Sunday :: Aug 20, 2006

Didn't Get Your Sliver Of Sky Pie? TOUGH!

by pessimist

I'm going to expand on Duckman's refutation of corporate governance.

It occured to me after reading his post that there is another reason why corporate governance should be rejected by We, the People - it consistently fails to achieve its goals.

The goal of every business is supposed to be to make a profit. And yet, our government is so far in the Red we might as well be in China! (Yes, I know!) Such a massive failure to achieve solvency by the Corporate Pretzeldunce should come as no surprise when one looks at the performance of the major businesses in this country.

For instance, automotive giants Ford and GM are proportionally almost as far in the red as the Federal government, yet they continue to reward their top execs with huge compensation packages while they strip employees of their wages and benefits - not to mention their very jobs. We could add Enron and Worldcom, blatant frauds which should have been taken under control by the shareholders long before they collapsed if they weren't so greedy, willing to believe the lies they were being told instead of reading the quarterly reports to get their information.

The giants of business investment lived, ate, and breathed such reports - Warren Buffett, ITT Chairman Harold Geneen, and so on. It was their firm and loudly stated belief that any exec who wasn't spending the vast majority of his [sic] time going over the books to discover the problems - and then intensely question the exec who was failing to perform up to the standard necessary for meeting the goals - wasn't worthy of the job in the first place.

As Bu$hco is not.

But I digress.

Geneen in particular was quick with the pink slip for those who failed him. When he first was given control of ITT, the typical lifespan of an exec's career at ITT was measured in months. Eventually, he found the staff he sought, and ITT became the world's largest corporation for a time. (We'll ignore for now some of the methods they used - such as the CIA coup against Salvador Allende - to reach that lofty status.)

Buffett drove himself every bit as hard. For many years, all he did was study financial reports, looking for the information to tell him whether a company was a good investment or not. Considering how much money he made by doing so, I think he's proven that the method of deep inspection he and Geneen favored works.

So how does that apply to our corporate governance?

It is the job of the Congress to be doing that job. During WWII, Sen. Harry Truman chaired a committee to root out war profiteers from qualification for military contracts. From what I've read, Truman was so good at his job of holding the fraudulent toes to the fire that the Democratic Party was prevailed upon to push Truman on Roosevelt as his 1944 running mate just to get him out of the Senate and out of the profiteers hair:

Where is the leader with the courage to say, as Franklin Roosevelt did during World War II, "I don't want to see a single war millionaire created in the United States as a result of this world disaster"?

Senator Robert La Follette tagged them as "enemies of democracy in the homeland."

During World War II Harry Truman referred to some forms of war profiteering as "treason."

When he heard rumors of such profiteering,
Truman got into his Dodge and,
during a Congressional recess,
drove 30,000 miles paying unannounced visits
to corporate offices and worksites

The Senate committee he chaired launched aggressive investigations into shady wartime business practices and found "waste, inefficiency, mismanagement and profiteering," according to Truman, who argued that such behavior was unpatriotic.

Urged on by Truman and others in Congress, President Roosevelt supported broad increases in the corporate income tax, raised the excess-profits tax to 90 percent and charged the Office of War Mobilization with the task of eliminating illegal profits. Truman, who became a national hero for his fight against the profiteers, was tapped to be FDR's running mate in 1944.

Would that we had someone with large brass balls like that today!

But I digress.

To give you an idea of the sorry state of American business today, Only 386 of the S&P 500 pay dividends, down from 469 in 1980. This fact is important:

What is it about dividends?

Dividends used to be one of investors' main reasons for owning stocks. As the godfathers of value investing, Benjamin Graham and David Dodd, wrote in 1934, "A successful company is one which will pay dividends regularly and presumably increase the rate as time goes on."

That seems to be the case in 2006 - for some:

[D]ividend paying stocks in the Standard & Poor's 500 gained 4.29 percent for the first seven months of the year, while non-payers lost 3.26 percent, according to S&P. Stocks with the very best dividend yields are the only group with double-digit year-to-date returns, up 10.2 percent for the year, according to Merrill Lynch & Co. [A]lmost all are companies you've heard of and almost all make stuff you're likely to have around the house.

What dividends have we received from Bu$hco? None? What DID we get?

Warnings to take cautionary steps to protect ones investment capital:

The Dow Jones Industrial Average remains well below where it was in the beginning of 2000. Don't think of this confusing era as your time to get rich quick, but as your opportunity to position yourself for the new direction that will emerge - sooner rather than later, if the Fed gets its way.

If the last six years are any indication, that direction is - down. that is why investors are being warned that they are going to have to cover the costs of poor executive performance:

If investors think they’re safe from the scandal involving the suspicious timing of executive stock option grants, they may want to consider this: Even if they aren’t invested in companies caught up in that mess, it could still cost them big. That’s because this controversy could lead to big changes across corporate America in the policies for directors’ and officers’ insurance, which is used to shield top executives and board members from personal losses for the decisions that they make while on the job. Not only are rates expected to rise, but insurers could also be more restrictive in the coverage they offer or what they pay out in claims.
Who will get stuck with the tab for such changes?
Shareholders at public companies all around, of course.

As anyone who knows anything about investing, higher costs always results in lower dividends - 'the reason for owning stocks'.

Now it's time to convert this into political terms.

Poor performance by the government has no insurance coverage, as Katrina proved in New Orleans. Any such indemnity comes out of the pockets of the taxpayers, and thanks to the reams of tax 'relief' being dumped out of the Congress, there isn't anything left to settle those claims - and far too many others.

If We, the People were doing our jobs as the political shareholders of The United States of America, we would be demanding better performance from out government - or else, we should replace it. THAT IS OUR JOB AS VOTING CITIZENS!

The descriptive term 'voting' is included on purpose. Voting is about all we as citizens get to use to express our approval or displeasure over the performance of the government, the board of directors of the public commonweal. If we don't do our jobs (you know all the usual excuses, so I won't go into them here - and you don't need to either!), then the United States ends up like Enron or Worldcom - defrauded into insolvency.

Americans like to think of themselves as savvy investors. If they really were, they would have every reason to act to protect their investment in the United States of America.

So why are they continuing to fall for the pie-in-the-sky lies they are being given in place of the performance reports a good investor would demand - and read?

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pessimist :: 7:34 PM :: Comments (9) :: Digg It!