At 06:16 01/09/2011, Mike wrote:
http://arxiv.org/pdf/1107.5728v1
The network of global corporate control
Stefania Vitali, James B. Glattfelder, and Stefano Battiston
28 July 2011
This printed out so faintly that I've only read the Abstract on page
1. This, however, struck me as saying nothing new. We all already
know that consumer goods production is becoming increasingly
automated (responding to customers' demands for cheapness), thus
requiring increasingly larger investment and thus, necessarily, fewer
and larger firms for each niche-good(s) according to the level of
specialization or diversification felt to be efficient. Whether the
paper succeeds in showing that a large portion of TNCs's global
control then flows to a "small tightly-knit core of financial
institutions" I don't know because I didn't read any further. In my
view, this is probably the case in Western Europe, Japan and
America. However, because the banks and their governments concerned
stand variously between bankruptcy and long term economic depression
then whatever the financial structure happens to be at present will
probably start unravelling in the next decade or two as social unrest
mounts. Whether Chinese TNCs become coralled in the way same remains
to be seen. So far, the Chinese government has succeeded in keeping
the real beasties (Goldman Sachs, JPMorgan, and the like) right out
of their territory. Even conventional banks, such as HSBC, with which
the Chinese cooperate (mainly to promote the renminbi) are kept at
arm's length.
I've only reached p. 5 (of 36) but this is intriguing.
I once asked my father-in-law (who was the CFO of a small liberal arts
college) what would happen if a corporation bought all of its own
shares. "Couldn't happen", was his reply. He wouldn't even contemplate
the notion as an hypothetical scenario.
He probably said this because it was illegal at the time. There was
no particular reason for this. It was just a residue from the sort of
joint-stock business law that was brought in a hundred years or so
ago when the protection of shareholders was the main purpose of the
legislation. The idea of a company buying its own shares was simply
not contemplated. But there is no reason why a company should not do
so. It's no different from a house owner adding value to his own home
by building extensions, etc. For this reason, company-self-buying has
become legal these days.
Okay, okay, I get it. The shareholders are likely to say, "Wait! If
you're making piles of money, enough to offer to buy back my shares,
just give me a dividend or do something cool that increases share
value." But do the execs/managers/players *really* have to put up
with that in today's world?
A company doesn't force existing shareholders to sell. It can only
buy shares available on the stock market. In, and during, the process
of buying, the shareholders' own existing shares will appreciate
(because of the increased demand). The shareholder must then decide
whether the management of the company is competent enough to maintain
the new higher price. If they don't think so, they can then sell
their shares and buy something else. There are, of course, enforced
situations when take-overs occur. In these cases the shareholders can
decide whether to sell at the new higher price. If the enforced new
shares are not at a higher price then it means that the business
taken over was already in a bad way (or had too many unused assets)
and the shareholder should have sold out a long time previously if
he'd had any sense.
My original thought was that management would love to wield the power
of the corporation without the restraint of shareholder scrutiny or
demands.
Yes, this is what is undesirable about company self-purchase. These
days, management is becoming increasingly unamenable to the more
objective advice of non-executive directors (at least those who have
had business experience elsewhere -- increasingly these days they are
merely well-paid pawns who turn up at meetings, take their fees, and
shoot off to the next board meeting). But, at the end of the day, the
management clique of a business with its enhanced power (and its
self-appointed high salaries and perks!) still depends on the
customer market place for existence. Because mass customers are the
final arbiters of whether a business survives or not I don't see what
can be done about managerial hubris -- at least by legislation. It's
interesting, however, that some pensions and investment funds with
sufficient shareholdings in a large business are increasingly voting
at AGMs against excessively greedy managements. But pension and
investment funds are themselves run by management cliques and it's a
moot point whether these cliques are primarily looking after their
own pensioners and customers or themselves!
Well, now, this paper suggests that there's now an ownership/control
topology among TNCs such that it appears (to a financial dumbo such as I)
to achieve something close to the functional equivalent of a
corporation buying itself.
The actual paper is only 8 pp., the rest labeled as "supporting
information" but the latter is really the explanation of what they're
getting at.
The prose is a little turgid and has errors, both perhaps due to
English not being the first language of the author. But it's the
first thing I happen to have seen that takes an approach to the
subject that I might, with some effort, understand. Digraphs,
reticula, flow charts and the like make more sense to me than the more
typically seen statistical or financial tables.
Same here!
Keith
FWIW,
- Mike
--
Michael Spencer Nova Scotia, Canada .~.
/V\
[email protected] /( )\
http://home.tallships.ca/mspencer/ ^^-^^
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Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/08/
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