Saturday, July 29, 2017


FLG found this interesting:
we have argued that shareholder welfare and market value are not the same, and that companies should maximize the former not the latter. One way to facilitate this is to let shareholders vote on the broad outlines of corporate policy. Note that if profit-making and damage-generating activities are separable, or if government has internalized externalities, or if shareholders are not prosocial, then the vote will yield the Friedman outcome: the shareholders will favor value maximization. However, in other cases the outcome will be different and we believe superior.

Of course, there are costs associated with voting. One cost is the risk of too many frivolous proposals being put forward by shareholders, which will distract management. But this cost can be minimized (if not eliminated) by requiring that a certain percentage of shares (say 5%) be behind a proposal before it is put to a shareholder vote. The second potential cost is that company money will be spent in promoting management’s point of view. Yet, the issues that we think should be put to a vote – such as the decision to sell high-capacity magazines in Walmart stores -- are a matter of individual preference, not of managerial expertise. Thus, company bylaws can reduce (and potentially eliminate) this cost by restricting management’s ability to use corporate resources for campaign purposes. Finally, in a wired world we regard the bureaucratic cost of administering proxy votes as trivial. 

 His first reaction is that with the increase in passive investing, will anybody but very motivated people engage and vote on these issues?   He thinks not, which he guess in the terminology above is that the shareholders might be prosocial, but the median prosociality level is more or less a shrug or confused look.   

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