Capital Market Players: Corporate Managers, Executives, and Stakeholders
Category Overview
Corporate Managers
Corporations issue equities and bonds
Behavior of corporations is determined by six major stakeholders that compete for dominance.
The main stakeholders are
- government;
- beneficial owners;
- corporate executives;
- directors;
- fiduciaries and trustees for the ultimate shareholders; and
- the 'public' (clients, suppliers, workers, environmental groups, etc.)
The Rise of the Professional Manager
In 19th century America (and still in many countries), controlling shareholders, directors, and executives formed a single group, reducing potential conflicts of interest.
Before the advent of mutual funds and the expansion of pension plans, the main corporate stakeholders were the government and majority shareholders who held stock directly in their name.
Over the last fifty years, public corporations in the U.S. have come to be owned by widely-dispersed stockholders, usually represented by fund and pension managers, with no single group having enough shares to ensure control.
Today's corporate managers are usually not controlling shareholdersThis has given power to hired corporate executives, who, in turn, have used company funds and legal procedures to dominate boards of directors that determine their compensation.
Incentives to Manipulate the Stock Market
Without incentives to build companies for the long-term and encouraged by fund managers whose concept of performance is mainly short-term capital gain, American professional management has become oriented to quarterly increases in stock prices and remuneration tied to options.
Over the last two decades, hired corporate executives have jacked up the price of equities, using over one trillion dollars in stock repurchases, thereby paying institutional intermediaries and themselves, to the detriment of long-term investors. (See Buybacks and Options)
Conflict-of-interest problems of hired professional managers have given rise to a corporate governance movement, that has become more of a buzz-word than a solution.
