Нина Пусенкова - Английский язык. Практический курс для решения бизнес-задач
But why do shareholders cooperate with such corporate robbery? Shareholders and managers are allied against the firm – not pitted against each other. The paramount interest of both shareholders and managers is to increase the value of the stock – regardless of the true value of the firm. Both are concerned with the performance of the share – rather than the performance of the firm. Both are preoccupied with boosting the share’s price – rather than the company’s business.
Hence the inflationary executive pay packets. Shareholders hire stock manipulators – euphemistically known as «managers» – to generate expectations regarding the future prices of their shares. The corporate executives are allowed by shareholders to loot the company providing they generate consistent capital gains to their masters by provoking persistent interest and excitement around the business.
The Principal-Agent Problem arises in other social interactions and is equally misunderstood there. Consider taxpayers and their government. Contrary to conservative lore, the former want the government to tax them providing they share in the spoils. They tolerate corruption in high places, cronyism, nepotism, inaptitude and worse – on condition that the government and the legislature redistribute the wealth they confiscate. Such redistribution often comes in the form of pork barrel projects and benefits to the middle class.
This is why the tax burden and the government’s share of GDP have been soaring inexorably with the consent of the citizens. People adore government spending precisely because it is inefficient and distorts the proper allocation of economic resources. Most people are rent-seekers. Witness the mass demonstrations that erupt whenever governments try to slash expenditures, privatize, and eliminate their gaping deficits. This is one reason the IMF with its austerity measures is universally unpopular.
Employers and employees, producers and consumers – these are all instances of the Principal-Agent Problem. Economists would do well to discard their models and go back to basics. They could start by asking:
– Why do shareholders acquiesce with executive malfeasance as long as share prices are rising?
– Why do citizens protest against a smaller government – even if it means lower taxes?
– Could it mean that the interests of shareholders and managers are identical? Does it imply that people prefer tax-and-spend governments and pork barrel politics to the Thatcherite alternative?
Nothing happens by accident or by coercion. Shareholders aided and abetted the current crop of corporate executives enthusiastically. They knew well what was happening. They may not have been aware of the exact nature and extent of the rot – but they witnessed approvingly the public relations antics, insider trading, share price manipulation, opaque transactions, and outlandish pay packages. Investors remained mum throughout the corruption of corporate America. It is time for the hangover.
Source: Sam Vaknin, published: 2005-01-18, www.bebpronews.com
Essential Vocabulary
1. ordinary shareholder – акционер, владеющий обыкновенными акциями компании
2. books of account – бухгалтерские книги компании
3. day-to-day а – повседневный
4. running n – зд. работа компании, управление компанией
run v – управлять компанией
5. takeover n – поглощение
take over v – поглощать
6. assurance obligations – страховые обязательства
7. agency n – агентство; агент; юридические отношения между принципалом и агентом; агентские услуги; (мн.) ценные бумаги государственных ведомств
agent n – агент, посредник
8. outsider n – аутсайдер
outside a – внешний
9. perk n – привилегия, льгота, скидка
10. annual general meeting (AGM) – ежегодное общее собрание акционеров
11. risk averse a – не расположенный к риску
12.shareholders’ wealth – богатство акционеров
13. public company – публичная компания
14. subscription n – подписка
subscribe v – подписаться
15. offer price – цена продавца
16. stake n – участие в капитале; ставка, заклад
17. venture n – коммерческое предприятие; рискованное начинание
venture v – рисковать, отважиться, решиться
venture a – венчурный, рискованный
18. malpractice n – противозаконное действие, злоупотребление доверием; преступная небрежность
19. replacement value – цена замещения
20. arm’s length – «на расстоянии вытянутой руки» (напр. сделка, проводимая так, что между сторонами нет юридических или финансовых связей во избежание конфликта интересов)
21. free float – число акций в свободном обращении на рынке
22. capital gains – приращение капитала
23. stock exchange – фондовая биржа
24. volatility n – волатильность, переменчивость, неустойчивость
volatile a – волатильный, переменчивый, неустойчивый
25. principal n – номинальная или основная сумма кредита, займа или депозита; принципал, партнер фирмы
26. collusion n – тайный сговор
collude v – вступать в сговор
27. bribe n – взятка
bribe v – давать взятку
28. pay packet – заработок, фонд заработной платы
29. tax burden – налоговое бремя
30. Gross Domestic Product (GDP) – валовой внутренний продукт (ВВП)
31. International Monetary Fund (IMF) – Международный валютный фонд (МВФ)
32. malfeasance n – неправомерное действие, должностное преступление
33. coercion n – принуждение, сдерживание силой, физическое давление
coerce v – удерживать, заставлять, принуждать; добиться путем принуждения
coercive a – принудительный
34. insider trading – внутренняя (инсайдерская) торговля
Exercise 1. Answer the following questions.
1. Who is responsible for the day-to-day running of the company? 2. Why did shareholders play a passive role in the affairs of their company in the past? 3. How has shareholding changed recently? 4. How can institutional shareholders influence the affairs of a company? 5. What is the essence of the agency problem? 6. What does the agency theory state? 7. Why might managers do their best to improve the financial performance of their company? 8. Why is the difference in risk attitudes of managers and shareholders? 9. What are the potential sources of conflicts between managers and shareholders? 10. What types of incentives might encourage managers to act in shareholders’ best interests? 11. Why is it believed that managers will always steal from the company they run? 12. Why do shareholders cooperate with corporate robbery? 13. What is the paramount interest of both shareholders and managers? 14. In what way does the Principal-Agent Problem arise in other social interactions? 15. Do you agree with the macroeconomic views of Sam Vaknin, the author of the second text?
Exercise 2*. Find terms in the text that match definitions given below and make sentences of your using these terms.
1. to assume control or ownership; to seize by force or craft
2. one who is not connected with or admitted to a particular association, set or group
3. an undertaking of chance, danger, or hazard, esp. a commercial speculation
4. an association of brokers or dealers in stocks and bonds who trade securities among themselves
5. fickle, apt to change, lively
6. secret agreement for a deceitful or fraudulent purposes, esp. between persons pretending to be adversaries or competitors
7. to induce to a certain course of action, esp. to a wrong course, by the gift or offer of something valued
8. changed from the natural character or original simplicity
Exercise 3. Analyze the potential for conflict between managers and shareholders in Russian companies. Describe a corporate conflict that has happened in Russia.
Exercise 4*. Fill in the blanks using terms given below.
The Boss on the Sidelines
How Auditors, Directors and Lawyers Are Asserting their Power
If anybody needed proof that the…… in Corporate America has……… Maurice R. Greenberg…….. it on March 13. While the imperious chairman and CEO of American International Group Inc. was aboard his yacht on the Florida coast, his company’s……. directors faced an urgent crisis: a growing……. that seemed to lead straight to the CEO. As directors debated whether to cut Greenberg loose, the 79-year-old titan lashed out at them by telephone: «This board is being….. by a bunch of lawyers who can’t spell the word ‘insurance’! If you get rid of me, you will……. this company!» It was the kind of intimidation that had helped Greenberg….. unprecedented power in his four decades at the…….. of the insurer. But this time, the bullying didn’t work. Within a day, Greenberg, once the most powerful man in the industry, was out as CEO.
Greenberg failed to…… the first rule of this new era: that directors, auditors, and….. are more powerful than ever. That shift has fundamentally altered…….. between CEOs and the advisers. At their best, these supposed guardians of……, chosen for their ability to complement the CEO and provide specific areas of……., were trusted counselors. At their worst, they were little more than sycophants. Either way, these advisers – who were always supposed to work for the……… not the CEO – usually……… their power as watchdogs only in moments of genuine crisis. But now the chumminess has given way to a more adversarial…… This new……. has helped to get rid of Boeing CEO Harry C. Stonecipher, Walt Disney CEO Michael D. Eisner, and Hewlett-Packard CEO Carleton S. Fiorina, among others.
The watchdogs are finally facing genuine…….. for their……. The Big Five in the accounting world became the Big Four after prosecutors……. put Arthur Andersen out of business for its role in the Enron scandal. Meanwhile, directors at the……. Houston energy giant and WorldCom are paying off fraud……. from their own pockets.
The result of all this is a climate of fear. Directors….. and lawyers are worried, first and foremost, about protecting their hides. The old attitude of informal…… with the CEO has been replaced by a new spirit of legalistic formality. When red flags arise, directors are quicker than ever to hire…… attorneys to…… potential wrongdoing.
That often leads to an elaborate game of shift the……. The….. of the moment is: «Put it in writing.» Some auditors are afraid even to talk to CEOs and CFOs about the appropriate accounting……… for complex………
The new…….. is making everything about running a company more difficult for CEOs. The watchdogs are playing a bigger role in……. management decisions about strategy, acquisitions, succession planning, crisis response, and what can be booked as earnings. «Life is going to be much tougher for the Imperial CEO,» says Robert S. Miller Jr., a…….. specialist. «It is what shareholders want.»
CEOs are now being managed with sticks. This is a fundamentally different…… philosophy than the one that prevailed during the bubble years, when bosses were primarily motivated with carrots – otherwise known as……. Both of these approaches were driven by the business crises: the…….. failure of corporate leaders in the 1980s, whose pay was not linked to………, and the greed of CEOs in the late ‘90s and early ‘00s, whose pay was linked to………
The new vigilance will almost certainly provide some clarity in corporate governance and cut down on…….. But as is often the case, the new rules may initially go too far and create their own distinctive…… of problems. Directors, auditors, and lawyers are going to get higher…… in the future. And the……. of their advice may well decline. Why? When really tough……. arise – involving risky……, aggressive……… or gray-area accounting – CEOs have always been able to turn to board members and professionals for advice. Now candid conversations are virtually taboo.
……… is an equally important danger. CEOs can soon become……… preferring to pursue strategies that are «safe» but ultimately unwise rather than risk confrontations with…… over bolder, but smarter, moves. Kenneth G. Langone, the Home Depot Inc. co-founder, warned of the danger that America would have «the best-governed, worst-managed» corporations in the world.
