Very good point. It's telling. Screw the company, they say, we're going to inflate this thing, take our profits, and go to the next con.
In this new world we're watching unfold, boards no longer do what is in the interest of the company. This guy puts it well:
2)"Companies should not be run in the interest of their owners." Shareholders are the most mobile of corporate stakeholders, often holding ownership for but a fraction of a second (high-frequency trading represents 70% of today's trading). Shareholders prefer corporate strategies that maximize short-term profits and dividends, usually at the cost of long-term investments. (This often also includes added leverage and risk, and reliance on socializing risk via 'too big to fail' status, and relying on 'the Greenspan put.') Chang adds that corporate limited liability, while a boon to capital accumulation and technological progress, when combined with professional managers instead of entrepreneurs owning a large chunk (eg. Ford, Edison, Carnegie) and public shares with smaller voting rights (typically limited to 10%), allows professional managers to maximize their own prestige via sales growth and prestige projects instead of maximizing profits. Another negative long-term outcome driven by shareholders is increased share buybacks (less than 5% of profits until the early 1980s, 90% in 2007, and 280% in 2008) - one economist estimates that had GM not spent $20.4 billion on buybacks between 1986 and 2002 it could have prevented its 2009 bankruptcy. Short-term stockholder perspectives have also brought large-scale layoffs from off-shoring. Governments of other countries encourage longer-term thinking by holding large shares in key enterprises (China Mobile, Renault, Volkswagen), providing greater worker representation (Germany's supervisory boards), and cross-shareholding among friendly companies (Japan's Toyota and its suppliers).
The real problem showed up when Hedge funds became so popular. People putting money into there 401k care a lot about long term gains, people running Hedge funds care mostly about short term gains. Hedge funds end up filling board seats not small time investors.
It's actually a common problem with 'money managers' as generally they share far more of the upsides than the downside risk. Yet, there is no way to consistently beat the market so trading risk is really there only option.
Really, high-frequency trading is the most common sort of trading? That is absolutely astonishing. Do you think that says anything about how much stock (by valuation) is invested long-term?
Even if, say, 95% of stock is held in long-term investments, high-frequency trades will dominate the metric "% of trades executed", since high-frequency trading holds the stock for less than 1/20th of the time long-term trading does.
Suppose num_long shares of stock are held in long-term investments, as a permanent feature of the economy. Suppose further that the average duration of a particular long-term investment is two years. Then every two years, num_long trades will occur under the banner of "long-term investing".
Suppose num_hft shares of stock are held in HFT investments, and that the average duration of an HFT investment is one day. Then every two years, 730.5 * num_hft trades will occur under the banner of "high-frequency trading".
But who cares what the % of trades are? They don't get more weight as a stakeholder because they are trading a lot. In fact they have absolutely none, but that doesn't diminish the control held by the 95%.
In this new world we're watching unfold, boards no longer do what is in the interest of the company. This guy puts it well:
2)"Companies should not be run in the interest of their owners." Shareholders are the most mobile of corporate stakeholders, often holding ownership for but a fraction of a second (high-frequency trading represents 70% of today's trading). Shareholders prefer corporate strategies that maximize short-term profits and dividends, usually at the cost of long-term investments. (This often also includes added leverage and risk, and reliance on socializing risk via 'too big to fail' status, and relying on 'the Greenspan put.') Chang adds that corporate limited liability, while a boon to capital accumulation and technological progress, when combined with professional managers instead of entrepreneurs owning a large chunk (eg. Ford, Edison, Carnegie) and public shares with smaller voting rights (typically limited to 10%), allows professional managers to maximize their own prestige via sales growth and prestige projects instead of maximizing profits. Another negative long-term outcome driven by shareholders is increased share buybacks (less than 5% of profits until the early 1980s, 90% in 2007, and 280% in 2008) - one economist estimates that had GM not spent $20.4 billion on buybacks between 1986 and 2002 it could have prevented its 2009 bankruptcy. Short-term stockholder perspectives have also brought large-scale layoffs from off-shoring. Governments of other countries encourage longer-term thinking by holding large shares in key enterprises (China Mobile, Renault, Volkswagen), providing greater worker representation (Germany's supervisory boards), and cross-shareholding among friendly companies (Japan's Toyota and its suppliers).
source - http://www.amazon.com/Things-They-Dont-About-Capitalism/dp/1...