Occasionally you could read about an activist investor taking battle against a company in aim to improve returns and have a better future.
There is increasingly more signs, that shareholder do not any control over what is happening with the companies. American companies have stockpiled nearly a trillion dollars of cash offshore to avoid paying higher tax bills at home.
This underlines two simple truths:
- It is very unlikely that this is done in shareholder’s interest. Such strategies create unjustified risks associated with tax avoidance schemes and loss or reputation due to bad publicity.
- Inability and unwillingness of businesses to expand at home despite very favorable conditions.
Estimates are varying from source to source but by some estimates total cash reserves of US companies kept overseas climbed to $1.64tn last year. That was $180bn or 12 per cent more than the year before.
The companies would not return cash in any way or form – stock buybacks, dividends, investing in the future growth. Is it really in investors interests? Highly unlikely and yet they seemingly have no say.
Companies, particularly big ones are out of touch and reach. At the same time governments are getting increasingly hostile towards individuals – raising income taxes and organizing witch hunt on foreign income.
Raising income taxes. The governments might want to argue, that, the main driver for rising taxes was a fall in the value of tax free allowances and tax credits relative to earnings. Increases in employee social security contributions also played a role in some cases. Aging population has some contributing effect as well. Big Companies are immune and individuals have to carry the load by themselves by paying increasingly more towards the country budget.
The witch hunt on individuals. One of the most recent examples, is in the UK - currently HMRC (local IRS) must demonstrate that individuals intended to evade tax on foreign income but in future the government wants to be able to bring criminal prosecutions against anyone found to have undeclared foreign income.
While individuals maybe hiding billions in offshore accounts, big multinational companies are squirreled away trillions of dollars. Governments made it possible for them. Shareholders seemingly quite content with the companies sitting on pile of cash doing nothing, more over there are no guarantees that the cash is actually secure.
I have some serious doubts that the individual investors, including activists have a measurable say on how the blue chips and other big companies are being ran. The more troubling thought is that the companies do not believe in the US future and not investing in its growth, while an opportunity is seemingly there.