aceventura3

Here is the problem. Shareholders who hold stock on a temporary basis don't care about long-term results. When a company is heavily traded by thousands or millions of shareholders with no one shareholder with a "large" ownership stake who can sell their interest with a few key strokes will do that as soon as they perceive there is a better investment. Executives know this and they manage to manage the share price rather than managing to manage the long-term success of the company. A mistake is to pay managers (executives, CEO's, etc) in stock, the illusion is they have ownership interests, the relaity is they can make the stock price go up, cash-out and leave. This can happen before the "house of cards" collapses.

So when you have transient shareholders, then the company has to depend on the Board of Directors to look out for the interest of the company. Often board members are part-time, in over their heads, or in-bed with management. So, then you have a board not holding management accountable. Hence you have major corporate failures due to management focused on short-term results to drive the share price.

True, the above is a simplification. But the basics apply. I was VP at a company the went bankrupt after it was purchased by a group of Wall Street types with degrees from big business schools. Their focus was totally on short-term results to drive the share price. They used the conservatively run company I worked for as leverage for other acquisitions, and eventually it all failed. Ironically, they made a lot of money before the failure. They did not care about the company, the employees or the clients - just cashflow.

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