(I’m pretty sure this is a new ide, but if not let me know)
Background: I’m looking at two completely different news items. One is the long awaited payment for the Exxon Valdez tanker spill. The other is the Bear Stearns purchase. In the latter, enough new shares were sold to JP Morgan to guarantee that it could win acceptance of it’s takeover bid.
So, now the new idea: Instead of Exxon giving x number of Alaskans a check for x amount of dollars, the court could have demanded that an equivalent percentage of new shares be created, and the shares recorded in those names. The recipients of course could hold them or sell them as they wished.
The main advantage is that the company’s operation would not be damaged in any way. Same payout, but no disruption, no layoffs or selling of assets.
I thought I’d suggest this to Congress, but air it here first, in case it’s not as simple as I made it sound.
So whadda ya think, will it fly?
I see a couple of problems.
Issuing new shares to Alaskans hurts existing Exxon shareholders, by diluting the pool of profits that they can draw upon.
Furthermore, hurting Exxon is a good thing, to the extent that it deters them from negligently permitting drunks to captain oil tankers. Indeed, CEOs should lay awake at nights fearing that sort of catastrophe. The hope is that they will exercise due diligence. [1]
[1] …agency issues notwithstanding.
Dilution profits is the idea. A fine also dilutes profits. But since Exxon doesn’t pay dividends, it can be handled as a paper loss rather than selling ships or some other way of payment. Same repayment of costs suffered by the state but less diruption to the company’s operations.
Exxon pays dividends. Its yield is currently 1.64%. Any increase in shares would require additional dividend payouts.
Furthermore, Exxon has been doing pretty well lately. I see no evidence that a huge fine would affect their operations. (It may, but that hasn’t been shown here.)
There are some interesting issues: what’s the best way to encourage a corporation to practice due diligence? But this is really an empirical question, not one that can be settled without extensive factual grounding.