CREDIT TO THE CORPORATE RAIDER

Stuart K. Hayashi


          The 1980's are thought of as “the decade of greed,” because they were a time in which individuals could purchase entire multimillion-dollar corporations with borrowed money. This was called the “leveraged buyout” or “LBO,” and those who practiced it were labeled “corporate raiders.” Such behavior was frowned upon, not only because it meant a change in management that could displace workers, but because the “raiders” often purchased failing, unprofitable companies just to declare them “out of business” (i.e. “liquidate” them) and then sell off their assets. This was done at a profit because the raider's mere purchase of a company's stock made other people believed it was worth a lot, and so they too purchased it and bid up the price to a high degree . . . just before the raider liquidated the company and made a profit from the stock prices that they had artificially boosted, thereby “making a quick buck” while “workers lost their jobs.” Of course, Oliver Stone's movie Wall Street depicted this as an unscrupulous practice. Michael Douglas assumed the role of “raider” Gordon Gekko--a man without emotion, compassion, or scruples. According to Stone, such was the nature of the man who bought companies just to liquidate them.

           In reality, there is nothing evil about liquidating unprofitable companies while making a profit from doing so. Valuable, productive companies producing at a profit are not the ones being liquidated, because they are worth more to the “raiders” alive than dead. As for the failing companies producing at a loss, they should be liquidated. Either they close down in one quick, fell swoop, so that everyone involved can just get it over with quickly, or they have a slow, painful death that ends with a humiliating bankruptcy.

            As for the cliché “How dare they fire all those workers!”, the best workers will find new jobs. Such was the case in Youngstown, Ohio. When the steel mill closed down, people were unemployed for a while, but three new, smaller companies moved in, and there are now more jobs in that town than ever before; they pay better too. (John Stossel, Is America #One?, ABC News Special, KITV-TV Channel 4, 19 September 1999.) One may then talk about the incompetent workers not being able to find jobs. Some may say that it is the duty of the corporate raider to keep them employed. I answer that charge with: “Why?!”. If the worker is incompetent and is wasting the company's money, then he is not a real worker; he is a de facto object of charity/ If the law requires the “corporate raider” to keep him employed, then he is a de facto welfare mooch. In such a case, the real victim is the “corporate raider”; not the incompetent “worker.”

           In reality, the “corporate raider” is performing a valuable service. He cannot liquidate the company unless the majority of stockholders vote that they consent to it; if investors who want to preserve the company feel that the vote's outcome is unfair, then they could invest in smaller companies where they have more direct control over managment decisions. Either way, the “raider” alerts the stockholders that their money is being wasted and could perhaps go somewhere else. With the unprofitable company closed down, the stockholders can then take their money and invest it in more productive endeavors. As for the workers, they can find new jobs at better-managed companies. In other words, the “raider” is really just re-allocating resources from less productive uses to more productive uses. Yes, he does make a profit from the instantaneous jump in stock prices that his purchase initially created, but that money is only the financial reward for the service that he provided.

            Oliver Stone, and the many businessmen who denounce this practice, have it wrong. Corporate “raiders” raid nothing; the stock is for sale, and they simply purchase it. If the managers don't want one person gobbling up all the stock they dumped on the market, then they y could set the rules that each person or household can only purchase a certain amount of their stock: It's their stock, after all, so they should be able to set the rules; the only thing that could possibly obstruct them from implementing these rules would be the obnoxious government regulations that are allegedly meant to protect investors. So the monnniker corporate raiders is false; these men are resource re-allocators who save stockholders time and money, and save workers time, labor, and face. The “raiders” should not be shunned and vilified as they are, but thanked for their insightfulness and for their courage to admit the truth while others do not. The “raiders” have the cash; it is time for us to also give them some credit.



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The above text is Copyright © 2000 Stuart K. Hayashi, and may not be reproduced by any means without his expressed written permission. All rights reserved.