. Just like owning or renting your home gives you the right to live there.

 

[SimpleDon]

http://www.nytimes.com/2015/04/14/b...-to-stop-being-so-nice-to-investors.html?_r=0





Personally I agree with Mr. Fink but I'm pretty sure his letter will fall on deaf ears.

If there are investments available to create long term value then why aren't these companies making them? Mr. Fink has things bassackwards - it's the lack of such investments being made, resulting in cash piling up in bank accounts and and sitting idle, that is causing activist investors to put pressure on management to pay it out our buy back stock.

So close but you vered off course just as you were almost there. There are not enough investments in the real economy of making products for consumption. Business investment soaks up only about 25% of the corporate profits every year. The excess profits above what is invested in businesses, both in new businesses and existing businesses, must go into Wall Street's paper investments. These are stocks, bonds, derivatives such as futures in commodities, etc. If this money goes into real assets they cause inflation in those assets and eventually an asset bubble in those real assets. We have seen this over and over, in the stock market, in commodities such as gold and oil futures, in real estate, etc.

The asset bubbles cause by this excessive amount of profits destabilizes the financial markets, often with disastrous results as we saw in 2008 when the housing asset bubble popped. It t use to be that such asset bubbles were created by interest rates that we too low, that encouraged speculation. But at least it gave the Fed some control over the situation if they were interested in doing so by increasing interest rates and by selling their government bonds. But the new normal is speculators not borrowing to create bubbles but creating the bubbles with the excess profits that we are purposely giving to them.

Once again, we should be increasing wages to decrease these excessive profits. No Loren, increasing wages doesn't require an infinite pool of profits. Only excessive profits. Wages are the vast majority of the demand in the economy. No one would argue that we have too much demand in the economy right now. Most economists and most business people will tell you that we are short of demand right now.

Remember, that when we are dividing up the nation's income the rich are confirmed neoliberal, supply side, Reaganomics true believers. But when they decide whether or not to invest that money they become confirmed Keynesians, because the other is only a fantasy meant to further enrich the already rich. Keynes described the economy that is real.

 

[Nice Squirrel]

A pile of cash building up either means that management wants a buffer for a downturn or is unable to find anything profitable to invest into. Are you saying that management should piss the money away on losing investments instead of the next most obvious use, return it to shareholders and let them figure out what to do with it?

That's silly talk. Cash reserves are best spent on the executives and pet projects. The God of Shareholder value despises dividends.