Sweet Sorrow

This should be the last post of this blog, so after this we part ways, or more accurately I will see the only people who read this blog in class on Tuesday.

But even though I am leaving this blog somethings are staying the same. Surprisingly enough Robert Benmosche of AIG is deciding to stay at his current job. This announcement was made after the media started to report rumors that he was quiting due to salary and compensation caps being put in place. Benmosche's announcement was interesting in that he is deciding to stay when so many people are not.

AIG has already fallen victim to the new government management. By placing caps on the salaries and compensation packages talented managers are leaving AIG. This is most obvious when looking at the hundreds of resignations received after AIG asked for its employees to pay back half of their retention awards. Although many pledged to return the requested amount (totaling 45 million dollars) only 19 million has actually been collected. Collecting anymore seems optimistic as more than four hundred of these employees have left the company.

Before anyone says good riddance think about what this means for management. Not only is the company losing valuable resources and knowledge, but it will fail to attract new talent in the future. Why would you chose a job where you make $500,000 when you could make $2,000,000? The government management of AIG is allowing other companies to cherry pick the talent from the company. Pay caps don't seem like the answer to me, but then I didn't support the raise of minimum wage. Yet, I work at McDonald's for minimum wage.
The only good news on the horizon is that Benmosche is still negotiating with the Treasury department. I hold out hope that his continued presence will stabilize AIG's stock further and help protect shareholders. Because the company needs stability not all of the managers leaving for greener pastures. Some of the best performing companies pay their CEO's millions in bonuses, because it equates to less than 3% of their profits. Think about what percentage of the profits goes into a partners pocket and this percentage seems much easier to swallow.

So this will be my last words on this blog, nothing historical but instead a slightly conservative rant. Because I don't want to be a shareholder of a government corporation, I want the right to decide were to invest my money even if I decide to "invest it" in a cute pair of heels.

Are You Common?

No, I am not asking if you are average. Statistically speaking most of us are average, but as a stockholder it is important to know if you hold common stock or preferred stock. Why? Because it can mean more money if you hold preferred stock, and frankly I like money. First off what is preferred stock? Preferred stock is a designation that states that the shareholder is to be paid at a different amount/time than a common shareholder. Specifically this is advantageous in a bankruptcy were the preferred share holders are paid after the debt holders but before the common share holders. Additionally, the company may negotiate the share directly with the individual and set a dividend rate that is high than that of common shares. Moreover there are different types of preferred stock such as Cumulative preferred stock, which states that if the dividend is not paid it will accumulate for future payment. Or participating preferred stock, which allows for dividends above the negotiatd amount under certain conditions. A rare form of stock is actually the putable preferred stock, which allows the holder upon certain conditions to force the issuer to redeem the shares. Some preferred stock can be multiple variations of the above and can even be converted into anther form of security or stock under certain conditions. So why doesn't everyone buy preferred shares? Well in the United States publicly traded preferred stocks are mostly limited to financial institutions, and Public utilities. And preferred shares don't usually have voting rights, which is why there is a class designated as "Special Voting Preferred Stock", that has certain limitations. Plus as many bankruptcies have come to light in recent news how much money makes it past the creditors? If the corporation had money to pay the preferred stock then they probably would not be filing for bankruptcy. Additionally, common stock is said to perform better than preferred stock. Remember shareholders are granted certain privileges such as voting, dividends, and access to financial documents. The amount of shares owned normally translates into how many votes you may have in elections such as the board of directors. So one hundred shares in a local small corporation may be the controlling interest, but wouldn't even be a minority vote in Wal*Mart.

Veil

Spinning twirling, fluttering.
So thin and gossamer
Forever between us.

The corporate veil is somewhat elusive. It's definition depends a lot on the particulars of a given situation. Yet, stockholders, shareholders, and directors all care about it. Much like being a limited partner the corporate veil protects investors. Allowing one to limit their risk to a set numerical number instead of personal liability. The only problem is that more and more often we hear about debtors piercing the corporate veil and looting shareholders assets. While most innocent shareholders have nothing to fear, it is very important to examine your activities with any company you invest in, after all you wouldn't lend money to someone you knew was performing an illegal activity, right?

Most often the corporate veil is lifted to protect creditors. As a corporation can form a corporation, it can be quite difficult to find an actual person who can be held responsible, additionally parent corporations can move funds from one company to another in some very shady manners. Some important things to watch are as follows.
Who manages the corporation, and what are their qualifications?

• How much access do you have to the company records, are they complete, and do any records look strange? If one company is transferring a lot of cash to another without any consideration, now might be the time to bail.
• Are corporate accounts commingling with another corporation or individual? This goes beyond the people who borrow from petty cash, and looks into embezzling.
• And does another corporation really run the show? Pay bills,and day to day expense, make important decisions, ect

As always I encourgae everone to watch their money and be careful. Also for further reading check out Reverse Peircing of the Corporate Veil by Jay and Arthur Winston, Winston and Winston P.C. , as this article sets forth what a creditor will have to prove to get to the real money.