![]() Change is threatening in this case, the threat is aimed at the senior executives of many of our largest companies.ĭespite the protests, this organizational innovation should be encouraged. By resolving the central weakness of the public corporation-the conflict between owners and managers over the control and use of corporate resources-these new organizations are making remarkable gains in operating efficiency, employee productivity, and shareholder value. Over the long term, they will enhance U.S. economic performance relative to our most formidable international competitor, Japan, whose companies are moving in the opposite direction. The capital markets are in panies of the mid-1960s and early 1970s-an era of gross corporate waste and mismanagement that triggered the organizational transformation now under way in the United States.Ĭonsider these developments in the 1980s: The governance and financial structures of Japan’s public companies increasingly resemble U.S. The total market value of equity in publicly held companies has tripled over the past decade-from $1 trillion in 1979 to more than $3 trillion in 1989. But newly acquired capital comes increasingly from private placements, which have expanded more than ten times since 1980, to a rate of $200 billion in 1988. ![]() Private placements of debt and equity now account for more than 40 % of annual corporate financings. Meanwhile, in every year since 1983, at least 5 % of the outstanding value of corporate equity has disappeared through stock repurchases, takeovers, and going-private transactions. 1 (See the insert, “The Privatization of Equity.”) Finally, households are sharply reducing their stock holdings. The last share of publicly traded common stock owned by an individual will be sold in the year 2003, if current trends persist. This forecast may be fanciful (short-term trends never persist), but the basic direction is clear. By the turn of the century, the primacy of public stock ownership in the United States may have all but disappeared. Households have been liquidating their direct holdings and indirect positions (through channels like mutual funds) at an unprecedented rate. Over the last five years, they have been net sellers of more than $500 billion of common stock, 38 % of their holdings at the beginning of 1984. Why have stock prices risen sharply despite this massive sell-off? Because there has been one huge buyer-corporations themselves.
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