Wikipedia:Reference desk/Archives/Humanities/2006 December 24

= December 24 =

Ande Ande Lumutan
I'm trying to find a brief overview of Ande Ande Lumutan, an Indonesian myth / traditional story. Does anyone know the story? I'm not sure about the spelling of the title though, it may be Ande Ande Lumut, Ande Ande Lumutan, Ande Ande Lumur, Ande Ande Lumuran, or the preceeding with Andai instead of Ande. Crisco 1492 10:53, 24 December 2006 (UTC)


 * "...the AndheAndhe Lumut, a popular drama of East Java." google books. EricR 04:01, 25 December 2006 (UTC)
 * This looks to be the best link found thru google&mdash;unless someone around happens to speak Javanese or Indonesian. EricR 04:22, 25 December 2006 (UTC)

Initial Public Offering

 * Take an example, Mr. X has made a company from scratch without outside financing. Now the company has grown. So Mr. X decides to take it public, so he can grow the company even more. Mr. X decides to put 20% of the stake on the Y stock exchange via the IPO. Now Mr. X will have 80% of the stake in the company. Is this 80% of his shares counted in the Outstanding Shares/Float? Can he sell all of his 80% stake on the stock exchange immediately after the IPO? Would like to see more than one answer, and if possible references. Thnx. --Judged 06:23, 22 December 2006 (UTC)


 * How much he can sell, and when, is usually an agreement between the underwriters of the IPO and the corporation. The underwriters aren't likely to put up a lot of money if the CEO is going to sink the price of the stock as soon as it goes public! Most commonly (at least in the US), insiders agree to hold on to their stock for six months after the IPO; sometimes there are exceptions (for example, at eBay, the holding period was negotiated down to three months). There are, of course, other issues regarding the fiduciary responsibility of the directors to the other shareholders -- that's one of the reasons the CEO can't dump in a hurry. --jpgordon&#8711;&#8710;&#8711;&#8710; 18:05, 22 December 2006 (UTC)


 * So let me get this straight, does the Founder have to pay for his 80% stake after the IPO which released 20% in stock exchange, so he can sell his 80% stake after 6-12 months? --Judged 21:29, 22 December 2006 (UTC)


 * No. Before the IPO he owns 100%. With the IPO he's essentially selling 20%, leaving him with 80%. Loomis 23:29, 22 December 2006 (UTC)


 * So does the proceeds from the 20% goes into the founders pocket, or the corporation for expansion? And he can sell the rest of 80% after a year with proceeds going directly into his pockets?--Judged 00:27, 23 December 2006 (UTC)


 * I should probably qualify my above statement. I'm no partcular expert on how IPOs are generally conducted, (on that I defer to JP!) but I do know about corporate law. By the way you framed it, he's simply selling shares that he already owns, without any issuing of new shares by the company. If that's the case, then basically he's only selling what he already owns, and so yes, he basically gets to pocket any of the proceeds of that sale. On the other hand, if the IPO involves the company issuing new shares, then the proceeds of the sale of the new issue go to the company. Loomis 01:14, 23 December 2006 (UTC)


 * In other words, the Founder can make as many shares as he wants before the IPO? What I mean is consider the IPO is 20,000,000 shares. So before the IPO he can make 100,000,000 shares? And then after a year these 80,000,000 shares can be sold on the stock exchange?--Judged 03:32, 23 December 2006 (UTC)


 * First off, thanks for your comments on my talk page, they were much apreciated!


 * I know it may sound complicated, and it may seem like the "founder" can basically get away with murder, but it just doesn't work that way.


 * I'm not sure why you prefer to use the term "founder" to what he really is, a "director". Yes, he may have "founded" the corporation, but once the corporation comes into existence, it is, by law, a separate "person". The status of and powers associated with the term "founder" basically end there. Afterwards, before selling any stake in the business, the only status he's acting in is a "director" and "sole shareholder" of a technically independent entity.


 * Now say, to make things as simple as possible, that the corporation is merely a "holding company" (and therefore has no growth potential, as that would only complicate matters for now) and has assets of $100 million. Before the IPO, the number of shares is irrelevant. If there exist 100 million shares, then each share only has a value of $1 ($100 million (in assets) ÷ 100 million shares = $1 per share). Since he holds all the 100 million shares, 100 millon X $1 = $100 million dollars). For argument's sake, he can have the corporation divided in a billion shares, but that wouldn't really do him any good, as the company would still only be worth what its assets are worth ($100 million) only now it would be divided up into a billion shares $100. since 1 million in assets ÷ 1 billion shares = 10¢ per share, and 1 billion shares X 10¢ = $100 million dollars. He's no better off than when he was before.


 * I hope I'm explaining myself well, all I'm trying to get across is that the number of shares (under normal circumstances) is really irrelevant, as he can just as easily divide the company up into a zillion shares, but still wouldn't have any effect of the value of his holdings.


 * All that investors look at (or should be looking at), is what's called the "market cap", which is basically the number of shares outstanding (i.e. existing, including the founders shares i.e. 100 million shares outstanding), their market value (in the example the corp. is just a holding corp., so there's no reason why the "market cap" should be any different from the market value of the assets ($100 million)), divide the two and end up with $1 per share.
 * Now that he's sold 20 million shares, at $1 a share, he's taken in $20 million for himself personally, and he's now only got 80 million shares, which at a value of $1 a share, is worth $80 million. So he's essenially no better off than before.
 * Also please tell me why a company would rather sell from the treasury instead of the founder selling his own shares to raise money --Judged 12:13, 23 December 2006 (UTC)


 * Now as I hope I've explained, if the founder sells shares, it doesn't really help the company at all. The company isn't getting any influx of cash. All that's really happening is that its ownership has been altered. Now assuming the corp. is looking to expand, and assuming its assets are all in real estate and it doesn't have a penny in "cash" to buy more real estate, its got a few options on the table. First, it could sell some of its real estate for cash in order to buy different real estate, but by doing that it's not really expanding, just shifting around assets. The only other two ways of raising cash is by borrowing it, o selling equity in itself. Any well managed corporation should be definitely be leveraging itself to a certain degree, that is, it should it be borrowing money from wherever, using, in this case, it's real estate as security for mortgages. It should then take the money raised and invest it in more real estate, with the aim of earning a better rate of return through renting out the real estate, plus hoping that it'll eventually increase in value, than the rate it's paying to the bank.


 * Finally though, it can raise cash by selling equity. It can, for example, issue another 100 million shares. The price the market should be willing to buy the shares at shouldn't change, everything else being equal. 100 million shares would be issued a $1 a piece, bringing in $100 million to the corp in cash, which is now worth $200 million ($100 million in assets, plus $100 million in the cash it just raised). Of course the number of shares outstanding would also double, from 100 million, to 200 million. In effect, the value of each outstanding share wouldn't change. Neither would the value of the founder's stake change, since all that's happened is that instead of owning 80% of the shares of a corp with a market cap of $100 million, now he owns 40% of a corp with a market cap of $200. Either way, his stake remains unchanged at being worth $80 million, except now the corp has an extra $100 million in cash to expand with.


 * Of course all of the above is a very simplistic model. Things practically never work this way. What happens in IPOs is that the "growth potential" of the business is figured into its market valuation, and so if investors see the corp as having the potential to explode in value, they're very often willing to pay a premium for the growth factor. This is where enormous fortunes are made. Say the corp wasn't a simple real estate holding company, but instead we were in the late '90s an it was a dot-com company. The extra 100 million shares issued would bring in waaaaaay more than an addtional $100 million dollars. Based on investors' belief that the corp is really going places, they may be willing to spend, let's say $10 a share. That would mean that there would be now be 200 million shares outstanding, each share with an inflated value of $10, making the business' putting the business' new market cap at $2billion. Now, should the founder still wish to sell a 20% of his stake, or 20 million shares, he'd now rake in 20 million shares X $10 = $200 million! And he'd still own 40% of the business (80 million of the 200 million shares outstanding, worth 80 million X $10 (on paper though, a the market price can change at a moments notice) = $800 million dollars! Of course a few months later the dot-com bubble bursts and all those fools who paid $10 a share are left with only a fraction of their investment, say $1 a share, while the founder gets to walk away with the $200 million he cashed in on, plus 80 million $1 shares, for a grand total of $280 million! Not bad eh?


 * Of course, like I said, I'm no expert on exactly each and every detail of what goes on in IPO's, but I'm fairly confident that I've got a grasp on the basics. If JP can correct a few assumptions I may have got wrong, then please JP, by all means! Loomis 16:53, 24 December 2006 (UTC)
 * I'm no particular expert either -- I just know about stuff that happens around an IPO, having been involved with one. --jpgordon&#8711;&#8710;&#8711;&#8710; 17:08, 24 December 2006 (UTC)

CEO Salaries & Bonuses

 * Larry Ellison who was listed with a net worth of 16 Billion by Forbes, his year 2005 compensation: salary $975,000, bonus $6,500,000, other compensation $955,100 SEC form 14A. My question lies here with does the Founder have to state in the Prospectus how much salary & bonus he is going to make after the IPO? Because surely before the IPO his company would not been able to afford that kind of salary withouth going broke? --Judged 21:51, 22 December 2006 (UTC)


 * (The following is the law for Canadian Corporations, but I can't see it being all too different at all in the US or any other developed countries). A publicly traded corporation requires at least three directors, who in turn hire the senior officers (the CEO, CFO, COO etc. who actually "run" the business) and set their salaries. The only way someone like Ellison could get such compensation is if he were hired by the board of directors and his compensation set by them that way. Of course it's more than likely that he's one of those three (or more) directors, (one can be both a director and an officer,) and the other two could be good buddies of his so that alone wouldn't necessarily stop him from basically overpaying himself. The real legal barrier would be what JP referred to above as the "fiduciary duty" that all directors owe to the corporations they direct. They're basically bound by law to act in the best interests of the corporation, which of course, would include not overpaying employees (i.e. Ellison himself). Should a minority shareholder (an owner of any of the 20% sold at the IPO) feel that any director (i.e. Ellison) is breaching the fiduciary duty he owes the corporation by overpaying a certain employee (Ellison again), in a matter that is arguably not in the best interests of the company, any minority shareholder (i.e. any shareholder of the 20% of the company sold to the public) can file an action in what is called "oppression", and Ellison (as well as any other director that approved of it) would basically have to convince a judge that as a "director", the salary he's paying to himself as "officer" is truly "in the best interests of the company". Loomis 00:52, 23 December 2006 (UTC)


 * In other words you are saying that they dont have to mention their "Bonuses" and the Stock Options they may recive in the Prospectus?--Judged 03:26, 23 December 2006 (UTC)


 * Sorry for having used the word "salary" when what I really meant was any remuneration in any form. Loomis 10:30, 23 December 2006 (UTC)


 * So why has no purchased one share of each of the public corporations and taken all the high paid CEOs to Court?--Judged 03:20, 23 December 2006 (UTC)


 * On what grounds? That their one share has lost value because of the CEO being overpaid? Further, "overpaid" is a matter of intepretation. Look at the CEO of Goldman Sachs, who just received a bonus of $53 million dollars. That sounds really ridiculously high, until you realize that the main function of the CEO of a public company is to keep the stock price high, and Goldman's profits were up 70% and the stock price up 58% -- so it is pay for performance, and there's not a shareholder who could rightfully complain. On the other hand, when CEOs get paid big bonuses even when their stock price is in the pits -- that's when the Elliot Spitzers of the world take notice and action. --jpgordon&#8711;&#8710;&#8711;&#8710; 03:31, 23 December 2006 (UTC)


 * JP's got it completely right. I couldn't have said it better myself. Loomis 10:30, 23 December 2006 (UTC)


 * So Regardless of the Prospectus, the CEO/Chairman can increase their remuneration after? --Judged 16:20, 24 December 2006 (UTC)


 * No. It's got little do to with the prospectus and all to do with the directors' fiduciary duty to continuously act in the best interest of the company. JP's point only seems to have been that if a director pays a CEO a zillion dollars, and the director increases the value of the business by 10 zillion dollars, he's obviously doing a good job and so there's nothing wrong in paying him such a ridiculous salary, as the money has apparently been very well spent. Loomis 16:58, 24 December 2006 (UTC)


 * And the CEO or Chairman can't do much of anything unilaterally regarding compensation. That's what boards of directors are for. Boards can change the remuneration of those under their direct purview any time they want, yes. They have to give notice (a filing with the SEC), and it's subject to the scrutiny of the stockholders and the regulators, but the prospectus says what the compensation is now -- it doesn't guarantee the compensation will not change. --jpgordon&#8711;&#8710;&#8711;&#8710; 17:11, 24 December 2006 (UTC)


 * Sorry again. JP's right. When I said "if a director pays a CEO a zillion dollars", I should have said "if the board of directors decides on paying a CEO a zillion dollars". I mentioned before that any publicly traded company requires at least 3 directors, and assuming it works by majority rule (which I'm pretty sure it does), no single director can approve of anything on his or her own. You'd need at the very least a majority (i.e. 2 if there's only the minimum 3 on the board) to approve these things. But as I said as well, that's not much of a safeguard, as the second director can just be a good buddy of the first, and just agree with whatever he decides. The real protection against any sort of unfair practice such as overpaying a CEO is found in the law: the (US) SEC regulations and the "oppresion" remedy I mentioned above. Loomis 19:26, 24 December 2006 (UTC)


 * So the Board of Directors can make shares out of thin air after the IPO? --Judged 17:15, 24 December 2006 (UTC)


 * Not knowing the exactly laws/regulations around this, if a firm issued more shares 'out of thin air' all they would be doing is diluting the value of the existing shares. Companies do do this to raise revenue (they also do buy-backs at times) and it can be successful, but investor confidence will inevitably be shaken if the firm does not take into account the effect this will have on the value of the stock/the value of existing shareholder's holdings. In simple terms I understand it to be something like this...a firm worth $10m with $1m shares makes every share worth $10, if the directors issue another 250,000 shares that makes each share now worth $8, the other 1m shares have had their value diluted by the new issuing. I suggest looking at www.economist.com, they have a good range of books available from simple finance to stock markets and all things economic. Additionally it is one of the finest newspapers (well weekly magazine) that I have read. Apologies if I got any of the above wrong, all my own understand rather than any classical training/education! ny156uk 18:54, 24 December 2006 (UTC)


 * Well yes, they can create shares "out of thin air", but you've got to think about what exactly they're gonna do with these shares. If, hypothetically, the company issues shares but just holds onto them, nothing's really going on. I don't see any dilution. The corporation is just holding its own shares, and so economically speaking, they're not "outstanding". Think about if the federal reserve were to double the money supply by printing X amount of dollars, but then put in some vault somewhere and do absolutely nothing with it. So long as the cash hasn't entered general circulation and no one (including the government) is actually doing anything with it, it may as well not exist. Only if it entered into circulation would a doubling of the money supply actualy dilute the value of the dollar (all other things being equal, by half I would imagine). The same thing would hold if a corporation would create shares and then just do nothing with them. They might as just as well not exist.


 * Of course when corporations issue shares, its usually (if not always) for the purpose of raising capital. They first need to file a prospectus with all kinds of information such as what they plan to do with the extra cash, etc., and then they sell it to the public, for the going price. Here still no "dilution" is happening, at least not with respect to the value of the share. If there are 10 million outstanding shares each trading at $1, giving the company a market cap of $10 million, if they "create out of thin air" 10 million more shares and sell them for the going price of $1, they'd raise another $10 million in cash, the market cap of the company would now be $20 million, there would now be 20 million outstanding shares, and the original owners of the first 10 million shares would be unaffected value wise, since their shares haven't changed in value. Of course their stake in the business would change, for example someone owning 2% of the shares of a $10 million business would now find himself owning 1% of a $20 million dollar business. Loomis 19:59, 24 December 2006 (UTC)


 * Well, actually, from what I've observed, secondary offerings lower the value of the stock. So instead of owning that 2% of a $10 mill business, they original shareholders end up owning 1% of, say, a $15 mill business. --jpgordon&#8711;&#8710;&#8711;&#8710; 20:56, 24 December 2006 (UTC)


 * Final Clarification - But they can just issue these "new" shares created after the IPO to the founder after he has sold his 80% stake? From the above responses you have said yes they can issue new shares after the IPO. So would this be the same class of shares, I see usually companies have different classes, most commonly seen with the Banks, which sometimes have A-Z all classes. --Judged 21:04, 24 December 2006 (UTC)


 * All new offerings of stock pretty much work the same way. They're pretty much just like IPOs requiring a prospectus etc., the only difference is that they're not "Initial" Public Offerings. He can certainly buy them at the going rate if he wishes. Or perhaps, if his original bona fide remuneration included options, he can get them at a lower rate, or perhaps even for free if that's what was part of a fair compensation package. But no, he can't essentially just give himself free shares. Loomis 22:22, 24 December 2006 (UTC)

I also ran across something that the government (sec) published on the web http://www.sec.gov/news/headlines/webstock.htm It appears that companies offer free shares to offset losses or to somehow help the numbers of the company’s economic status appear better. I don't understand it completely. But I know there are some scams out there that talk about free shares. The scam sites are similar to hyips, doublers, randomizers, ect. its illegal and should be avoided.. Seems to me there are some legit ways to receive free shares, but some scams use the terms "free shares" to lure and take advantage of people. This sight has a pretty good comprehensive explanation: http://www.howtobeaninvestor.com/
 * I have been reading online and free shares do exist. Reliant energy gave 3 free shares for every 1 share earned. Travelzoo had something similar talked about on here http://www.wired.com/techbiz/media/news/2004/11/65801

Cultural Assessment
I have been reading your articles on culture and found no notations on cultural assessment or cultural models. I would like to call your attention to http://www.richardsonglobal.com/CSI.html. At this URL, a graphic and description of a statistically validated model of culture that I developed can be found. It describes three domains of culture and seven related subdomains that your readers can use to assist them in understanding, analyzing and comparing cultural style preferences. I hold a Doctorate and two Masters Degrees from Columbia University, am a member of MENSA, a publishd author, have trained over 30,000 people in 28 different countries and was the recipient of The Congressional Medal of Merit this year, so this is not some "Mickey Mouse" reference. If possible, I would greatly appreciate its being listed in Wikipedia.

Thanks

Dr. Richard A. Punzo President, Richardson Global —The preceding unsigned comment was added by 67.84.165.65 (talk) 19:51, 24 December 2006 (UTC).


 * Besides your credentials noted above, you've provided the URL of a commercial website with one page describing your cultural assessment model. I suggest you particularly read the guideline page explaining the Wikipedia "notability" criterion for new articles, along with the Frequently Asked Questions about creating a new page. If you proceed to do so, consider including a References section with academic and other publications that cite your model. Hope that helps -- Deborahjay 23:09, 24 December 2006 (UTC)


 * Agreed. The problem is that you've got a commercial site there, and it's not appropriate to try to use Wikipedia to sell things, by posting links here.  If you have a web site which explains all the theory without trying to sell anything, and that theory has been published in reputable scientific journals, then we'd be glad to add a link to that site. StuRat 13:25, 25 December 2006 (UTC)