What Do We Expect From Companies and Their Stocks

WRITTEN BY LEE STOERZINGER, CFP®  

While company stocks have been around for hundreds of years, the modern era as we know it started around a century ago. Early on as companies were looking to grow, they would tend to have wealthy individuals own much if not all the company shares. As time went by, companies realized that if they split the ownership among many people it would be better for them, as well as spread the opportunity to larger groups. This conversion helped make stock ownership what it is today.

As we continued to grow as a country and stock ownership became more prevalent, companies were looked at as multi-purpose entities. Not only did they attempt to earn profits, but there was also a cultural duty to serve shareholders, treat employees well, and be dedicated to the community. Corporate America was truly part of society. Some examples of this include strong corporate pensions, employee pay more aligned with senior leadership, desire for quality products, and the beginnings of corporate foundations. The vision on all levels was very long-term.

Along the way (‘70s-’80s), there was a cultural shift and something began to change. Companies started to make large movements from multi-purpose organizations to centers where shareholder profit was virtually a sole vision. Just as a long-term strategy can build upon itself, in this case, so can the increased need for corporate income. We started to see planned obsolescence in products, frustration from the average worker, skyrocketing incomes for senior management (whose pay is based on stock prices), and a shift from community involvement to corporate sponsorship all in the interest of profitability.

If we take a look at the stock markets of today and the companies they are made of, the trend of shorter-term growth continues. The markets tend to be viewed by many not as an important group of individual companies with their own stories, risks, and rewards, but as a large far-away system which simply generates returns for investors. Why? Because they have become a significant source of income replacement for millions of retirees around the country. This was not always the case.

As a wealth management company, we have a unique seat at the table in all of this. On one hand, we must use the market tools available to help our clients earn returns. Yet we also live in the world and see what shorter-term corporate decisions have done to the larger picture, especially employee happiness, true community involvement, and servant leadership.

Some questions to ponder... What do we want companies and their stocks to do for us as we head into the future? Has the need for returns become so great on one side that we sacrifice our societal balance on the other? Can we have both? Are we a reflection of them or are they a reflection of us? While we don’t have the answers to these questions, we do think it’s valuable to consider this broader perspective and how it impacts us.

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.