If you are a shareholder, you are one of the owners of the company. You are not a lender, you are not a stakeholder, you are the ultimate owner. Why? Because the buck ends with you. You are the first person to lose money if the company goes under. If the company goes under, you will probably never see your money again unless you can find someone to fund a class action against the former board. Often a dubious proposition.
I have recently had a dispute with Westpac Banking Corporation. My wife, who is also involved in the transaction, is a shareholder in Westpac. Westpac at one time referred to its shareholders as "proprietors". I was for many years a Westpac "proprietor" and did well out of it. Westpac is the oldest bank in Australia. After several near death experiences, it is no longer the largest bank in Australia. Westpac was once known as a "can do" bank but now seems to be bogged down in red tape and incompetence.
As a result of my unsatisactory experience, I suggested to my wife that she write to "her bank." She said that was a ridiculous idea; why should they take any notice of her? I pointed out that she was an owner of the bank and that she should make her feelings known to the management.
To be a stockholder is to own a "share" in a business. You are not buying a bond, on which interest is paid regularly but gives no ownership privileges. You have become a part owner of a business. Your liability for the company's debts is limited to your shareholding. This is the essense of a limited liability company. You will normally be entitled to any dividends paid by the company, but not to a regular payment such as interest, as paid on a bond. In the old days, investors could be bankrupted by "calls" on shares which were partially paid. That is why many small Australian mining companies were, until recently called NL or "no liability" companies. Holders in NL companies were not liable for calls.
As a holder, you have a number of rights. You can vote for directors. This is the most important right. The directors exist to protect the holders' rights and look after their interests. The managers exist to manage the company. Management also has rights. All public companies should have independent directors who are not beholden to the management or majority shareholders. This is especially pertinent where one person, family or group of people dominates the share registry, as for example rag trader Solomon Lew does in Premier Investments. The most common view of people in Lew's situation is that they don't even try to make the shareholders like them, because it doesn't matter if they do or not. As long as they make money, the shareholders won't complain.
Being a holder doesn't entitle you to go into HQ and pick up a few pens. Shareholder discounts have a checkered history. Institutional shareholders don't like them, because they can't benefit. Their economic utility to the company is doubtful. In some cases, such as former Coles ultra discount offshoot Bi-Lo, the shareholder discount was actually costing the Coles Group money on each transaction. Treasury Wine Estates offers their shareholders some very good discounts on top quality Penfolds wines, but they are in the minority. Usually, the management will say, as do Wesfarmers, the owner of Coles, that they aim to maximisae profits and dividends so all holders benefit. Some companies, such as Bendigo Bank, have peculiar ownership structures where the customers part own some branches. It's a great way of getting a new branch off the ground, but it'makes it hard to shutter loss makers.
Public companies are usually listed on the stock exchange. They have certain legal rights and obligations. They can raise money from the public. As they are "limited" companies, and the liability of the holders is limited to the value of the shares they hold. Public companies also have certain reporting obligations and must be audited by professional auditors. Seeing the men with the green pens move in is an annual rite of passage for a public company. A reputable public company is likely to get a positive hearing from the bank than $2 proprietor limited tax shelter. The auditors assure the holders that the management hasn't been up to monkey business.
Do the shareholders own the company? No-one else does, but the management has legally defined rights as well. These days, the managers are likely to hold shares in the company, to give them an incentive to "create shareholder value." Or to translate, to get the shareprice up, which benefits everyone. Much attention is given to "stakeholders". These are entities like employees, unions, the community where the company is located, suppliers -- even charitable groups to which the company donates. They are not owners. The ones who take the rap, as they used to say in gangster movies, are the owners. They are the people who have risked their money and they are entitled to reap the rewards of their investment. If their investment goes bad, they lose their money.
Wednesday 29 May 2013
Saturday 18 May 2013
Democracy is not working
Democracy is not working. It is not working in the United States, it is not working in Europe and it is not working in Australia.
America is suffering from legislative gridlock. The Congress was intended to work on consensus. What the American's call "partisanship" has taken over. In other words, the ill feeling between the Democrats and Republicans has reached the point where legislation vital to the functioning of the United States is not passed. America is crawling out of its economic black hole, slowly, but the process of governing is going from bad to worse.
European economies are ceasing to function, hamstrung by "cradle to the grave" welfare states. Germany is prospering because its manufacturers dominate the European Union due to an effectively devalued European currency. Pathetic minnows like Cyprus are simply crushed to suit the dominant European powers and the "European project."
Australia has had the best terms of trade in a hundred years, yet the Federal Government, led by Labor Prime Ministers Kevin Rudd and Julia Gillard, has run budget deficits for the last six years that collectively amount to $100 billion or more. Liberal Prime Minister John "The Rodent" Howard bought off the electorate with with bucket loads of middle class welfare, effectively squandering the early returns from the China boom. The Liberals are no better, and are some ways worse, than the ALP.
We must therefore ask Lenin's question: "What is to be done?" When I say democracy is not working, I mean democracy is not working in its present form. I do not believe there an alternative to some form of elective democracy to running a sophisticated state. China, for example, works after a fashion, but it is still far poorer than the Western powers in every way. Thus, the question is should we have less democracy or more democracy?
I can still remember my parents proudly marching off to vote for their preferred candidate in the Western Australian Legislative Council. They had become owners of a property of sufficient value for them to meet the property franchaise. Thus, within living memory, property qualifications have been imposed on voting in Australia.
Similarly, Mitt Romney, Republican candidate in the 2012 US presidential election',was described as "scary" and "narrow minded" because he told a private meeting that America could be divided into "producers" and "consumers". Romney never overcame the "weird" factor and lost to Barak Obama
It is my belief that Australia and Europe are beyond saving because parties compete to buy off electors and interest groups. Much as conservatives lament America's plunge towards a welfare state, the US has gone nowhere near as far in this direction as other Western democracies. Indeed, I think Obama's health plan is good, in theory at least. What makes Obamacare bad are peculiarly American characteristics such as wanting the best, immediately, forever, no matter what the cost.
Bearing in mind Mitt Romney's experience, I do not believe it is possible to restrict the franchise to only producers or property owners. The non-producers would simply revolt, and they can vote. Ideally, anyone in receipt of a payment from the Crown should be denied a vote. But this is, politically, a "bridge too far."
So, we come to the alternative, more democracy. This is both feasible and desirable. What we have now is not a democracy, but a ballotocracy. We elect a parliament and the parliament can doing anything it likes for the term of the parliament. The only way to get rid of a parliament is for it to be defeated on the floor of the parliament or for the prime minister to seek an early dissolution of the House from the Governor General. It is not a democracy, it is an elective dictatorship. Once a Bill passes both Houses and approved by the Governor General, it can only be overturned by the High Court.
The alternative is for the people -- us -- to be able to recall parliament. We could kick out failed regimes like the Gillard Government. Critics say the government would be unable to to implement its policies. Great! That's what 75% of Australians want to do. We should also be able conduct referendums to overturn legislation we don't like.
We can't have less democracy but we can have more democracy. It could save us from ruin. Let's do it!
America is suffering from legislative gridlock. The Congress was intended to work on consensus. What the American's call "partisanship" has taken over. In other words, the ill feeling between the Democrats and Republicans has reached the point where legislation vital to the functioning of the United States is not passed. America is crawling out of its economic black hole, slowly, but the process of governing is going from bad to worse.
European economies are ceasing to function, hamstrung by "cradle to the grave" welfare states. Germany is prospering because its manufacturers dominate the European Union due to an effectively devalued European currency. Pathetic minnows like Cyprus are simply crushed to suit the dominant European powers and the "European project."
Australia has had the best terms of trade in a hundred years, yet the Federal Government, led by Labor Prime Ministers Kevin Rudd and Julia Gillard, has run budget deficits for the last six years that collectively amount to $100 billion or more. Liberal Prime Minister John "The Rodent" Howard bought off the electorate with with bucket loads of middle class welfare, effectively squandering the early returns from the China boom. The Liberals are no better, and are some ways worse, than the ALP.
We must therefore ask Lenin's question: "What is to be done?" When I say democracy is not working, I mean democracy is not working in its present form. I do not believe there an alternative to some form of elective democracy to running a sophisticated state. China, for example, works after a fashion, but it is still far poorer than the Western powers in every way. Thus, the question is should we have less democracy or more democracy?
I can still remember my parents proudly marching off to vote for their preferred candidate in the Western Australian Legislative Council. They had become owners of a property of sufficient value for them to meet the property franchaise. Thus, within living memory, property qualifications have been imposed on voting in Australia.
Similarly, Mitt Romney, Republican candidate in the 2012 US presidential election',was described as "scary" and "narrow minded" because he told a private meeting that America could be divided into "producers" and "consumers". Romney never overcame the "weird" factor and lost to Barak Obama
It is my belief that Australia and Europe are beyond saving because parties compete to buy off electors and interest groups. Much as conservatives lament America's plunge towards a welfare state, the US has gone nowhere near as far in this direction as other Western democracies. Indeed, I think Obama's health plan is good, in theory at least. What makes Obamacare bad are peculiarly American characteristics such as wanting the best, immediately, forever, no matter what the cost.
Bearing in mind Mitt Romney's experience, I do not believe it is possible to restrict the franchise to only producers or property owners. The non-producers would simply revolt, and they can vote. Ideally, anyone in receipt of a payment from the Crown should be denied a vote. But this is, politically, a "bridge too far."
So, we come to the alternative, more democracy. This is both feasible and desirable. What we have now is not a democracy, but a ballotocracy. We elect a parliament and the parliament can doing anything it likes for the term of the parliament. The only way to get rid of a parliament is for it to be defeated on the floor of the parliament or for the prime minister to seek an early dissolution of the House from the Governor General. It is not a democracy, it is an elective dictatorship. Once a Bill passes both Houses and approved by the Governor General, it can only be overturned by the High Court.
The alternative is for the people -- us -- to be able to recall parliament. We could kick out failed regimes like the Gillard Government. Critics say the government would be unable to to implement its policies. Great! That's what 75% of Australians want to do. We should also be able conduct referendums to overturn legislation we don't like.
We can't have less democracy but we can have more democracy. It could save us from ruin. Let's do it!
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