A few passing observations of the different operations needed to manufacture a sewing needle and of the practices of canny 18th century Scottish bankers gave Adam Smith the material for his concept of an ‘invisible hand’ that creates the wealth of nations. When great ideas and perceptions come into proximity at the same time, they can be sewn together to form a new pattern in the minds of men and women.
Our era is amazingly productive of such ideas. We have all sorts of theories, some contradicting each other, but happily adopted simultaneously by national and international leaders desperate to show they are ‘doing something’, as they boldly go across the thin economic ice where none has gone before. Along with trickle-down ‒ and trickle-up ‒ analysts try to cope with the increasing reluctance of economic reality to follow their prescriptions, let alone their predictions.
And alongside these macroeconomic fads is the cult of the celebrity executive, the CEO whose name is so numinous that it attracts offerings from awestricken investors. It surely betokens some deep anthropological need on the part of investors to gild their idols’ feet of clay, continually pumping money into companies whose falling profits and stock prices are inversely proportional to the compensation their management takes.
Ruminating on the news that the Federal Reserve, picking up from European central banks, was contemplating negative interest rates, I came across a scripophily advertisement that proves the point. Trump Hotels and Resorts raised $140 mn at its IPO 20 years ago ‒ and to show what made it attractive, its ticker symbol was DJT, and its snazzy certificate not only had the man’s signature but also had his portrait, hair and all.
Intriguingly, the prospectus invoked ‘THE TRUMP NAME’ (sic) claiming that ‘The Company capitalizes’ on the name’s ‘widespread recognition’, and ‘reputation for quality’. It overlooked mentioning that the huge tax losses on the properties had already been taken by the man selling them to the company that bore its name, indemnifying him against income tax for decades. The NAME notwithstanding, the stock price plummeted from $35 to 17 cents a share. Predictably, the eponymous holder of the voting shares took out more than $80 mn in pay and benefits even as the company lost more than $1 bn.
And in case readers think we are jumping on a bandwagon, I should point out that IR Magazine’s Speculator column first adumbrated Trump’s business acumen 18 years ago and returned to it 10 years ago.
Now some investors of little faith might have been tempted to sell that stock, but true believers in the Donald who held on to the share certificates gained the benefits of long-term investors. The certificate shown below, obtainable for mere pennies in 2004, is now selling for more than $140. Who said the Donald never made money for shareholders!
Taken together, this is inspirational for the investor relations community, introducing a whole new dimension to shareholder value. Throw in Trump, retail investors like those who bought into his company or Tyco, along with the idea of negative interest and we have, blazing like the military-style lasers probably spamming your mailbox now, negative dividends!This is surely a concept whose time has come, since it simply formalizes the common practice of shareholders paying for the privilege of compensating CEOs.
Since it is THE NAME that counts, astute IROs should restart the printing presses and ensure their own celebrity CEO adorns stock certificates and that stockholders are invited to regular bean-feasts with their idol with pictures, regular tweets and messages.
But we need to formalize the returns for the designated celebrity and not just rely on the vagaries of Chapter 11 ‒ hence the innovative idea of negative dividends. Ordinary shareholders should pay quarterly to the company to ensure the CEO has the lifestyle they emulate and want to vicariously share by being stockholders. Like a government run on a no-tax basis, there might be a few glitches to begin with, but the negative dividend has wings. It will fly – all the way to your favorite tax haven!
