Section Items
Short Term Holding
Slightly Off Topic

Share Trading - Some Management Issues?

The idea of a company with shareholders is that people with money invest in a business where people who have the relevant skills can make that company successful.

A nice simple idea but as you might expect the reality is slightly different, the real power seems to be in the hands of the management.

Unregulated And Unsupervised Management

Accepting that many directors have no long term interest in the company that they are working for, we as shareholders should be regulating their behaviour.

The small shareholder is often powerless and many shareholders often have a vested interest in not doing so.

Generally the majority of shares in a company are managed by people who are not investing their own money, they are investment funds, pension funds, insurance companies etc.

It is difficult for these investors to regulate company management because any action that they take will reflect on them.

If a fund manager places a cap on executives' salary, he is indirectly placing a cap on his own. He can't say that all the companies he has shares in must cap salaries at say £200K with genuine performance related bonuses and then pay himself £750K regardless of performance.

The same problem exists regarding executives that are not very good, if the fund manager starts putting stringent checks on the abilities of the executives, he will also find such checks applied to himself.

With this cosy arrangement there may be too many executives on a gravy train with a sense of entitlement, however it is no different from sports stars or indeed the rest of us. Once they get the first £500K position they expect it, regardless of whether or not they are any good at their job.

Although this was at a publicly funded body, this network can easily be seen at work in the situation of the BBC's Director General (Nov 2102); in the job for about 54 days, and look at the end of job package!

Once you accept this, you won't expect people on hundreds of thousands a year to take pay cuts just because the company is making huge losses, even if these pay cuts would allow the business to survive and then prosper.

Expect to see the non executives and the remuneration committee saying the " directors pay is in line with the industry standards for someone with their level of experience" as the company slips further and further in debt and terminal decline.