Stockholder Value: The Biggest Con of Them All

Con men (and women) are an unusually talented group of people.

They’ve developed the skill of getting something of value from you with nothing more than a promise of something else that you want.

The big financial scandals of recent years – and those are the ones that we know about – are proof of that.

Bernie Madoff “made off” with billions of dollars of investors’ money.

Now you probably know that those who invest do so in order to make money. Those who are willing to settle for a little open a savings account. But those who want to make it big are most at risk because they’re willing to take it.

Money is the means of exchange in almost every country in the world, but it’s not the root of all evil. The problem is much more subtle than that. That’s because money is part of the equation.

So if money isn’t the problem, what is?

It’s the love of it.

Remember Midas? He wanted everything he touched to turn to gold and, to his cost, he got his way.

I think that it was John D Rockefeller who, when he was asked how much was enough, said famously, “Just a little bit more.”

 

Con men know that that’s what you want: more, and so their schemes are tailor-made according to your level of greed.

A relatively small con would be something as basic as buying a lottery ticket. The promise? Millions. Tens of millions. And what do you have to give in exchange?

I’ve lost count of the number of people who buy one, or five, or ten lottery tickets. They’re convinced that if they use the same numbers, that eventually they’ll win.

It won’t happen. It doesn’t matter whether you use the same or different numbers. That’s because all of the numbers are always available, and so any of them have the same probability of being selected as any of the others. And just to turn the screw a bit more, if no one gets the numbers right, no one wins.

But everyone I’ve talked to who buys them says that it’s just a bit of fun. A flutter. A fling.

Doing so every week however, can add up to several hundred dollars, pounds, euros, yen or any other currency you care to name (depending on where you live) in a year. And my guess is that you could find something a bit more worthwhile than a flutter that last as long as it takes to say, “Maybe next week” to spend it on.

 

A big con promises rewards that could get you onto the Forbes 400 list. Those are the kind of people that Madoff went after.

But can I let you in on a little secret? Neither of these are the really big swindles. These are one-offs. And while they were part of a number of isolated instances, it’s unlikely that you’ll see very many in your lifetime.

 

The con I’m talking about is perfectly legal. In fact, it’s compulsory. It’s enshrined in law, and people can be prosecuted for failing to swindle people out of their money via these means.

Can you guess what it is?

It’s not taxes, though they are something of a swindle.

It’s not the price you pay for utilities, even though they certainly qualify.

And it’s not the monopolies we all have to put up with just to have a mobile phone.

I doubt very much whether you’ve even thought about this as a con at all. That’s how much you’ve been brainwashed.

You’ve been told by those who stand to gain the most that this is the way it should be. And you’ve been told it for so long that you believe it to be true.

That’s why it’s the biggest con of them all.

Give up?

It’s shareholder or stockholder value.

 

Now I’m not saying that if you have invested in a company that you’re stealing someone else’s money. Your investment is actually part of the con. Just remember that in all of the other cons, people had invested their money, too. And that’s another reason why this con seems credible.

The con comes from the mission of the company itself.

Ask any senior executive in a publicly traded company what he or she wants to do more than anything else in their company, and you will be told, “deliver value to shareholders.”

That is the con.

Now let me explain why.

 

You see, it all sounds so plausible. Of course, shareholders should get value. It’s their money that’s enabling the company to expand, make and sell more products, and make more profit. What could possibly be wrong with that?

That’s the wrong question to ask.

Do you see how easy it is for you to be conned? If you ask the wrong question – the one that they want you to ask – there’s no chance that you’ll get the right answer.

 

The right question is who are the stockholders?

It’s true that there are probably several thousand shareholders; but hardly any of them hold very many shares.

A few hundred are held by the vast majority, and several thousand are owned by probably less than 1000 people; probably a lot less than that.

But if you want to know who the big players are, then you need to look in the company’s annual report. That’s where you’ll find out how many shares the senior executives own. And you’ll find that they own hundreds of thousands or millions of them.

How did they get so much?

Well, I can tell you that it wasn’t from joining Mom’s and Pop’s local investment club, and it wasn’t through the employee stock option plan that you’re under either.

These shares were given to them as part of their compensation packages.

 

Now I want to clear up something.

I’m not saying for a minute that it’s wrong for senior executives, or anyone else come to that, to be given shares as part of their salary and benefits. Ownership and a share in the profits are two of the best motivational techniques known to man. (You have to admit, however, that what they’re given is rather a lot. Very few people – Bill Gates is one exception – are worth anything like $20m per year. Even professional athletes, in my opinion, are grossly overpaid. But we’ll leave that discussion for another time.)

The biggest con of them all is that when senior executives tell you that their mission is to deliver value to their shareholders, they mean themselves. They mean that as the majority shareholders, they want the company to pay them more.

And that is the con.

And just like the US Congress, the majority shareholders decide how much to pay the majority shareholders, how many shares to give them, and what their severance package will comprise.

And there’s nothing that you as a small shareholder can do about it.

 

It gets worse.

They are also the ones who decide how much the dividends should be on each share, or if they should pay any at all.

 

So the next time you hear someone say that their primary goal in their company is to deliver value to the stockholders, ask him or her how many shares they own.

If it’s hardly any, then be sure to tell them that they are being conned.

Have a nice day.

Leave A Response

* Denotes Required Field