|Jamie Dimon (courtesy of Steve Jurvetson/Wikimedia Commons)|
At Naked Capitalism, Yves Smith writes that the notion of shareholder profit maximization is bunk. He writes: "So many of the assertions made about 'maximizing shareholder value' are false that they should be assumed to be a lie until proven otherwise. The first is that board and managements are somehow obligated to 'maximize shareholder value' is patently false. Legally, shareholders’ equity is a residual claim, inferior to all other obligations. Boards and management are required to satisfy all of the company’s commitments, which include payments to vendors (including employees), satisfying product warranties, paying various creditors, paying taxes, and meeting various regulatory requirements (including workplace and product safety rules and environmental regulations)."
Rather, Smith continues "For the past three decades, top executives have been rewarding themselves with mega-million dollar compensation packages while American workers have suffered an unrelenting disappearance of middle-class jobs. Since the 1990s, this hollowing out of the middle-class has even affected people with lots of education and work experience. As the Occupy Wall Street movement correctly recognized, the concentration of income and wealth of the economic top 'one percent' of society has left the rest of us largely high and dry. Corporate profits are increasingly going to share buybacks or dividend distribution, but very little is going back into research and development efforts, capital reinvestment, and employment. Corporations, in other words, are devoting increasing amounts of their considerable and growing financial resources to redistribution rather than innovation. And they are doing so based on the justification of 'increasing shareholder value.'"
This redistribution of wealth is from corporate coffers into corporate executives pockets, NOT to shareholders or charitable organizations. Evidence of this comes this week with reports that Jamie Dimon, CEO of JP Morgan Chase (pictured above), has been rewarded a 74% pay hike (18.5 million dollar bonus), despite a very rocky past two years of leadership where JP Morgan has paid billions of dollars in fines for regulatory failures.
Redistribution of wealth occurs in the United States, just not in the way folks are often led to believe. Corporate profits are increasingly landing in the pockets of the 1%, not in the pockets of the shareholders.