Who says Trump doesn’t make money for shareholders?
Who says Trump doesn’t make money for shareholders?
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November 8,
2016 | By Ian Williams
Astute IROs should restart the printing presses and ensure their
own celebrity CEO adorns stock certificates
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!
