How to fix the world
Again from “Who says Elephants can’t Dance” Gerstner mentioned a brilliant way to stop seemingly all the problems caused by selfish corporations taking advantage of the world.
A lot of issues are caused by shareholders forcing management to take shortcuts to make short term gains rather than long term prosperity. This short term view leads to employee layoffs, less R&D, planned obsolescence, pollution etc etc.
A correct way of judging shareholder value is mentioned.
- The company is a major force in a growing market or segment.
- It is increasing its share in this segment through sustainable advantages.
- Increasing its market share is resulting in growing cash flows.
- This cash flow is used wisely (R&D or Marketing or critical areas within the company).
- And is aligned with shareholders (Increases dividends and executives rely on share ownership)
but this is the ideal not the reality. Large investors used to be the ones who held managemnt accountable but due to all the help small investors have received, larger investors have become disconnected (Minority shareholder rights, Annual meetings becoming voices of the many, equal access to company information) essentially the voice of the horde which is saying “More Quarterly Gains”. Google has a share structure that prevents this so they can focus on the long run but they are criticized heavily for this.
What is desired is
- Owners who are close to the managers,
- Owners who cannot sell their stocks on a whim,
- Owners who must see a company through a complete investment cycle.
The way to achieve this?
Diminishing taxation rate on the capital gains from stocks and options!
Wish I had of thought of this it is amazing; shareholders (the owners) sell their shares if they are not making quick money so to stop this change the taxation on the capital gains from securities. Profit on shares sold before a full year of ownership taxed at 70%, 3 years = 50%, 5 years = 30%, 8 years = 0%.
The result is the owners have a financial Incentive to stay with the company for the long run!!
This incentive means the owners encourage long-term investments rather than short term gains and projects that are profitable in the future drive up the share price.
Hello Utopia.
Strikee 