http://myinvestingnotes.blogspot.com/2009/08/examples-of-companies-with-large.html
- how the problem of excessive capital tends to develop,
- what its unfavourable effects are for the stockholders,
- how difficult it is to persuade management to correct the situation, and
- how the stockholders benefit if and when it is finally corrected.
Evidently several things are needed in order that stockholders and managements both may come to view situations of this kind in a sensible and business-like fashion.
- First, the principle must be accepted that, WHEN THE RESULTS ON CAPITAL ARE UNSATISFACTORY, it is appropriate for stockholders to inquire whether too much of their capital is employed in the enterprise.
- Second, if the amount at risk appears prima facie to be more than the business requires, the stockholders should insist on factual and convincing reasons for its retention. They should not be satisfied with the usual generalizations about what is "good for the business," and the usual vague references to possible future opportunities or disasters. (Managements consider either as a sufficient excuse for holding on to what is there.)
- Third, if capital can be spared, they should insist that it be returned to stockholders on an equitable basis.
