Is the owner of a company an investor? It's often said that investors have an advantage over business managers. But can investors really control a company perfectly? This article discusses the impact and limitations of investors in company management.
The Role of Investors
Investing in stocks requires less capital, less stress, and no technical skills. Investors are only responsible for their investments and can freely enter and exit. For these reasons, some argue that investors are more advantageous than business managers. However, this claim needs to be questioned. For instance, why don't many business managers invest in stocks while managing their companies?
An expert once claimed, "If you run a business by investing in stocks, you need less capital, less business stress, and no technical skills. You only take responsibility within the limit of your investment, and you can freely enter and exit, making investors more advantageous than business managers." I want to ask those who believe this claim blindly, "If investors are more advantageous than business managers, why doesn't the owner of the company you're investing in run their business through stock investment instead of management?"
Example of the East India Company
The Dutch and British East India Companies purchased or looted goods from indigenous people at low prices. Capitalists at that time also led large fleets to uncharted territories, but if they lost in battles with indigenous people, they went bankrupt instantly. So, the fleet leaders recruited investors to gather capital and share risks in exchange for sharing profits. Initially, this process went smoothly, but disagreements arose about whether to reinvest profits or distribute them immediately. This shows the limitations of the equity system that cannot equitably distribute management rights to everyone.
Investors gradually became more captivated by capital gains than dividends. This shows the limitations of the equity system that cannot equitably distribute management rights to everyone and proves that investors' obsession with capital gains has intensified, indicating that they are not guaranteed voting rights or management participation rights.
Limitations of Investors
Stock investment is often called a partnership. But can you freely meet with the employees of your company, enter the company freely, and accurately understand the derivation of the numbers recorded in the books? In reality, it is close to a capital loan, and it should be an interest-receiving relationship rather than an equity relationship. Shareholders do not receive dividends every year, and as soon as you buy stocks, you take on the obligations of a partner but are not guaranteed the rights of a partner.
Investing in stocks is said to be a partnership. But can you freely meet not only your partners but also the employees working at your company, and freely enter the company? Can you accurately understand how the mysterious numbers recorded in the books were derived? It's difficult to know the details, such as where the assets were precisely purchased and for what reasons, or under what conditions the borrowed money was borrowed. Is this a partnership? Or is it a capital loan? If it's a capital loan, it should be an interest-receiving relationship, not an equity relationship. However, shareholders do not receive dividends every year. Thus, as soon as you buy stocks, you take on the obligations of a partner but are not guaranteed the rights of a partner.
Case of New Drug Development Investment
Suppose you invest in a pharmaceutical company developing a new drug. It takes 10-20 years to develop a new drug. During that time, small shareholders cannot receive internal information and can only wait for the results while receiving only the materials the company discloses. Even if you hold 1% of the shares, you cannot make specific demands on the company. Is this a true partnership, or is it simply a gamble?
Suppose you invest in a pharmaceutical company developing a new drug. To develop a new drug, you must go through various stages: developing a new substance with only a 0.1% success rate, preclinical trials on animals, phase 1 trials on a few healthy individuals, phase 2 trials on a few patients, phase 3 trials on many patients, new drug approval and licensing, and phase 4 trials for re-evaluation. This process takes about 10-20 years. During that time, small shareholders, including yourself, cannot receive internal information and can only wait for results by looking at the materials the company discloses. Even if you hold 1% of the shares and are the 'leader of small shareholders,' you cannot go to the company and demand, "I have 1% of the shares, so let one of the 100 employees develop another new drug!" or "The company's factory site is 1,000 square meters, and my share is 1%, so let me use 10 square meters of it." Even if the employees install air conditioners in the laboratory with research funds and waste money, you cannot go to the company and say, "You are wasting the company's money too much!" and turn off the air conditioner because you pay 1% of the air conditioner fee. If you do such an action, the lab employees will not think, "Our owner is angry. We must have wasted too much company money." Instead, they will think, "Who is that person who came into the lab and made a fuss about turning off the air conditioner?" The security guard might even come and drag you out. You are never the owner of the company. You are just a small investor. You can only hope for the success of new drug development while looking at external information. Is this a partnership, or is it a gamble?
The Role of Business Managers
Business managers do not merely operate capital; they actually run the company, set strategies, manage organizations, and coordinate relationships with various stakeholders. They set the company's goals, allocate resources to achieve those goals, and measure and analyze performance. Managers play a crucial role in the success or failure of the company.
The most important task for the CEO of GE in the US is investor management. When an issue arises that affects the company's stock price, the CEO meets with investors personally up to 300 times a year. However, can investors fully understand GE's internal affairs? Of course not. If the CEO reveals sensitive information to investors, he will be fired. If an investor asks, "Are you engaging in off-balance-sheet transactions these days?" do you think the CEO of GE will answer, "Oops! You've caught me!"?
The Position of Institutional Investors
Among Chrysler's $6.9 billion secured loan debt, there were three pension funds that lent $42.5 million. They filed a lawsuit to oppose the sale, arguing that Chrysler's shareholders were forced to sell their shares to Fiat without consulting them, and that the sale proceeded under the pressure of the US government despite Fiat's speculative credit rating and reluctance to provide financial information. Even institutional investors and senior creditors are ignored by the company, so how much worse must it be for ordinary small shareholders?
Institutional investors also strive to guarantee their rights to corporate governance, but they still face limitations. As seen in the Chrysler case, even if creditors and investors exercise their rights to oppose corporate decisions, it is difficult to fully participate in or control key decisions and internal affairs of the company. This is another example that proves that stock investors do not have their management participation rights fully guaranteed.
Conclusion
The question of who truly owns a company remains. Investors provide capital and partially participate in corporate governance, but they face many limitations. Especially for small shareholders, their rights in management and voting are restricted. Therefore, the answer to who owns a company is not simple. Both business managers and investors play important roles, but their roles and authorities differ. Understanding the complex roles of managers and investors is necessary rather than approaching the ownership of a company with a simple dichotomy.