Is it possible to support workers by purchasing stock in the Corporation they work for? This issue came up recently in a drunken conversation with a friend. At the time I was far too inebriated to speak thoughtfully on the subject so several weeks later as my hangover is subsiding I will rant on my blog about the matter.
In recent years the behavior of corporations and Wall Street has turned aggressively against labor. Some have used the term “
corporate capitalism” to describe the practice of slashing jobs to spur gains in stock prices; which please shareholders. This practice is also used to cut benefits and, using the example of
Wal-Mart, using part time employees (usually working 32-38 hours a week) to ensure not having full time workers who would draw health insurance benefits, more vacation time and in some cases higher pay.
Most sane people will admit that as we have seen increases in some economic indicators those increases have not been
transferred to working people. The are many reasons why this is happening:
CEO’s are taking more than their fare share of profits.
Many corporations pay board members up to
$21,000 an hour!
Some corporations have started to use gimmicks to
hide debt which can lead to bankruptcies and unpaid pensions for workers or retirees.
In the business world there is a myth called “the seven percent rule” which claims that with the announcement of layoffs a company’s stock will jump seven percent. This theory has been somewhat discredited although the practice is still quite common by CEO’s who are in a pinch and need a quick fix. James Surowiecki wrote about this recently in the
New Yorker:
On top of all this, a C.E.O. is likely to look to layoffs as a solution because
that’s what almost everyone else does, too. The word “downsizing” wasn’t even
invented until the mid-seventies. The waves of layoffs that began at the end of
that decade and peaked after the recession of 1990-91 were largely a response to
crisis on the part of manufacturing companies swamped by foreign competitors and
stuck with excess capacity. More recently, however, downsizing has become less a
response to disaster than a default business strategy, part of an inexorable
drive to cut costs.
Surowiecki sums up his points:
There’s nothing wrong with costcutting, and in any dynamic economy layoffs will
be necessary. The problem is that too many companies today define workers solely
in terms of how much they cost, rather than how much value they create. This is
understandable: after downsizing, it’s easier to measure a lower wage bill than
it is to see the business the company isn’t getting because it has too few
salesmen, or the new products it isn’t inventing because its R. & D. staff
is too small. These lost opportunities may be hard to measure, but over time
they can have a huge impact on corporate performance. Judging from its reaction
to layoff announcements, the stock market understands this. It’s time executives
did, too.
While I don’t agree with the argument that “the stock market understands this” I think our views only vary slightly. My point would be that many investors, upon hearing of layoffs and/or outsourcing to cheap labor markets from an otherwise relatively stable company, are inclined to purchase stock to ride what is usually a short term gain in higher stock price and then sell off for quick money. Surowiecki’s final point is powerful; the shortsightedness that quarterly shareholder reports breed can do long term damage.
So what can we do? Part 2 to follow!
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