Oil envy

LAT reporter Elizabeth Douglas reports today that oil companies are making too much money and spending it unwisely -- on stock buybacks. She seems to suggest that oil company managers should not try to enrich shareholders but instead should invest in alternative energy projects without regard to shareholder interests.

Managers of businesses of all kinds are obligated to reward shareholders for their investments, else shareholders will look for alternative investments that provide greater reward or less risk. Without shareholders there is no capital; without capital there can be no business -- unless Douglas is arguing for government capital. Managers are obligated to employ accumulated profits where they will produce the greatest return for shareholders commensurate with risk. If they cannot find acceptable investment opportunities then they are obligated to return the capital to shareholders, who then can decide where next to invest the funds.

To argue that government must step in and either mandate reduced profits or particular uses for accumulated profits is to argue for socialism, which has been tried repeatedly without success (see Great Britain of the 1950s through the 1970s, which was nearly bankrupt when Margaret Thatcher took over the government.)