I wrote a piece the other day on Bill McKibben’s 350.org, which has launched a national campaign to persuade colleges, universities, churches, foundations, etc. to stop investing in the fossil fuel industry. I went on to say that lower demand for shares of stock will reduce total market capitalization, and therefore diminish horsepower in terms of all the factors that make the industry what it is: legal strength, political muscle, and good will in terms of public relations.
Frequent commenter Glenn Doty challenges me on this, writing:
That’s not going to work. The problem is that, once the business sells stock to the open market, there is no direct benefit to the business if the stock price increases or decreases. It’s like selling a piece of jewelry: if you sell it, and the next week the value of gold spikes… you get nothing, you don’t own the piece of jewelry anymore.
Most fossil fuel companies are quite profitable, and are paying dividends to shareholders. Not purchasing that stock is not going to change the dividend structure, nor would it in any way change the fact the company is profitable.
I’m not an expert on corporate finance, but I don’t think you’re correct there, Glenn. Since lowering the demand will lower the price, two things are true:
1) To whatever degree the company owns its own stock, whether in its treasury, its pension plan, or whatever, it doesn’t want to see a decline in the asset base it holds. There are many reasons for this, one of which is that a weak balance sheet increases the company’s cost of capital.
2) A falling price per share eventually means a falling dividend per share, and shareholders don’t want that. Angry shareholders make a trigger-happy board of directors and therefore a nervous executive suite that may be interested in a new course of action.