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Managers Mainly Look Out for No. 1

June 01, 1986

In his May 20 column, "Investor Rights Only a Part of the Big Picture," James Flanigan commented that "the takeover game . . . has forced virtually all company managements to pay inordinate attention to the stock market."

I am not sure what he means by "inordinate," but it appears to me that corporate managers (if they are interested in looking out for the interests of their shareholders, to whom they are supposedly responsible) would have to pay a good deal of attention to the value of a share of stock because that is exactly where the shareholders' interest lies.

It is certainly true that institutional ownership has complicated the stock market tremendously. However, a tremendous number of corporate managers seem intent on neutralizing all shareholders in their attempt to control institutional ownership.

Flanigan further states that "speculators have made the bizarre demand that wherever possible the liquidating value of a business should be realized immediately."

Again, I am not sure what he means by "immediately," but it is pretty obvious that many corporations are run for years on end without ever realizing their liquidating value because of corporate managers who are intent on maintaining for themselves their outlandish salaries and perks as the first and foremost order of business.

Warren Buffett's stick-to-itiveness with Cap Cities/ABC is admirable, but it seems excessive that he should give Berkshire Hathaway's voting power to the corporate managers and, in order to monitor those same managers, apparently requires them to put him on as a director so that he can monitor the power he has given away.

Investor membership on boards is, of course, as Flanigan suggests, "a way out of the dilemma of corporate governance."

Unfortunately, with a few exceptions, the only way investors find their way on to corporate boards of large corporations is to have so much stock that they are a threat and can force their way on to a board.

By and large, corporate managers don't want shareholders on their boards. Corporate managers want themselves, other corporate insiders and easily controlled pseudo-outsiders so that it is assured that corporate management will not be threatened or their decisions overturned by stubborn independent directors. If this judgment seems to be harsh, pick up the proxy statements of many national corporations (I won't say most, but maybe it is most) and what you will find is most directors with few shares in the company where they serve. Unfortunately, corporate managers will continue their ways because it is in their interest to do so.

They will not change until forced to by some federal regulatory agency. State governments won't take on the complicated task, and the job is probably too big for them. Often in the case of some states, such as Delaware, regulation of corporate managers would be biting the hand that feeds the state coffers.


San Gabriel

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