# Why bother keeping shareholders happy? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [March 7, 2015, 2:38pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441 "2015-03-07T14:38:58Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Alley\_Dweller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alley_dweller/32/430_2.png) [@Alley\_Dweller](https://boards.straightdope.com/u/Alley_Dweller)\ **Post date:** [March 9, 2015, 4:02am UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/21 "2015-03-09T04:02:52Z")
> [@halman](#): > > The company loses market value, but how does this hurt it? The only thing that I can think of is that it reduces the company’s ability to borrow money. . Companies often issue additional shares to raise money. If the share price is high, they can raise more money more easily. If the market is confident that management can put this new money to good use to increase profits, they will be successful selling more shares at a high price. Most senior management is paid with a combination of cash, bonuses, and stock options. As the stock price rises, the value of management’s stock options rise. Bonuses can also be tied to company performance. There is little chance that the stockholders of a mega-corporation could vote out the board. Fund managers who control most of the shares would rather just sell the shares and invest in a better company than get involved in trying to manage a company. Individual shareholders are just too diverse to organize into a corporate revolt. And a lot of companies have installed various safeguards against shareholder revolts, such as staggered board terms. Maybe the shareholders at Bailey Bros. Building and Loan Association can oust the board, but it’s not terribly likely at Apple. ---
**Author:** ![JWT\_Kottekoe](https://avatars.discourse-cdn.com/v4/letter/j/3ec8ea/32.png) [@JWT\_Kottekoe](https://boards.straightdope.com/u/JWT_Kottekoe)\ **Post date:** [March 9, 2015, 5:00am UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/22 "2015-03-09T05:00:02Z")
> [@halman](#): > > As I understand it, the practice of paying dividends did not begin until the 1950’s, although I have had difficulty finding any documentation on the history of stock dividends. According to Wikipedia, The Dutch East India Company was the first company to issue stock. It was founded in 1602 and paid an annual dividend of more than 18% for more than 200 years. [Dutch East India Company](http://en.wikipedia.org/wiki/Dutch_East_India_Company) ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [March 9, 2015, 2:00pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/23 "2015-03-09T14:00:05Z")
> [@DSeid](#): > > Of course how to make the owners happy is a matter of opinion. In point of fact larger dividend is [less](http://www.multpl.com/s-p-500-dividend-yield/table) the method of choice in recent years compared to in years past; investing in greater growth rate is. You can see from that table that the average dividend yield for the S&P500 recently has under 2%; before 1990 3% to under 6% was the more typical range. I think you need to normalize that against inflation and interest rates for the various eras. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [March 9, 2015, 2:06pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/24 "2015-03-09T14:06:59Z")
> [@halman](#): > > As I understand it, the practice of paying dividends did not begin until the 1950’s, although I have had difficulty finding any documentation on the history of stock dividends. dafuq are you talking about? The Dutch East India Company was paying dividends as early as the _1620_s. (And very high dividends at that.) Standard Oil was famous for its massive dividend payouts in the 1890s. In one 20-year span they pad out more than half a billion dollars in dividends. In fact, until the conglomeration era of the 1960s, many companies sought to create shareholder value primarily through dividends rather than increasing stock prices. ---
**Author:** ![sevenwood](https://avatars.discourse-cdn.com/v4/letter/s/6de8d8/32.png) [@sevenwood](https://boards.straightdope.com/u/sevenwood)\ **Post date:** [March 9, 2015, 2:47pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/25 "2015-03-09T14:47:15Z")
> [@halman](#): > > I cannot describe something which has not evolved yet, I can only say that the average person has gotten to the point where dropping out of the economy is starting to look appealing. You and I seem to have a basic disagreement as to what the “average person” is thinking \. Seriously, when I attempt to boil down your posts in this thread, I come up with: 1. You don’t understand how the current economic structure works 2. But you don’t like it 3. and somebody else should do something about it 4. because you have no idea how to fix it. ---
**Author:** ![davidm](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/davidm/32/225_2.png) [@davidm](https://boards.straightdope.com/u/davidm)\ **Post date:** [March 9, 2015, 3:06pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/26 "2015-03-09T15:06:58Z")
> [@halman](#): > > As I understand it, the practice of paying dividends did not begin until the 1950’s, although I have had difficulty finding any documentation on the history of stock dividends. > … I have to believe (and other posts back me up on this) that dividends have been paid for as long as there have been corporations. It was originally the whole purpose of buying stocks. Nowadays dividends seem to be the exception rather than the rule, and people buy stocks without consideration of dividends but rather with hopes that they can later sell them at a higher price. This makes the whole thing into something almost like a Ponzi scheme, where there’s no real value other than what someone else is willing to pay for it. Without dividends the whole thing is one big casino. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [March 9, 2015, 4:49pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/27 "2015-03-09T16:49:13Z")
> [@sevenwood](#): > > You and I seem to have a basic disagreement as to what the “average person” is thinking \. > > Seriously, when I attempt to boil down your posts in this thread, I come up with: > > 1. You don’t understand how the current economic structure works > > 2. But you don’t like it > > 3. and somebody else should do something about it > > 4. because you have no idea how to fix it. If OP had a better grasp of #1, 2-4 would be much less of an issue. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [March 9, 2015, 6:00pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/28 "2015-03-09T18:00:10Z")
> [@davidm](#): > > Nowadays dividends seem to be the exception rather than the rule, and people buy stocks without consideration of dividends but rather with hopes that they can later sell them at a higher price. This makes the whole thing into something almost like a Ponzi scheme, where there’s no real value other than what someone else is willing to pay for it. I’ll just note that while there are many companies that don’t (and don’t plan to) pay dividends, many investors (including yours truly) actively seek out companies with good dividend yields. And there are plenty to be found. ---
**Author:** ![Isosleepy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/isosleepy/32/479_2.png) [@Isosleepy](https://boards.straightdope.com/u/Isosleepy)\ **Post date:** [March 10, 2015, 5:02am UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/29 "2015-03-10T05:02:53Z")
Ok, **Halman** , let’s do it your way (despite the fact that management likely are shareholders themselves, owe a fiduciary responsibility to the shareholders etc.) and have management say “fuck you” to shareholders. Not just one company, but pretty much all of them (otherwise, things still don’t change, right?). Now the next Steve Jobs comes around, and invents or steals the next awesome thing. All he needs is 30 million to build a factory and hire some people. In your system, he’d best start playing the lottery, as he won’t find investors. And we’ll never see that next awesome thing. Also, the management of all those companies? They’d like to expand. Can’t sell shares, so they go to the banks. The banks ask them, “hey, didn’t you just royally screw all your shareholders? That doesn’t exactly fill us with confidence. K tnx bye” ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [March 10, 2015, 5:26am UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/30 "2015-03-10T05:26:21Z")
> [@Isosleepy](#): > > Ok, **Halman** , let’s do it your way (despite the fact that management likely are shareholders themselves, owe a fiduciary responsibility to the shareholders etc.) and have management say “fuck you” to shareholders. Not just one company, but pretty much all of them (otherwise, things still don’t change, right?). Now the next Steve Jobs comes around, and invents or steals the next awesome thing. All he needs is 30 million to build a factory and hire some people. In your system, he’d best start playing the lottery, as he won’t find investors. And we’ll never see that next awesome thing. > > Also, the management of all those companies? They’d like to expand. Can’t sell shares, so they go to the banks. The banks ask them, “hey, didn’t you just royally screw all your shareholders? That doesn’t exactly fill us with confidence. K tnx bye” Management screws shareholders all the time. Those big paychecks come right out of the bottom line, in some case they are a high percentage of the profits for a year. Many shareholders hold shares for fractions of a second. If the stock is moving in the direction investors like, they are fine with whatever the management does. If screw the shareholders means the stock price goes down, then I agree with you. Pretty much anything else, no. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [March 10, 2015, 1:05pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/31 "2015-03-10T13:05:14Z")
Most high-frequency trading is done with options, not equity shares. The majority of equity shares are held for the long-term by large institutional investors. ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [March 10, 2015, 1:45pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/32 "2015-03-10T13:45:51Z")
> [@friedo](#): > > Most high-frequency trading is done with options, not equity shares. The majority of equity shares are held for the long-term by large institutional investors. Uh, what? I’m not sure how that is relevant to this thread, and I’m quite sure that it’s not true anyway. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [March 10, 2015, 4:06pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/33 "2015-03-10T16:06:49Z")
> [@Rysto](#): > > Uh, what? I’m not sure how that is relevant to this thread, and I’m quite sure that it’s not true anyway. I was responding to **Voyager** ’s comment about many shares being held for a fraction of a second. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [March 10, 2015, 4:47pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/34 "2015-03-10T16:47:58Z")
> [@friedo](#): > > Most high-frequency trading is done with options, not equity shares. The majority of equity shares are held for the long-term by large institutional investors. Interesting. But another example of how people invested in the market don’t care about management, except how it affects the stock price. But, from the Wiki article > [@](#): > > In the United States in 2009, high-frequency trading firms represented 2% of the approximately 20,000 firms operating today, but accounted for 73% of all equity orders volume.[citation needed][26] The major U.S. high-frequency trading firms include Chicago Trading, Virtu Financial, Timber Hill, ATD, GETCO, Tradebot and Citadel LLC.[27] The Bank of England estimates similar percentages for the 2010 US market share, also suggesting that in Europe HFT accounts for about 40% of equity orders volume and for Asia about 5-10%, with potential for rapid growth.[20] By value, HFT was estimated in 2010 by consultancy Tabb Group to make up 56% of equity trades in the US and 38% in Europe.[28] > > As HFT strategies become more widely used, it can be more difficult to deploy them profitably. According to an estimate from Frederi Viens of Purdue University, profits from HFT in the U.S. has been declining from an estimated peak of $5bn in 2009, to about $1.25bn in 2012.[29] > > Though the percentage of volume attributed to HFT has fallen in the equity markets, it has remained prevalent in the futures markets. According to a study in 2010 by Aite Group, about a quarter of major global futures volume came from professional high-frequency traders.[26] In 2012, according to a study by the TABB Group, HFT accounted for more than 60 percent of all futures market volume in 2012 on U.S. exchanges.[30] So I may have overstated it, but it is still significant. ---
**Author:** ![DrCube](https://avatars.discourse-cdn.com/v4/letter/d/a3d4f5/32.png) [@DrCube](https://boards.straightdope.com/u/DrCube)\ **Post date:** [March 10, 2015, 6:18pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/35 "2015-03-10T18:18:51Z")
Upper management often owns a lot of stock, and their bonuses and performance incentives are also often paid in company stock. “Keep the shareholders happy” is usually code for “CEOs, VPs and executives do what’s financially best for themselves, personally”. The owners of the company like it that way because they’re in the same boat. The real divide is between long-term stockholders, like the founder who still owns 49% of the company, and early employees who are sitting on a lot of stock options until retirement, versus the market investor who doesn’t care if the company goes bankrupt in December as long as they have a big quarter in March. I’d argue that “good” companies (as defined by those with happy customers, and those companies which respect the environment, their employees, the economy, etc) usually take the long view. Companies we all hate for outsourcing, selling (and dumping) garbage, and treating their employees like slaves are often the short-view, quarterly-profits-over-sustainability type. Chalking it all up to “keeping shareholders happy” obscures the distinction. _Which_ shareholders? ---
**Author:** ![Isosleepy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/isosleepy/32/479_2.png) [@Isosleepy](https://boards.straightdope.com/u/Isosleepy)\ **Post date:** [March 11, 2015, 3:59am UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/36 "2015-03-11T03:59:47Z")
> [@Voyager](#): > > Management screws shareholders all the time. Those big paychecks come right out of the bottom line, in some case they are a high percentage of the profits for a year. > Many shareholders hold shares for fractions of a second. If the stock is moving in the direction investors like, they are fine with whatever the management does. > If screw the shareholders means the stock price goes down, then I agree with you. Pretty much anything else, no. Halman sees no need to worry about shareprice, which is what I was referring to. No question there’s some pretty cynical management out there, but Halman appears to look for a system where management ignores shareholders and share price as a matter of principle, in favor of other, apparently more pressing concerns. ---
**Author:** ![Isosleepy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/isosleepy/32/479_2.png) [@Isosleepy](https://boards.straightdope.com/u/Isosleepy)\ **Post date:** [March 11, 2015, 4:10am UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/37 "2015-03-11T04:10:35Z")
> [@DrCube](#): > > I’d argue that “good” companies (as defined by those with happy customers, and those companies which respect the environment, their employees, the economy, etc) usually take the long view. Companies we all hate for outsourcing, selling (and dumping) garbage, and treating their employees like slaves are often the short-view, quarterly-profits-over-sustainability type. Chalking it all up to “keeping shareholders happy” obscures the distinction. _Which_ shareholders? Well, the actual shareholders - as in those owning the shares. Distinct from stakeholders, which includes customers, neighbors, employees, suppliers etc., as well as shareholders. While there are concepts such as socially responsible investing, the most common way to keep shareholders happy is return on investment, through appreciation of the share-price, dividends or some combination thereof. Long term buy-and-hold investors will likely see management being mindful of other stakeholders as a likely aspect of long-term success. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [March 11, 2015, 6:17am UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/38 "2015-03-11T06:17:33Z")
The OP is correct that it’s possible that stockholders will decide to just milk a company dry. They’ll just tell the board to pay them as much as possible in dividends until the company goes broke. The problem with this plan is you’ve got to buy the stock before you collect the dividends. If you’re just draining the company, it’ll probably go broke before it pays you enough dividends to make up for the cost of the stock. So it makes financial sense to think more long-term. Instead of trying to collect as much dividends as possible as quickly as possible, you plan on collecting a steady stream of dividends on an ongoing basis year after year. Or you figure on making a profit by having the value of the stocks go up so you can sell them for more than you paid for them. Both of these strategies mean you have to put some thought into the long-term existence and development of the company. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [March 11, 2015, 2:53pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/39 "2015-03-11T14:53:30Z")
[Here](http://www.nytimes.com/2015/03/11/nyregion/city-comptroller-reaches-deals-with-5-companies-on-giving-shareholders-say-on-directors.html?ref=nyregion) is a timely article about shareholder activism to gain more control over corporate boards. > [@](#): > > In November, the [New York City comptroller’s] office submitted proposals at 75 companies for “proxy access,” allowing shareholders who have owned at least 3 percent of stock at a company for three or more years to nominate directors for election to the board. > > The office went after companies that lacked diversity on their boards, that had complaints of excessive executive compensation or that the office felt needed to do more to address climate change. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [March 11, 2015, 7:08pm UTC](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441/40 "2015-03-11T19:08:03Z")
> [@Isosleepy](#): > > Halman sees no need to worry about shareprice, which is what I was referring to. No question there’s some pretty cynical management out there, but Halman appears to look for a system where management ignores shareholders and share price as a matter of principle, in favor of other, apparently more pressing concerns. There are plenty of examples of management voting themselves big raises and bonuses despite a tanking share price. And even in good companies share prices are relative to the market - CEOs did not go payless in 2009 when most of their stock prices sank. If it is bad enough for long enough and you piss off some real set of powerful board members, then you are in trouble. Just look at that beacon of good corporate governance, HP. [Previous page](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441.md?page=1) [Next page](https://boards.straightdope.com/t/why-bother-keeping-shareholders-happy/714441.md?page=3)