The number of public companies in the US has shrunk significantly since its peak in 1996 and it has to do with various reasons including shareholder activism and relentless pressure of quarterly earnings, wrote JPMorgan Chase's chairperson and chief executive officer Jamie Dimon.
In his annual letter to the shareholders, Dimon wrote that market participants should come up with a "far more constructive alternative" to the annual shareholder meetings that are now being hijacked by grandstanders and special-interest groups. He wrote that these meetings have become ineffective and have fallen victim to "spiraling frivolousness".
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Dimon said that the number of public companies has fallen from 7,300 in the 1996 peak to 4,300 now. Meanwhile, over a shorter timeframe of the past two decades, the number of private-equity backed firms has gone up from 1,900 to 11,200.
The CEO of the largest US bank further wrote that he feared that the companies are being driven away from the public markets.
He wrote, "The reasons are complex and may include factors such as intensified reporting requirements (including investors’ growing needs for environmental, social and governance information), higher litigation expenses, costly regulations, cookie-cutter board governance, shareholder activism, less compensation flexibility, less capital flexibility, heightened public scrutiny and the relentless pressure of quarterly earnings."
Dimon said that the practice of corporate governance is also becoming more and more templated and formulaic.
He wrote, "The governance of major corporations is evolving away from guidance by governance principles that focus on a company’s relationship to long-term economic value toward a bureaucratic compliance exercise."
He added, "Good corporate governance is critical, and a little common sense would go a long way."
He elaborated on the pressure of quarterly earnings that causes heads of companies to take bad decisions, the hijacking of annual shareholder meetings by special-interest groups and the undue influence of proxy advisors.
On the need to reconsider the annual-shareholder meeting format, Dimon wrote that there is a "spiraling frivolousness" to these meetings, which have " devolved into mostly a showcase of grandstanding and competing special interest groups".
While he reiterated the need to treat shareholders with tremendous respect and the need to meet investors and shareholders regularly, he said that annual shareholder meetings need an alternative because the meetings have become "ineffective".
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