Matt Phillips has a new article at Quartz talking about the manager-shareholder relationship in cash-rich companies. Money quote:
The problems start when managers decide to keep that money in the corporate coffers and not return it to the people it belongs to: the shareholders. That’s been the consensus for decades among scholars of agency theory, a branch of economics that studies the relationship between corporations and the managers that run them. In theory, corporations exist to enrich shareholders…Both Apple and Microsoft are handing buckets of money back to investors via their dividend programs. That leaves Google as the outlier. [bold is mine]
Correct me if I’m wrong, but corporations exist to provide services to customers–shareholder enrichment is just a secondary benefit. To that end, even though Google hasn’t given out dividends since it’s IPO, the innovation that Google engages in at Google X that leads to products like Google Glass, autonomous cars, etc bodes well for the future of the company (and consumers). And, based on the relative performance of Google and Apple over the past 6 months or so, shareholders agree.