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It looks like there was a shift in the way businesses and particularly, corporations were viewed. Starting in the 1970’s, and becoming very obvious by the 1980’s, corporate assets were no longer considered the structural elements of the business to be kept safe, strong and protected at all costs. In this new perspective, assets in corporations were seen as a free money pool available for the taking by anyone knowledgeable enough to convert them. Corporate raiders found ways to plunder everything from the long-held pension funds to extending new debt against existing assets and future corporate earnings.
The more cleverly, quickly and thoroughly that the corporations could be raided, the more kudos were awarded to those engaging in it, including admiration given, status, increased personal wealth, positive attention in the press, social and business circles and in publications, prestigious business school recognition and national esteem.
There was an automatic assumption that this meant a fuller or better understanding of business was held by these corporate raiders. The methos and madness of their techniques were taught in business schools and colleges alike as if they were positive techniques for doing business.
In this new light, employees were no longer considered an asset of a corporation but rather as a cost and long-term liability to the corporation. Increasing shareholder value took pre-eminence over R &D, re-investment in corporate market advantage and stability and also over, prudence, fiscal responsibility and stable growth expansion. A different attitude emerged which included a pattern of diverting, converting, altering, dissecting, leveraging, disposing of , trading on, trading with and generally redistributing the monetary integrity and fiscal responsibility of all corporate assets and liabilities.
This is the attitude which must change. It is the basis and the heart of the current economic crisis, is causing the fragility of current corporate structures, undermines the value and stability of banks and financial institutions and is the decimating factor in the mix.
To offer shareholder value at the ultimate expense of the company’s demise does not yield either security for the investors, real value for the shareholders nor continuing profits for the company. It does not safeguard the company ultimately. It does not safeguard in times of financial crisis, does not provide the backup funding to move through competitive or market difficulties and does not yield a strong organization to withstand the continuing struggle to survive, let alone to thrive. Having no reserves from which to draw in either corporate goodwill among employees and the public nor in financial prudence and assured stability, the corporate structure fails. Its ability to maneuver and be flexible is compromised. Its strength is unfounded and consequently the structure founders in the waters of any turmoil.
Since leveraged assets provide no prudent reserve, no backup and no real tangible value, eventually they are no more than a drain on the real assets available to the corporation’s opportunities and survival.
So, now we have a situation in which tangible asset values have been traded for highly leveraged toxic and illiquid credit products. Everything from payroll to facilities costs are being covered by essentially “junk bonds” and commercial paper.
Future sales and earnings are no longer assured but bets are being placed against them. These corporate earnings are already pledged against the operating costs and requirements of today and yesterday. They don’t exist. The corporations now sit on air with nothing underneath them. The integrity of the structure has been decimated.
The corporate officers have assured their own benefits but the assets of the corporations have been shattered. If they continued to survive and made profits in every year from now until 2050, they would simply be paying back what has been borrowed against these assets up until today. (That is, if the consumer base were not shrinking by the day and if the global economy was sound.)
What to do about it –
– shareholders group together, buy the company and straighten out the debts.
– put the corporation into receivership, dismantle the debt and credit derivatives, sell the corporate assets to resolve the leverage and start up again.
– use bankruptcy restructuring to dissolve the defined debt vehicles and to disperse assets to accommodate them.
– sell the debt to third parties, (unlikely to be appropriate in the current climate.)
– morph corporation’s assets into a new vehicle made from the old and leave its previous debt load behind – (very risky but workable.)
– divide the corporation into smaller subsidiary companies, repurchase the debt load from the corporation into one package and sell it for cash to private equity markets.
– give ownership of all corporate assets and liabilities to a holding company whose express purpose is to disseminate assets and dissolve all debt and liabilities – (disadvantages shareholders doing it this way.)
– raise capital, sell off and pay off all debts to start fresh with no pledges against future profits and earnings – (cut out all executives responsible for looting the company in the process.)
There needs to be a paradigm shift in the way corporate assets and their resulting strength for the company and its future are viewed. The labor force of a company is an asset of tremendous value. The benefits of that labor force provide a cushion against unknown market challenges and provides immeasurable goodwill for the survival and future of the business. The future earnings of a corporation are an asset to be protected, not traded for the costs of today, nor for expansion, nor for some risky assets with a “promised” high-return. The physical capital assets of a corporation are the hedge against inflation and rising costs, not because they can be borrowed against, but because they represent the soundness and stability of the corporation and are new costs not to be borne. There are opportunities of growth and expansion naturally, competitively, and soundly made that are far more secure and stable than to borrow against the future to have them available ahead of their time synthetically and artificially.
– corporate executives have already used the “rob Peter to pay Paul” method which is partly to blame for bringing the situation into its current form, (unlikely to continue with adequacy.)
– an increase in competitive advantage could use the increased profits to re-stabilize the company and pay off all debts, dispose of all credit and leveraged obligations, as well as restore the overall financial health of the corporation, its participants, employees and shareholders.
– one possibility is to make all employees into shareholders at a reduced share cost to raise capital and insure greater loyalty to overall success – use the capital to recapitalize and pay off all debt obligations to start fresh with a clean slate going forward.
– also possible to create a new isolated debt vehicle that is a stand-alone product not in any way tied to corporate earnings, assets nor physical properties which combines all existing credit derivatives, leveraging and debt obligations and then fund it as a separate business entity into bankruptcy and dissolution.
– by taking a company private, the vagaries of the marketplace cease to draw upon the asset values of the corporation – also among the choices of available options.
– or debt swaps, credit derivatives, hedge fund investments and other leverage vehicles could continue to be swapped, traded, bought, sold and invested in until the corporation’s profits only exist by virtue of them, five individuals handle the entire process and everybody else can stay home. Of course, ultimately the business would no longer exist as its assets are eventually converted, contrived and conditionally guaranteed on the basis of interest bearing facilities rather than by the products and processes of its original corporate mission and on the basis of its distinctive primary and profitable business model.
– cricketdiane, 02-04-09