Analysis of IT news

Wednesday, July 23, 2008

Shareholders vs. executives vs. employees

After the acquisition talks between Yahoo! and Microsoft fell through, most Yahoo! shareholders were very upset. In an interview, a shareholder was lamenting that Yahoo!'s board didn't care about the shareholders.

I'm sure that employees around the world felt sorry for him. Yahoo!'s board didn't care about him. How unfair! After all, shareholders are notorious for caring about employees. NOT!

At the end of the day, any public company has mostly three types of stakeholder: shareholders, top executives and regular employees. And most of the time the three groups only care about themselves.

Shareholders should logically be the most powerful group. After all, they legally own the company. But if their collective power is strong they are also very dispersed, which strongly dilutes this power. Their biggest power is to hurt top execs stock options when the company's quarterly statements disappoint. But they've proved powerless to stop other corporate abuses.

Top executives are the ones with the most negotiating power. They're in a position of relative power and their small numbers allow them to be focused. In a previous column I argued that there are mostly two types of CEOs: entrepreneurial CEOs and professional CEOs, the latter being preferred by Wall St because they're more polished and play by Wall St rules. But if you think this type of CEOs cares about shareholders, think again. Sure they're more polite towards shareholders and take quarterly objectives much more at heart, but that doesn't mean they give a crap about shareholders - nor that they will please them any better. If you're not convinced, think of all the professional CEOs who've enjoyed a fat, juicy salary as well as a very comfy golden parachute even though their company went through hard times and saw their stock taking a beating. Case in point, Home Depot former CEO Robert Nardelli who was criticized for seeing his pay go up as the stock went down. He was finally kicked out for bad performance but still walked out with a $210 million golden parachute. Or former Disney president Michael Ovitz who received a $140 million severance package after a dismal 16 months performance. That's almost $10 a month golden parachute (and that's on top of regular wages).

And last are the regular employees. Not all only think about themselves, but a lot tend to become disillusioned after the years. They may be told they're "the company's most important asset", but reality doesn't back that noble statement. For a start, employees fall in the "expense" category in a quarterly financial statement, not in the "asset" category. That tells something about how shareholders view them. And as far as how top execs see them, it's interesting to notice how companies tend to part with their so-called "most important assets" when they hit financial trouble. Because they cannot retaliate by awarding themselves nice bonuses, employees tend to be passive aggressive. Slacking on the job, or even embezzlement. But the most common behavior is a complete lack of loyalty. During the doctom bubble companies were complaining that employees were jumping ship too easily and had no loyalty. Well, companies haven't exactly shown much loyalty towards their employees in the last decades either.


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