This is the crux of the Amazon debate. I don’t know how to mitigate this.

There are two responses to the concerns about corporate cash hoards. 1. We shouldn’t worry about this, because corporate shareholders have been demanding greater control of corporations through a series of business-financed initiatives, including…

This is the crux of the Amazon debate. I don’t know how to mitigate this.

There are two responses to the concerns about corporate cash hoards.

1. We shouldn’t worry about this, because corporate shareholders have been demanding greater control of corporations through a series of business-financed initiatives, including executive pay, directorships and shares in the company. If the financial markets can handle all this leverage by just receiving a share of a company, they can tolerate quite a bit of corporate cash.

2. But there is a problem. Shareholders want these cash hoards to use some to expand the business and find some synergies. But there is a subtle problem with this—shareholders don’t want these shareholders to be forced to acquire a minority or control of the business. There is nothing wrong with holding a majority share in the business. Shareholders hold 60 to 70 percent of all companies, according to the Federal Trade Commission. But if executives control their companies as they want, then they are in charge.

The company controlling the referendum for an executive pay package will receive the larger votes. It just won’t be affected if the bigger votes originate from non-traditional shareholders who are simply benefiting from the company doing well. Is that fair? Do the unlicensed drivers who cause the most accidents deserve more say because they are able to get into the company cars and potentially drink and drive on the company dime? The shareholders should determine the platform, but the money managers should be responsible for an accurate read on how the company is performing and how management has leveraged it.

Businesses are not taxed, so there are actually few good reasons to hold a share of a company. There is tax advantage, as you can do a tax-free reinvestment of the dividends, but there are at least two plausible arguments against that taxation: First, it is a comfort to the “rightful” shareholder. This is analogous to having a shotgun planted behind your head as you sleep. Second, there is a difference between a mutual fund owning a share and the mutual fund making a decision to rebalance its portfolio.

The only issue I have with the strategy is the outcome. Business is driven by profitability and innovation. A tax-free income stream is better than a stable income stream, but to take the wealth out of business is always ill-conceived. And I don’t know how to mitigate the absence of some of the inside information required for stocks to be making optimal decisions.

The common strategy is to hit a few world-changing products and put in a business that requires a certain level of intellectual capital to deliver sufficient returns to the value of the franchise. Investors then like to see the customer base that is created from this investment. This is the reason that Amazon is a mainstream company, not a cult, and it could not exist without Jeff Bezos and a rapacious army of Amazonians. He sold shareholders a few slices of the pie. However, there is a lot more to be gained from a competitive advantage that is shared with stakeholders, such as universities. Yes, universities are highly dependent on government-funded research, but someone has to fund the research that drives growth in industries like software or biotechnology. Still, if Bezos had sold 40 million shares and left a few hundred million on the table, we wouldn’t have had an Amazon.com.

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