In The business of business, The Economist explores both sides of the debate regarding whether public corporations should act in the benefit of their shareholds, short or long term, or whether they should have to act in accordance with an express public purpose. The article concludes: "That businesses do not have to declare a lofty purpose so as to enjoy the privilege of incorporation is not a bug but a feature. Indeed, it is the defining feature of the modern corporation. Change it and you wreck the entire machine."
The article does not 1) make a compelling case for not requiring a socially positive purpose, 2) show that changing corporate priorities would wreck the entire machine (what exactly?), or 3) explain why we shouldn't wreck the (undefined) machine at least a little.
The article below by Zero Hedge, one of many that could be written, provides an example how an unlimited quest for short-term shareholder value could turn out.
Dow Fires 1,750 After Boosting Share Buyback Program To $10 Billion
Courtesy of ZeroHedge
Several months ago we showed that in the aftermath of its brush with vocal activists such as Dan Loeb and Nelson Peltz, Dow Chemical did everything it could to push its stock price as high as it possibly could go. It did this in the simplest of ways: by buying back its own stock. In fact, over the past year, DOW bought back over $4 billion in DOW shares after barely doing any stock repurchases in prior years.
But that's just the beginning.
As a reminder, six months ago, Dow increased its share buyback plan by $5 billion which boosted the total share repurchase program to just shy of $10 billion. It did this so CEO Andrew Liveris would keep his job, and keep shareholders happy as it scrambled to prevent Daniel Loeb's push to split the company.
Of course, it also didn't hurt that as a result of the buybacks, shareholders were ok with a 30% jump in the CEO's compensation despite a consistent decline in DOW's net income.
Still, without an organic growth in the company, and with increasing compensation for C-suite execs, and with just financial engineering to make the company appear prettier than it is, someone had to foot the bill.
Sure enough, moments ago we found precisely who.
On April 29, 2015, the Board of Directors of The Dow Chemical Company (“Dow” or the “Company”) approved actions to further streamline the organization and optimize the Company’s footprint as a result of the pending separation of a significant portion of Dow’s chlorine value chain. These actions, which will further accelerate Dow’s value growth and productivity targets, will result in a reduction of approximately 1,500 to 1,750 positions across a number of businesses and functions.
And there you have it: the stock not following the company's profitability decline due to buybacks, activists happy because stock is gradually rising, and the CEO is delighted because he made 30% more last year.
As for those 1500-1750 workers who just got laid off to make sure all the above could take place, well, they can just daytrade DOW stock. And by trade, we mean frontrun the company's upcoming surge in buybacks.
