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A New Form Of Capitalism: Where Wall Street And Workers Meet

Aug 03, 2015
by Caroline Miller
Bill Ackman, Black Rock, Geoff Colvin, Index Funds, Karl Icahn, passive investing, Ram Charan, State Street, The Quiet Giants Take on the Activists, Vanguard
2 Comments

Entrepreneur Warren Buffet, the nation’s second wealthiest man, (Click) was asked what advice he’d give to his wife about investing if he died before her.  His reply was she should buy  a low cost index fund, preferably from Vanguard. (Click)  An Index fund buys and holds stocks that are listed on one of the major indexes– the Dow Jones Industrial Average, The Standard and Poor’s and NASDQ — and holds them for the duration, despite market fluctuations. Stocks listed on these three exchanges  are rarely dropped because they are the most representative of their industries.  Index funds which mirror the  exchange stocks are called passive investments because no active manager is required to make daily buy-sell decisions.   Passive index funds, for that reason, have lower fees than those actively traded.

Three of the major index funds are Vanguard, Black Rock and State Street.  By law, they are required to be fully invested in the stocks of one of the 3 indexes and because the value of these funds are relatively stable compared to the overall market, they are the darlings of employers and unions who manage retirement funds.  With the advent of IRA and 401k plans, however, money decisions are being shifted from employers, who used to provide pensions, to the worker who must now  self-invest.  Index fund managers are acutely aware of the shift and that they have a new set of customers to satisfy.  That means these funds will monitor how decisions of the companies they hold will affect their clients.  Plans to eliminate large numbers of workers, move a business abroad or to merge or buy another company will get careful scrutiny.

 In the past, large, individual shareholders like Karl Icahn or Bill Ackman,  held sway with these companies.  As speculators, men like these were interested in policies set for short term horizons and that yielded quick profits.  Now, index funds like Vanguard, Black Rock and State Street are flexing their larger muscles to focus companies on long term goals and financial stability.   (“The Quiet Giants Take on the Activists,” by Ram Charan and Geoff Colvin, Fortune, June 15, 2015, pg. 95)

 According to  authors Ram Chan and Geoff Colvin, what we may be witnessing is a new form of capitalism.  Already, the 3 biggest Index funds have joined a group of company directors, lawyers and advisors to form The Shareholder-Director Exchange where they will develop a protocol “ to help companies and institutions engage in new ways.” (Ibid, pg. 100)  This new exchange may become the place where the interests of the workers and Wall Street finally merge.

worker shaking hands with businessman

Courtesy of yahoolcom

 

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2 Comments
  1. S. L. Stoner August 4, 2015 at 6:27 pm Reply
    One problem is the law governing the fiduciary duties of the pension and other fund trustees. They can have set of criteria for companies to meet but, in the end, they can find themselves in trouble if they divest and their returns drop as a consequence. That said, there needs to be a ceiling on CEO's total compensation!
    • Caroline Miller August 4, 2015 at 9:09 pm Reply
      Yes, there is always a risk but having the pension funds take a greater interest in the companies is a good step, I think. As for CEO compensation, who but the CEOs would disagree with you?

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Contact Caroline at

carolinemiller11@yahoo.com

Portland, Oregon author Caroline Miller had distinguished careers as an educator, union president, elected official and artist/advocate.

Her play, Woman on the Scarlet Beast, was performed at the Post5 Theatre, Portland, OR, January/February 2015

Caroline published a serialized novelette, Marie Eau-Claire, on the website, The Colored Lens.  She also published the story Gustav Pavel,  a parable about ordinary lives, choice and alternate potential, on the website Fixional.co.

Caroline has published four novels

  • Ballet Noir
  • Trompe l’Oeil
  • Gothic Spring
  • Heart Land

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