Shareholder primacy and agency layoffs

This post at Please Feed The Animals was a reminder to me just how few public corporations really seem to be in the business of creating long term value.  While all would agree with the premise that corporations are in the business of creating value for stockholders, the time horizon of this value creation is less clear.  I began this post with a comment at PFTA and am continuing it here.  PFTA wonder show many of the large agency holding companies laid off staff because they had a duty to shareholders.

I don't think this has as much to do with the structure of the corporation as it does with the short-sighted investment climate we have had in the last decade.  Flipping Teldar Paper, or Anacott steel, or breaking up Blue Star airlines (ok I have seen Wall Street too many times) seemed like a good idea to shareholders, but only because those shareholders were in the game for the short term.  Gekko offers them a bunch of money and they take it.

Value investors have fallen out of favor.  Classic value investors like Warren Buffett don;t get freaked out about a bad year or even a couple of bad years.  They wouldn't neglect infrastructure investments that they know they are going to need anyway.  Strong companies are built on long term value creation. 

Wealth creation, on the other hand, has so frequently in the last 10 years been divorced from long term value creation, or even preservation.  How many of these are the result of such a division?

  • Quant hedge funds
  • The mortgage mess
  • The .com boom and bust
  • Egregious CEO compensation linked to share prices

And then we come to layoffs.  Firms that have been inefficient for years may have a problem that now they need to lay people off to ensure their survival, like the auto industry, but in other cases, it's suspect.  How many layoff decisons are a desire to maintain short term profitability, anf how many to create long-term value, should be the question every executive asks. 

Changing the structure of the corporation - the uncorporation, or whatever collectivist model is ppopular is in my mind not as cponvincing as a need for a nationwide, if not worldwide, shift in the demands that investors place on corporations.  Buy. Hold. Profit.