What if shareholders were made responsible?

[Draknor]

I think the underlying point that's being made is a good one - corporations need to be held responsible for their actions. Consequently, since the real "authority" is the stock price, that's what needs to be impacted when corps mis-behave. If clear-cutting a forest, polluting a river, and cooking the books will raise the stock price, that's what the corp. management will do, because that's all that the shareholders care about.

So the question is, how do you hold the corporations responsible?

I personally like the idea of financial risks to shareholders... however, I'm not in corporate finance/management classes, so I don't know how that would work exactly. I can understand the idea behind not wanting shareholders to run the company, but it seems like *something* needs to be done. How about this idea - a "corporate sin tax"? There'd be a list of "sins" and their prices. If the corporation, for example, practices poor woodland management ("clear-cuts a forest") on 1000 acres, there's a 0.005% tax, based on the share-price, that all shareholders must pay. So if I own 1,000 shares and the price is $20.00, that's 1,000 * $20.00 * 0.005% = $1 that I must pay in taxes that year.

It adds even more complications to the tax laws, I know, but, it's one way of doing it... (not necessarily the best - anyone else have better ideas?) Comments?

 

[TranceNation]

what a horrible idea. no one would invest in the stock market

 

[Gonad the Barbarian]

This has to be the most rediculous thing I have ever seen on this forum. EVER.

 

[NogginBoink]

The idea just plain isn't practical.

How are you going to get together all the shareholders to approve a contract the company wants to make?

How do you propose to structure the decision making process when literally MILLIONS of people would have to be involved? Nothing could ever get done in the company!

That's why, as others have pointed out, the boardmembers are elected by the shareholders. The shareholders elect (in theory) boardmembers that they trust to do what's in the shareholders' best interests.

Kinda like the way we elect senators and congresspeople to pass laws. It'd be sheer insanity if EVERY citizen of the United States had to vote on EVERY legislative proposal.

Or are you proposing that citizens be held liable for all the laws passed in the nation as well?

 

[XFreebie]

I wish I could be held responsible the same way Enron execs were
which includes: don't goto jail
and retire in the bahamas...


and now look are worldcon, oh no, the execs will goto golf jail! i'd spend a few years in jail for the millions of dollars they took. its easier than going on some stupid tv reality show

P.S. if u ever studied history or economics, u'd realize what u proposed already doesnt worked back in 1700s. at that time, owning stock in a company meant if the company went bankrupt and incurred debt, the banks would go after u to repay the debt, they'd take ur house. this discouraged investors so new rules were set so that public stockholders could only lose the money they invested.

public stock is free of personal liability

 

[FelixDeCat]

Shareholders are already responsible. As related to people who own shares but are not employed by the company, if you invest in a company without doing due diligence, your investment may suffer from loss.

As an experienced investor who has lost thousands upon thousands of dollars, I know.

As far as criminal liability, that would be like saying if your mayor was caught swindling money, you too would face jail time. And if that were the case, you would find more people being murdered in retribution long before any trial took place.

 

[Robet]

How about putting all of the lowest level employees in jail. The ones that actually committed the crime. In Enron and Worldcom's case, I'm sure the corporate executives didn't actually type the numbers into the ballance sheet. That was some low level accounting clerk. The executives were completely innocent.

I guess all of the stockholders, who lost their retirement savings, should have been milling about the corporate headquarters to see if anything was amiss. So, I guess it's their fault as well.

 

[FlashG]

I see the shareholder?s roll as a companies financial backer. If you don?t agree with a particular companies policies, products or whatever then don?t buy their stock.

I?m not a Bush proponent but I agree what he said about holding CEO?s and officers legally responsible for ethical business practices.

Wall Street Speach

I know Fox news isn?t the best source but I don?t have time to list everything out there.

I think your proposing something that might lead to a mild form of vigilantly reasoning. Stockholders are comprised of all kinds of people most of whom are not able to make these types of judgmental decisions. Heck, most of them they can?t (or won?t) even read a well-prepared financial statement.

 

[XZeroII]

I almost spit food all over my keyboard when I read your original post. That's gotta be the most rediculus proposal I've ever seen here. Why would you punish a stockholder at all? Stockholders don't do ANYTHING, except vote for stupid stuff once a year. There are enough risks in the market w/o getting slapped with a $2,000 fine just because you own 10 shares of some stupid company. Why would you even go after the shareholders? WTF is wrong with you? The shareholders don't do anything wrong, and you think they should have to foot the bill when some CEO starts doing illegal stuff? Let's say you own some shares of McDonalds and someone spills some coffee on themselves and sues for $10,000,000. Do you owe $100 to McDonalds now to help pay for that? or does your fuzzy logic just apply to some lawsuits? If so, who determines when the shareholders have to pay? How about making the CEO responsible? or the people actually involved in the illegal activity? Hmmm, would that work? Sheesh. Do you even know anything about how a corporation works? and how it's different from other types of businesses?

 

[Double Trouble]

, what you propose is the exact opposite of why the idea of a corporation was born to begin with, and would spell the end of the free world economy as we know it.

When a company is a sole proprietorship, the owners reap any benefits of the operation, but also stand to lose everything they personally own if the operation loses money. Thus, the concept of limited liability was born -- it allows investors to invest in businesses without risking everything they personally own. You risk whatever amount you want by putting it into the company. If the company does something wrong, you could potentially lose your entire investment, but not your personal holdings. Should you take that away, you would simply go back to the days when there was no such thing as a corporation, and there wouldn't be any investment capital to do anything.

How the heck could you possibly know everything that goes on in a multi-zillion dollar corporation??

 

[FeathersMcGraw]

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?

What's wrong with it is you're asking people who are assuming risk in the form of investing capital (with no guaranteed return) to also assume legal liability. That's an additional assumption of risk without any additional potential for reward.

It gets worse when you ponder the administrative costs of attempting to fine investors on a pro rata basis. The mutual fund you invest in holds shares of a company that has been fined. Even if you have not directly purchased those shares yourself, you incur liability. Given the way companies, banks, and investment firms interact, any corporate impropriety introduces huge ripple effects in the way the markets behave. You're instituting a huge bureaucratic oversight layer to insure that there is good corporate citizenship amongst the whole body of employees of every company out there. I'd say that's easily the opposite of a truly free market.

Assuming that you're talking about the United States, it's also a good way to encourage just about any business to move to another country.

 

[TranceNation]

while eating lunch today, I spilled some coke on the carpet near my desk. I think I'm going to call on of my company's shareholders and ask them to pay for it. lol

 

[goog]

Originally posted by: XZeroII
I almost spit food all over my keyboard when I read your original post. That's gotta be the most rediculus proposal I've ever seen here. Why would you punish a stockholder at all? Stockholders don't do ANYTHING, except vote for stupid stuff once a year. There are enough risks in the market w/o getting slapped with a $2,000 fine just because you own 10 shares of some stupid company. Why would you even go after the shareholders? WTF is wrong with you? The shareholders don't do anything wrong, and you think they should have to foot the bill when some CEO starts doing illegal stuff? Let's say you own some shares of McDonalds and someone spills some coffee on themselves and sues for $10,000,000. Do you owe $100 to McDonalds now to help pay for that? or does your fuzzy logic just apply to some lawsuits? If so, who determines when the shareholders have to pay? How about making the CEO responsible? or the people actually involved in the illegal activity? Hmmm, would that work? Sheesh. Do you even know anything about how a corporation works? and how it's different from other types of businesses?

To expand on this post.
That's the thing, when, for example the Worldcom scandal broke didn't all the investors lose a bundle of cash. In case you don't know the answer, it's yes.
When a company is facing a lawsuit it's stock typically suffers, again shareholders lose money. Getting the idea yet?
Only the insiders that get out early laugh all the way to the Bahamas; course he'll likely get jailtime in the end.

What I do like from the original post is the idea of investing in better companies, do you're homework and make a little effort in stockpicking. As far as the typical investor knowing Enron et al was run by a bunch of crooks, that's unlikely to be known making this whole idea ridiculous.
What we don't need is more interference from government and shareholders. What we do need is some respectable management.

The whole idea of a public company is that shareholders benefit when the company does well, and suffer when it doesn't. The fact that crooked management, accountants, etc. hurts said company also hurts it's shareholders. Investing in said company and losing your shirt is punishment enough for the shareholder.

 

[Ameesh]

you obviously havent thought your argument through:


two words: mutual funds

 

[Dually]

Are you nuts?

Most investors don't personally invest in companies, their investment company invests for them with their 401K plan or other plans or mutual fund companies and similar companies. They also don't have the power to make a company do anything unless they have 50% or the highest amount of stock of any holder.

 

[Martin]

it would be a good idea, except I don't think shareholders can investigate these things on their own...


I think a better idea would be:
1. protection and awards for "whistleblowers" (or snitches, whatever you wanna call em). I'd certainly expose my company if I could get an award for it

2. Stiff criminal sentences for those resposible. After all, causing 17000 people to lose their jobs is MUCH, MUCH worse than say robbing a gas station or stealing a car.

 

[AaronP]

what's wrong with this model is that just millions and millions of American WORKERS will be responsible, since their retirement accounts usually have mutual funds or other investment instruments which own many corporations.

 

[Cyberian]

Originally posted by: Ameesh
you obviously havent thought your argument through:


two words: mutual funds

That would just add another layer of red tape in this ingenious scheme to fine investors for the misdeeds of a company.

 

[PistachioByAzul]

Corporations enjoy the right of being considered a natural person. The problem is that they are a "dispassionate" entity, their concern with the law, ethics, social responsibility, the enviroment only goes as far as "what's the best way to get away with making money". They can buy support, PR, politicians, etc. They can bring legal action against voices of dissent.

The point, for the rocket scientists like Cyberian, is that this is only a suggestion to into ways to ground corporate interests that now essentially control most of the wealth in the world.

 

[Scipionix]

Originally posted by: EngineNr9
Corporations enjoy the right of being considered a natural person. The problem is that they are a "dispassionate" entity, their concern with the law, ethics, social responsibility, the enviroment only goes as far as "what's the best way to get away with making money". They can buy support, PR, politicians, etc. They can bring legal action against voices of dissent.

Uhh, yeah, and natural persons can do all that stuff too. So what, you think real people care about more than making money? And what does this have to do with anything anyway?

The point, for the rocket scientists like Cyberian, is that this is only a suggestion to into ways to ground corporate interests that now essentially control most of the wealth in the world.

Who owns corporations? Individual shareholders and institutional investors. Who do the institutions invest for? Individuals. The public already owns the corporations. You might want to think before regurgitating Naderite propaganda.

 

[PistachioByAzul]

Corporations, the media, government, they all invest in each other. There are no natural people with the wealth, power, and business protection to wreak the kind of havok that has been. A corporation is just a collected interest, a fantasy, superego, whatever, and we've wrongfully legitimized them as people. Fine and dandy as long as you were lucky enough to have been born inside the walls.