January 28, 2007
Heading into the President election of 2008 we already know that income inequality will be a big issue. I have already noted that income inequality figures come from tax data that contain many problems (much income is note included). I have also argued that some inequality may be an inherent part of the incentive system in a technology sophisticated, creative economy. New studies also show that whatever income inequality there is may be explained by simple demographics: As a nation state's age grows its income inequality grows (older folks are wealthier) and as a state's education grows its income inequality grows. Unless we want to outlaw age or education, income inequality growth may be, well, natural -- a statistical illusion. Gets votes though.
Hedge Funds Borrow Shares on Record Dates: Should We Care?
Friday's Wall Street Journal had as it lead story the article by Professor Hue and Black on shorting stock around firm "record dates." The concern is that hedge funds borrow stock to vote it and, thereby divorce the economic effects of the vote from the stock itself. I have written on this and have noted that the concern is not justified. Those who loan the stock charge a fee and the fee is connected economic effects to the vote. A borrower who wants to vote against the company's best interest will, in theory,have to pay a higher fee or just get denied the shares altogether. There is evidence that both occur. Further, evidence that fees around record dates stay the same may be evidence that those who borrow, as is recognized by those who loan, rarely vote against the interests of the firm but usually vote with those interests. The only real threat is to the 5 percent disclosure rule of 13(d), a rule with a ten day window anyway (which has not been tightened because the policy foundations of the rule are questionable). This concern is overblown.
Compare Zell and Crawford
Both Sam Zell and Mac Crawford are facing buyout bids for their companies. Zell has encouraged an auction and raised the price an extra $2.7 billion ($60 million a day). Crawford has blocked an auction and favored the bidder offering a minimal takeover premium and a generous severance package to the senior officers (including himself). There is a right way and a wrong way to handle a buy-out offer.
New Home Depot CEO Turns Down Pay
The new CEO of Home Depot, Frank Blake, rejected the board's first pay offer as too generous. He refused, for example, a lucrative restricted stock package in favor of equity grants tied to performance goals. The Home Depot board needs to tighten up on its bargaining philosophy.