What if shareholders were made responsible?

[PistachioByAzul]

Just read an interesting proposal. Shareholders become responsible for corporate illdoings. That is to say, if you can reap the benefits of a profitable company, should you not also be held responsible when that company violates the law, trade agreements, whatever. You pay your share of the penalities.

Wouldn't it force people to be more informed about what they're supporting, creating a democratic check & balance system within the market? Isn't that a truly free market? What's wrong with this model?

 

[Random Variable]

What's wrong with this model?

No one would invest in the market.

 

[Angrymarshmello]

Originally posted by: EngineNr9
Just read an interesting proposal. Shareholders become responsible for corporate illdoings. That is to say, if you can reap the benefits of a profitable company, should you not also be held responsible when that company violates the law, trade agreements, whatever. You pay your share of the penalities.

Wouldn't it force people to be more informed about what they're supporting, creating a democratic check & balance system within the market? Isn't that a truly free market? What's wrong with this model?

That's like saying, for ex., your brother kills a guy - you should have to go to jail too because he's family? So as a shareholder, with no knowledge of any wrongdoing whatsoever, should have to pay huge fines to the government and others because their CFO reported the company's revenues wrong? You buy stock in a company with only one risk - to lose the money you put into it.

 

[Scipionix]

Public corporation shareholders grant management and leadership responsibilities to a CEO. It's his responsiblity. The shareholders just own the thing.

 

[PistachioByAzul]

Shareholders would be forced to be more proactive. They wouldn't invest in companies clearcutting forrests beyond repair, or companies polluting water supplies. Shareholders would DEMAND open dialogue between themselves and the corporate brass, and if they caught wind of any wrongdoings they'd form a lynch mob and hang the management by their balls (or breasts, although I'm not sure how that would work).

 

[PistachioByAzul]

With ownership comes responsibility right? If you reap the rewards monetary rewards for reckless pollution, then you suffer your part of the financial burden of cleaning it up. Then who would invest in such companies to begin with?

 

[Scipionix]

Originally posted by: EngineNr9
Shareholders would be forced to be more proactive. They wouldn't invest in companies clearcutting forrests beyond repair, or companies polluting water supplies. Shareholders would DEMAND open dialogue between themselves and the corporate brass, and if they caught wind of any wrongdoings they'd form a lynch mob and hang the management by their balls (or breasts, although I'm not sure how that would work).

Great, so now you're an anarchist.

 

[SWirth86]

Originally posted by: EngineNr9
Shareholders would be forced to be more proactive. They wouldn't invest in companies clearcutting forrests beyond repair, or companies polluting water supplies. Shareholders would DEMAND open dialogue between themselves and the corporate brass, and if they caught wind of any wrongdoings they'd form a lynch mob and hang the management by their balls (or breasts, although I'm not sure how that would work).

Shareholders usually don't care about Morally Wrong thins such as cutting down trees and stuff. Theyre in it to Make Money.

 

[BD2003]

If they made me responsible for my stock, I'd sell it all tommorrow. So would everyone else, and the market would crash. Thats like saying we're responsible for what our president does. Its bullshit.

 

[PistachioByAzul]

Aren't labels nice? We can just lump things into little boxes and forget about them.

 

[Cyberian]

Originally posted by: EngineNr9
Just read an interesting proposal. Shareholders become responsible for corporate illdoings. That is to say, if you can reap the benefits of a profitable company, should you not also be held responsible when that company violates the law, trade agreements, whatever. You pay your share of the penalities.

Wouldn't it force people to be more informed about what they're supporting, creating a democratic check & balance system within the market? Isn't that a truly free market? What's wrong with this model?

Good idea!
Next we could go after the people who buy the products. Like if you owned a '90 Ford Escort when the Explorers were thought to be unsafe, then we could hang you by the ballz.

 

[PistachioByAzul]

If people are scared to be responsible for what our corporations are doing then that is exactly why they need to be checked

 

[jeremy806]

That suggestion shows a lack of understanding of how a corporation works.

Boards direct, executives execute, and shareholders own.

Shareholders already pay for board and executive mistakes. If you owned $100k in a stock that plunged 95% would you feel like you had been held responsible?

jeremy806

 

[Scipionix]

Originally posted by: jeremy806
That suggestion shows a lack of understanding of how a corporation works.

Boards direct, executives execute, and shareholders own.
Shareholders already pay for board and executive mistakes. If you owned $100k in a stock that plunged 95% would you feel like you had been held responsible?
jeremy806

mmhmm. I don;t think EngineNr9 is aware that the whole point of the economics of corporate finance is to figure out how an investor can get an entrepreneur to behave properly.

 

[PistachioByAzul]

But it's all about the return. What if not only were they to take a bath but to get hit with their share of the fines. Questionable corporations would have questionable support. This puts the power and responsibility directly in the hands of the people.

 

[Hayabusa Rider]

I believe any such law would be struck down as unconstitutional. Let me see... Oh yeah, try this. There are 2 golf shops in town. Now shop 1 sells a Great Biggie driver to Mr. Smith. Mr. Smith then goes and murders his caddie with it for handing him the wrong club.


Shop 2- Mr Jones comes in and wants a Great Biggie also, but says he is going to use it to kill his stockbroker for recommending Enron and Worldcomm. The owner of the store sells him one.

Now the twist is this. Ms. Flibberjibber goes and buys some golf balls ffrom shop 2 the week before. She liked the service so much, she decides to pony up and invest in shop 2 so she and the owner can open yet another shop.

Now...

Shop 1's owner is not guilty of any crime, because he had no knowlege of the intent of Mr Smith to commit a crime.

Shop 2's owner IS guilty of being an accessory if he had real reason to believe that a crime was going to be commited and he freely provided the weapon he knew was going to be used against the poor witless stockbroker.

But wait.

There is Ms. Flibberjibber. By your logic, she should also be punished because she invested in shop 2.

If murder is too much, lets simplify things. The owner of shop 2 steals the wallet of someone who forgot to pick it up off the counter. He gets caught. Is Ms Flibberjibber guilty of theft because Mr. Scum stole the wallet? How would you prosecute that case before a judge? The fact is you cannot punish someone legally who broke no law.

 

[Hayabusa Rider]

How about this as a counter proposal. Contracts would stipulate that certain behaviors (theft, fraud, etc) would invalidate any severence package made by the corporation? Further, an agreement would be made that upon conviction, the CEO or other officer would OWE triple damages?

 

[Scipionix]

Originally posted by: Hayabusarider
How about this as a counter proposal. Contracts would stipulate that certain behaviors (theft, fraud, etc) would invalidate any severence package made by the corporation? Further, an agreement would be made that upon conviction, the CEO or other officer would OWE triple damages?

Fine by me. I would also suggest that bonus and options compensation should be based on a three-year moving average and not on annual or quarterly share prices. This would be harder to do however.

 

[StattlichPassat]

Preposterous!

 

[PistachioByAzul]

See, a counter proposal, now you are talking.

 

[PsychoAndy]

heres what would happen if shareholders were made resposible, in this order:

1. All the air would be sucked out of the NYSE and various other exchanges from the collective gasp of everyone.
2. The stock market would collapse from lack of investment.
3. An unprecedented amount of money would move into the following: bonds, t bills, and certificates of deposit.
4. Life will go on. Everyone knows you can always make money lending to Uncle Sam, who will never go out of debt.

 

[Miramonti]

Originally posted by: Hayabusarider
How about this as a counter proposal. Contracts would stipulate that certain behaviors (theft, fraud, etc) would invalidate any severence package made by the corporation? Further, an agreement would be made that upon conviction, the CEO or other officer would OWE triple damages?

This is much more reasonable.

Your suggestion EngineNr9 is thought provoking but a corporation doesn't want shareholders running the company or it would never get anything done. Talk about beaurocracies, what would happen when the shareholders don't agree? There are hundreds of thousands if not millions of shareholders for some companies.

Some problems today occur when shareholders, i.e. investment bankers and institutions, try to run the company by using their influence to pressure the board or top management to do certain things, which sometimes is productive but often isn't. In an effort to appease the major shareholders, they are often privy to information that isn't necessarily public yet, which leads to a tremendous amount of insider trading by these shareholders.

There have been excellent examples of how shareholders have positively affected a company though. I believe Chase Manhatten was pressured to merge with somebody (who?) because of the shareholders concern (he had 6%) that it needed to do that to remain competetive. And I believe he was right. Shareholders have executed proxy votes to have certain board members ousted sometimes, which are pretty bold moves and occasionally successful, but in general you don't want shareholders running the company...although you do want companies accountable to shareholders on a macro basis...and, preferably, more accountable to the law.

 

[glenn1]

What if shareholders were made responsible?

I have a better idea. How about holding people who come up with dumb ideas responsible for them, and making them pay an "idiot tax." Sound like a good idea to you, Mr. Soon going to be owing a sh!tload of money for coming up with this shareholders pay damages idea?

 

[PistachioByAzul]

Would that idiot tax apply to drones who make inane comments regarding anything that challenges the status quo, failing to offer anything even remotely constructive?

 

[CPA]

Originally posted by: EngineNr9
Would that idiot tax apply to drones who make inane comments regarding anything that challenges the status quo, failing to offer anything even remotely constructive?

But it's not constructive. That's the point. Constructive ideas and criticism shouldn't destroy the model (ie, public ownership and Corporate management) that they wish to mend. Instead, they should repair or enhance the model. Your idea would completely destroy Corporate entities.