Most big corporations were once run by individual capitalists: by one shareholder with eno
Today, with very few exceptions, the stock of large U. S. corporations is held by financial institutions such as pension funds, foundations, or mutual funds—not by individual shareholders. And these financial institutions cannot legally become real capitalists who control what they own. How much they can invest in any one company is limited by law, as is how actively they can intervene in company decision making.
These shareholders and corporate managers have a very different agenda than dominant capitalists do, and therein lies the problem. They do not have the clout to change business decisions, corporate strategy, or incumbent managers with their voting power. They can enhance their wealth only by buying and selling shares based on what they think is going to happen to short-term profits. Minority shareholders have no choice but to be short-term traders.
And since shareholders are by necessity interested only in short-term trading, it is not surprising that managers' compensation is based not on long-term performance, but on current profits or sales. Managerial compensation packages are completely congruent with the short-run perspective of short run shareholders. Neither the manager nor the shareholder expects to be around very long. And neither has an incentive to watch out for the long term growth of the company.
We need to give managers and shareholders an incentive to nurture long-term corporate growth—in other words, to work as hard at enhancing productivity and output as they now work at improving short-term profitability.
Which of the following summarizes the main idea of the passage?
A.Most big companies are run by individual capitalists.
B.The problem is that there are no incentives for productivity growth.
C.Let's put capitalists back into capitalism.
D.Individual capitalists or shareholders with enough stock dominate big corporations.