On The Responsibility of Shareholders

On The Responsibility of Shareholders
by Mike Madias, Clinical Sociologist

Guest Columnist

July 30, 2002

Columnist Mike Madias It is not enough for many of those who buy common stock to be passive holders of equity.

Financial managers tell us that making money in the stock market is a matter of picking a solid company, buying their stock and holding it for at least five years. They say that the stock held for that time will surely sell for more than its original purchase price.

But many owners of shares must exercise greater responsibility than that. They must be stock holders who are actively committed to a company. The reason is this, a stock certificate is not just another kind of lottery ticket. It is more than a collectable like a gold coin that is bought when the market is low and hopefully resold at a profit.

That is because a share of common stock represents a living entity: a corporation that acts in the environment and in the society. A wager on a lottery ticket may make some one a winner of money. The gold market may move favorably for the holder of bullion. But what does it profit a shareholder if the company makes a profit, pays a handsome dividend, and in so doing pollutes the air and water, and leaks dioxins into a river near his home?

Employees buy company stock, and then the company closes the plant, moves out of town. What good is a modest dividend to someone who has just been laid off?

Recently, the Compuware Corporation of Farmington Hills, Michigan announced that the company had lost $336 million over the fourth quarter of 2001. It lost this much money despite net sales of $407 million over the same period. This is a financial disaster.

Compuware's founder and CEO, Peter J. Karmanos, is quoted as saying that his company suffered from a downturn in the economy and expressed guarded optimism because Compuware had dumped 800 workers and closed 12 offices.

"We are going to work like crazy to make sure our products are must-have products. We are going to position ourselves for growth. It is going to take time for the economy and the sour taste in the marketplace to straighten out," Karmanos said.

There is no mention of bad planning and poor execution on the part of senior management.

The HMS Titanic went down in the North Atlantic. Yes, there was an iceberg. But part of the reason that the Titanic sank has got to do with bad design, bad navigation, and bad work by the captain and crew. And the consequences of that incompetence went further than a financial loss for the owners of the vessel.

In the same way, the owners and managers of Compuware are responsible for that record breaking loss. And the loss is likely to have repercussions in downtown Detroit. They should read company financials with care and skepticism. They should make their concerns known at meetings of stock holders. Perhaps listen in to the company's quarterly meetings with analysts. They should vote their stock intelligently. Perhaps the Compuware stockholders should consider dumping the management.

Financial advisors will say that if stock holders do not like the stock, they should sell their shares of it and buy something else. Stock holders have done that en masse. And the market price of Compuware common stock has fallen from around $15 a share to the neighborhood of seven dollars a share.

And, if a stockholder has a modest position in the security, and no social or environmental connection with the underlying company, perhaps he can walk away from the stock as easily as he could liquidate Troy ounces of bullion.

Because a share of common stock represents a dynamic relationship of management, labor, community and nature, all those who participate in stock ownership have a piece of that relationship. So, irresponsible management of a corporation can cause social and economic repercussions in a community that last for years.

If some one wants a purely financial relationship with purely financial consequences, they are welcome to try their luck at a slot machine.

But owning common stock means being part of a business - a going concern. And that means responsibility and work. ***

Photo of Mike Madias courtesy of the author

A clinical sociologist living in the Metropolitan Detroit area, Mike's work has appeared in The Detroit News. He may be reached by e-mail at News4629@aol.com.