The purpose of a corporation is to make money!

[dismal]

ron gets me :hug:

He's been around long enough to know there's a "find the strawman" game in every ksen thread, but not so long that he's tired of pointing them out.

 

[Loren Pechtel]

Actually corporations must by law maximize share holder return.

They are by law required to try to pay workers as little as possible.

The latter does not follow. Paying workers more to attract better workers is a viable strategy, commonly practiced at more upscale places.

 

[ronburgundy]

ron gets me :hug:

He's been around long enough to know there's a "find the strawman" game in every ksen thread, but not so long that he's tired of pointing them out.

Now, now. Don't fight over me boys. I have enough matches for everyone's strawmen. Who brought the marshmallows?

 

[Axulus]

Actually corporations must by law maximize share holder return.

They are by law required to try to pay workers as little as possible.

The latter does not follow. Paying workers more to attract better workers is a viable strategy, commonly practiced at more upscale places.

And in fact, paying them as little as possible would be breaking the law according to untermensche - paying them too little means you have difficulty keeping and retaining talent as other employers gobble up your best workers, which leads to lower profits.

 

[SimpleDon]

The purpose of corporation is to do what shareholders want it to do, usually it means make money but not always.

The problem is that the shareholders aren't monolithic, they don't all have the same goals. Some are trying to make short term profits. Some want long term profits and stability. Some need the tax advantages of capital gains. Others could care less, they aren't taxed, pension funds, 401k's, university endowments, etc.

Also, shareholders aren't as personally invested in the corporation as say the employees and the customers are. And most corporations have sub-suppliers, a web of separate companies that depend on each other to varying degrees. Shareholders can bailout of one company and put the money into some other company in thirty seconds using an app on their cell phone. It is not so easy for an employee to change jobs or even for some customers to change suppliers.

The idea that the shareholders own the corporation is really on shaky ground too. It is more like the shareholders have some poorly defined claim on whatever portion of the corporation's profits that the executives decide to give them. If they are not happy then they can spend the thirty seconds that are required to sell their stock in the company.

We haven't established if it is a law in this country that the purpose of a corporation is to make profit for the shareholders or if it is commercial case law. It doesn't matter, the law wouldn't be required if it was the "natural" way that it is suppose to be. The ruling or law imposes the requirement artificially on the corporation. There is no reason that we couldn't impose different requirements to achieve different outcomes.

Once again I solve the world's problems below. Definately not responsive to the subject of this thread.

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Most people are surprised to learn that all of a corporation's stock, even the stock that the corporation holds back, so-called  Treasury Stock, is a liability on the corporation's books. It is like a loan that they have taken out. But a loan that can't be paid back and whose "principle," the stock's value, in the eyes of the stockholder, should go up constantly as should the "interest," the dividends. This is why today the very last place that a CFO will look to look to to raise money is the stock market by issuing stock. They will use retained earnings or they will leverage the company's equity to borrow the money from a bank or by issuing commercial paper, bonds.

99.999...% of the total volume of stock sales are one investor selling to another investor. It is not really investing in the company. It is more like placing a bet on the company. If you win you collect by selling your shares to another bettor willing to bet at the higher price. If you lose it means that other bettors won your money. But unless the corporation is willing to issue stock, and they aren't, see above, they don't profit from a higher stock price. In fact, it can be a burden, a pleasant one since most executives own stock or stock options, but a burden never the less because stockholders expect returns commensurate with the current value of the stock, not with the initial value of the stock, the only money that the company got.

This is why I am a proponent of changing the rules of the game to reflect today's reality. To where dividends are only paid on newly issued stock for a defined period, say ten years. After that the stock turns into a warrant that never expires, a derivative with the value of the stock on the ten year anniversary of its issuing. A financial instrument that will be bought and sold at the price representing the market's valuation of the company. It just won't confer any right of ownership of the company or claims on the earnings, the profits of the company.

The conversion into a derivative would have to be staged over years to avoid a single drop in its value. Also an exception would have to exist in the warrants don't confer ownership in order to tie the value of the warrant to the company value. Anyone who wants to buy a company would have to buyout all of the warrants of the company to be bought.

This would have a few benefits. It would open up the stock market as a place to raise investment capital, which outside of 50 to 100 billion dollars of IPOs a year in the US, a drop in the bucket of trades, it isn't currently. This means that the companies will be soaking up a part of the huge glut in financial capital that causes so many of our problems with asset bubbles. And borrowing money creates more new money. Money that can cause inflation in the economy.

It would reduce the pressure on companies to constantly increase profits. The corporation would own itself eventually, something that is not possible now. A company that buys all of its stock today would be in essence liquidating itself, turning its assets, money, into liabilities, treasury stocks. But under my system technically no one would own it but the company would always have one of the options of ownership, the ability to sell a part of itself for ten years to raise money.

It would also mean that the corporate income tax would be eliminated, as it should be. Dividends and capital gains of the stock and the subsequent warrants would be paid by the people who receive the money as personal income. Capital gains would be nothing more than inflation in the value of the warrant, not an increase in the value of the company.

The corporate income tax would be replaced by some sort of excess profits tax, a confiscatory tax not meant to raise revenue but to encourage the companies to do something else with the profits they earn besides to sit on them. This would reduce the pressure to make a profit, resulting in lower prices, more investment in the things that are important to the economy like more production facilities, to buy out less ambitious companies, and even, grasp, higher wages.

 

[untermensche]

The latter does not follow. Paying workers more to attract better workers is a viable strategy, commonly practiced at more upscale places.

And in fact, paying them as little as possible would be breaking the law according to untermensche - paying them too little means you have difficulty keeping and retaining talent as other employers gobble up your best workers, which leads to lower profits.

I don't think you understand the phrase, "as possible".

A market wage for an owner is the lowest possible wage.

And some make a very good market wage if they have exceptional skills that are rare and wanted.

But they are still paid as little "as possible".

 

[Axulus]

And in fact, paying them as little as possible would be breaking the law according to untermensche - paying them too little means you have difficulty keeping and retaining talent as other employers gobble up your best workers, which leads to lower profits.

I don't think you understand the phrase, "as possible".

A market wage for an owner is the lowest possible wage.

And some make a very good market wage if they have exceptional skills that are rare and wanted.

But they are still paid as little "as possible".

Believe me, it is possible to pay below market wage for a job position (if they aren't at the minimum wage). Don't expect to attract very good prospects or retain them for very long if you do, however. You obviously have no experience running a business.

 

[untermensche]

I don't think you understand the phrase, "as possible".

A market wage for an owner is the lowest possible wage.

And some make a very good market wage if they have exceptional skills that are rare and wanted.

But they are still paid as little "as possible".

Believe me, it is possible to pay below market wage for a job position (if they aren't at the minimum wage). Don't expect to attract very good prospects or retain them for very long if you do, however. You obviously have no experience running a business.

A market wage is by definition the lowest possible wage. It is the lowest wage a company has to pay based on present circumstances.

But there are people within capitalist organizations that are exempt from market wages. The top executives.

They pay themselves as much as possible and give to themselves as many perks as possible.

So within capitalist institutions you have most being paid as little as possible and a tiny few being paid as much as possible.

It is no wonder capitalist economies are constantly fighting against stagnation. Paying most people as little as possible is the recipe for stagnation.

And there is really only one solution for this problem.

Unionization. It has been shown to improved conditions for working people. Capitalists were perfectly happy working children 12-14 hours a day for slave wages after all.

The belief that capitalism can only be improved through mass unionization and eventually worker ownership and control is anarchism, specifically Anarcho-syndicalism. It is a system that actually believes in democracy as opposed to capitalism which is antagonistic towards democracy and prefers absolute top-down control.

Top-down control by the masters will only lead us to ruin. Human greed has no limit.

 

[DBT]

Quote;
''The U.S. is more unequal than most of its developed-world peers. According to data from the Organization for Economic Cooperation and Development, the U.S. ranked 10th out of 31 OECD countries in income inequality based on “market incomes” — that is, before taking into account the redistributive effects of tax policies and income-transfer programs such as Social Security and unemployment insurance. After accounting for taxes and transfers, the U.S. had the second-highest level of inequality, after Chile. ''

''Wealth inequality is even greater than income inequality. NYU economist Edward Wolff has found that, while the highest-earning fifth of U.S. families earned 59.1% of all income, the richest fifth held 88.9% of all wealth.''

 

[SimpleDon]

<snip>​

Of course none of this does not undermine the point of the OP. The conservatives and "libertarians" that support this myopic profit motive should fully support an equal selfish adversarial stance by the workers, and support their doing everything including unionizing to benefit themeselves no matter how they might think it could harm the larger economy, etc.. Only if workers and Unions do things that clearly harm the future income of those workers themselves should they be frowned on by anyone that supports the "companies exist to make profit" mentality.

Good point. The rule should then be "unions exist to raise wages."

The problem with that is it makes the company and employee relationship an adversarial one and this is a terrible way to run a business. The company and its employees have many interests in common than they do apart. Both should be primarily interested in the success of the company in the market. This is why we should be looking at ways to be removing wages from the competition between companies. To eliminate reducing wages as a means for companies to uncut the competition.

You do this by industry sector wage setting, also called centralized collective negotiation or bargaining. Wage levels are negotiated on a national level, not at a plant or company level. The wages are negotiated to be the same for all of the companies in a single industry, say automobile manufacturing.

 

[SimpleDon]

Quote;
''The U.S. is more unequal than most of its developed-world peers. According to data from the Organization for Economic Cooperation and Development, the U.S. ranked 10th out of 31 OECD countries in income inequality based on “market incomes” — that is, before taking into account the redistributive effects of tax policies and income-transfer programs such as Social Security and unemployment insurance. After accounting for taxes and transfers, the U.S. had the second-highest level of inequality, after Chile. ''

''Wealth inequality is even greater than income inequality. NYU economist Edward Wolff has found that, while the highest-earning fifth of U.S. families earned 59.1% of all income, the richest fifth held 88.9% of all wealth.''

Yes, obviously. The higher your income the more money you can save, the more money you can devote to purchasing a home, the primary path to start accumulating wealth.

I suspect that this high level of income and the resulting wealth inequality is something that is the intended goal of conservatives, not just an unintended consequence of their economic policy missteps. I can't explain their total lack of effort trying to reduce the problem any other way. Especially after thirty five years of the failure of their policies to improve the economy over the policies that preceded theirs.

All of the Republican presidential candidates propose to pass measures intended to further increase income inequality.

 

[Playball40]

Well, that's also the purpose of workers so stop trying to make it sound like the workers are ungrateful layabouts that are trying to take more than they are worth when they attempt to get wages raised.

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eta: can't wait for some of the "whoever said the purpose of a corporation is to make money?" comments sure to be forthcoming.

I was thinking about this the other day. As you know we have had a total deficit of examples of job killing regulations coming from those here who constantly list regulations as being an unneeded example of government overreach. This failure has remained as one of the larger blots on their less than impeccable records of empirical support for their economic ideas.

I have tried to help them in the past, listing local government zoning ordinances intended to boost property values as an example of undesirable expensive regulation, because they boost the cost of housing, infringe on property rights and prevent the best use of land. This suggestion was met with complete silence, leading me to think that most of the people here support these job killing ordinances.

Undeterred, I am ready to suggest another example of a job killing regulation. One inspired by this thread.

This is the law inspired by what Jack Welch, the retired CEO of GE, called 'the dumbest idea in the world.' And like many of the dumbest ideas of the end of the last century this idea seems to come from Milton Friedman, the economist who specialized in bad ideas and failure.

The idea is shareholder value. That the sole purpose of the corporation is to make money for its shareholders by any means possible. And that the best way to assure this is by the use of stock based executive compensation.

I list this as an example of job killing regulations because it is widely known that it is the law in the US. I couldn't confirm this and have always doubted it. But I had corporate attorneys who told me this. And as I said, it is widely known to be true.

The idea is of course ridiculous. A corporation has a lot more responsibilities than just one to its shareholders. Customers, employees, and the public in general would be on that list, arguably above the shareholders.

There is no doubt that the idea was and still is popular, especially with corporate executives who doubled and tripled their pay under it.

And there is also no doubt that this idea is behind the large amount of corporate maleficence that we have seen lately.

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

I see that others found sources both for and against the idea that shareholder value is only purpose that a corporation has and that it is the law. I am slow to post my tomes, they die before they are posted sometimes.

Exactly - people mix up stakeholders with shareholders all the time and it drives me nuts.

 

[SimpleDon]

The latter does not follow. Paying workers more to attract better workers is a viable strategy, commonly practiced at more upscale places.

And in fact, paying them as little as possible would be breaking the law according to untermensche - paying them too little means you have difficulty keeping and retaining talent as other employers gobble up your best workers, which leads to lower profits.

The problem is, whether or not "corporations exist only to make a profit" is the law or not, that the resulting "shareholder value" idea has taken hold throughout the corporate world, probably because it results in much higher executive compensation. And it is a bad way to run a business. But if nearly everyone runs their business this way then the competition doesn't exist between companies and only the workers and the overall economy suffer.

The stupid, the unskilled, the disabled who are working don't deserve poverty and they don't need poverty as an incentive to improve. There is no excuse for the US, the richest country in the world to be tolerating the lowest paid workers in our economy living in poverty. Poverty is bad for the poor, it is bad for society and it's bad for the economy.

We need to reduce income inequality. The best way to do this is to stop companies from competing based on the wages that they pay, to equalize wages in each company in each industry sector. This leaves more than enough factors for companies to compete on, innovation, quality, branding, etc.

 

[Togo]

http://www.forbes.com/sites/stevede...holder-value-the-dumbest-idea-in-the-world/3/