Exxon Profits: Who benefits?

Joined: 09 Feb 2008 Posts: 1292 Location: Brand Central

The Myth of Big Oil - Who Actually Benefits from Record Profits

Posted by Red Team - DarylMarch 14, 2008

There has been a general misunderstanding of modern economics running rampant through the global warming debate, and that is the assigning some sort of evil personality to the oil corporations across the globe.

This is a side effect of two popular social platforms; the Populists who believe all big business is self-serving and conspires to take away prosperity from the middle class, and the Progressive Democrats who are for huge social programs and the redistribution of wealth. In order to shed some light on this we need to answer the question "Who actually owns Big Oil Corporations and who benefits from their record breaking profits?"

First thing you need to know is that nearly all oil companies are Public Corporations, meaning they are open to public trading on the various stock exchanges around the world. Since the concept of a public corporation is not new I will take it that everyone understands that these entities are owned by their shareholders. So as an example I will use Exxon’s Mobil’s financial statements for 2006 to look at where all the profits go: Exxon Mobil Financial and Operating Review 2006

Lets look at the key points on page 4 of the review. I know people feel that big oil is evil because they make huge profits, so the first thing they see is "Record Earnings of $39.5 Billion", then they stop reading and proceed to jump up and down and cry about the injustice of the world. Since we are calmer and much more evenly balanced individuals, lets actually keep reading down two more lines and what do we find? "32.6 Billion in Distribution to Shareholders". So let me see, they made $39.5 Billion and gave shareholders, as mentioned before the owners of the company, $32.6 Billion.

So if I still have your attention, Exxon Mobil returned $7.6 Billion in the form of stock dividends (a payment made to all stock holders based on the number of shares they hold) which are basically profit sharing payments to the owners of the corporation. They also bought back $25 Billion in outstanding shares, this is done to maintain the market capitalization based on the number of outstanding shares that would have diluted the stock value when the company issues shares as part of business deals, as well as into the employee’s retirement fund and compensation plans.

So if you have not started jumping about cursing those cigar smoking fat cats in their wood panelled members only clubs counting their windfalls, lets look at who actually owns Exxon and see who benefited from these payout actions.

Who Owns Exxon?

To find this out we can use any of the hundreds of online stock quote services on the Internet. XOM is the ticker symbol on the NYSE. I used Business Week’s stock quotation system as it has an ownership tab. You can look at it here.

The first line we read states "Insiders control 0.05% of XOM through the 4,163,458 shares that they hold.", these are the fat cat cigar smokers everyone says make all the money. So they made a dividend as they tend to hold their shares unless they need the capital, so since 7.6 Billion was paid in dividends they received $3,800,000 in taxable dividend payments for 2006.

So who owns all the rest of the company’s stock? For that we look at Institutional Investors in the stock quote, these are the Mutual Funds, Retirement Plans and other investment companies, "52.64% of XOM shares held by institutional investors" so these are the funds that help to generate wealth for all the millions of regular people who invest in stocks through funds and other institutional vehicles. These are average people saving for retirement or investing in education plans to pay for college for their children, they received $4,000,640,000 dollars into their accounts.

That leaves 47.31% of the shares held by individual Investors, these are the people who actively and directly invest in the markets from all walks of life, like your barber or your colleague in the office who day trades instead of actually working, and of course those terrible rich people. They got the balance of the dividend payments, or $3,595,560,000.00 against taxed income for them.

What about the $25 Billion in Stock Buy Backs, you ask?

Well Exxon pays fair market value to anyone who wants to sell their shares, so when Investors take profits, from buying at a lower price and selling at the new price, they get this return on investment. This helps to keep the stock value high and protect the dividends of those who continue to hold their stocks. So that $25 Billion again went directly into the pockets of regular Investors directly or via shared funds as they sell their positions, this helps make sure people who want to take profits can do so at fair market prices.

This practice also keeps the outstanding number of shares consistent and helps to maintain liquidity in the trading system, without this sellers would make less money as the sell orders may have to wait for buyers, this lowers stock prices.

We are Big Oil

So to recap, when people curse the Big Oil companies for making money they do not realize that they themselves may be the beneficiaries of the actual profits, and in calling for higher taxes on oil companies you could be calling for lower investment returns for your retirement or your children’s education funds. We are Big Oil and when we say we need to tax them more, we are taking income out of our own and our neighbour’s pockets.

Why does this matter in the climate change debate? Well because the record profits are not the Government’s to take away and use for renewable energy policies and other climate change mitigation programs - that money is coming out of the public’s pocket. The Government takes their cut through corporate taxes and income taxes on each individual stockholder.

So if you want to do some good, take your profits or new investment money and invest it in companies working on solutions you support. These companies would love the Investment, but make sure you buy shares directly from the company or else you are just buying some other person’s shares they are trying to sell. In a capitalist economy your vote with Investment capital is much more powerful in regards to mitigation research and renewable projects than your calls to raise taxes to fund these initiatives.

Remember, we are talking about taking money from the incomes of your fellow citizens, and quite possibly yourself, without even realizing it.

This subject of this post originated from an article in the New York Times by Ben Stein.

source of this article

http://www.talkclimatechange.com/2008/03/14/the-myth-of-big-oil-who-actually-benefits-from-record-profits/

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To paraphrase Pogo: "We have met the fat cat and he is us"

Joined: 28 Apr 2005 Posts: 1640

Since the amount of share buybacks was more than five times the amount of the profits they so generously distributed to the masses, I'd like to see more consideration of this issue. How much of this share buying covered for exorbitant option based compensation for company management and employees? Share dividends aren't the only way funds are redistributed to the "fat cats". How much did they get in other company perks?

As usual, the situation isn't as simple as apologists like to suggest.

Joined: 09 Feb 2008 Posts: 1292 Location: Brand Central

I see this article as a starting point for discovery

The main point here is that a huge % of the stocks of the major corporations that some love to bash is owned by "us" the people who have shares in mutual funds and 401Ks

Joined: 06 Jul 2003 Posts: 6742 Location: Central CA

Joined: 08 Jul 2003 Posts: 4793

Using the 401k shtick is like fronting Jerry's Kids for the cause

First if you take all the retirements/401Ks with Exxon in a mutual fund with in a retirement fund and spread that out among all the participants the dollar value per participant would be probably less than the gas costs for the same plan participant.

Then with savings at all time low who is really benefiting with Exxon stock-those trying to save or those with plenty of savings already.Again the fuel costs probably negate any benefit of owning Exxon stock.

Joined: 09 Feb 2008 Posts: 1292 Location: Brand Central

I own no direct shares of any corporation, but i'm not of the type that believes that corporations are inherently evil. Big companies are often demonized (witness the current "windfall tax" hyperbole from the Obama campaign) and blamed for every evil that befalls us. Exxon benefited from the run up in crude prices, making the crude they own and pump more valuable.

This article takes a step back and looks at Exxon, and who owns what, as they are the current 'corporate evil #1', and the fact is that most large corporations have diffused and very wide ownership these days. Witness Anheuser-Busch, whose founding family currently only owned 1.5% of the company and could not prevent a take over if they had wanted to.

Sears is a separate issue, and I'm not comparing Exxon to Sears by any stretch here.

To sum up: A corporation making a profit if this nature is more luck than planning, and as a result the employees and shareholders will benefit from that situation.

Joined: 08 Jul 2003 Posts: 4793

I'm a free market capitalist,but capitalism requires legitimate competition which these big corporations can take away.

And the leverage these corporations hold over the US economy gives them an undeserved don't mess with them status.The big corporations or groups of become defacto governments in themselves if not for power but services that many governments provide.

Joined: 06 Jul 2003 Posts: 6742 Location: Central CA

MA... to use your own recent analogy... no, corporations CAN'T be "inherently evil". As you have stated, they themselves are nothing but legal constructs and as such, they have no intrinsic responsibility to perform in a manner that, if it doesn't actually benefit society as a whole, at least does no harm to society as a whole.

But the bottom line is that there are PEOPLE who control those corporations and as simple human beings, like it or not, they DO have a responsibility to do no harm to society if for no other reason than they are a part OF that society and derive their being from it.

If there wasn't someone out here doing the work, all those bucks wouldn't be flowing into those offshore accounts and multi-million dollar separation packages. I simply think the people doing the work that puts the money in the pockets of the fat cats deserve a little more consideration, that's all.
Taking anything and everything you can just BECAUSE you can does not make you an upright citizen of the community that we all have to live in.

I get the impression that you feel that because a relatively few "other" people somehow derive some measure of benefit from the actions of the people running the companies that have brought us to the present state of affairs, then it's somehow not relevant that a far greater number are suffering, many greatly, from the effects of those same actions.

And nobody was comparing Exxon to Sears... again you go for the shallowest possible interpretation possible, the one that requires the minimum of actual thought and analysis in regard to what was actually said. Sears just happens to be the example of todays corporate thinking that most people who read here are familiar with, that's all. I'm sorry you didn't get it.

Joined: 09 Feb 2008 Posts: 1292 Location: Brand Central

Joined: 28 Apr 2005 Posts: 1640

Joined: 06 Jul 2003 Posts: 6742 Location: Central CA

Joined: 09 Feb 2008 Posts: 1292 Location: Brand Central

Joined: 06 Jul 2003 Posts: 6742 Location: Central CA

I hate to butt in with such a crass question but how do you equate the "cold hard reality of the market" with executive salaries that are 800 times the average income, "golden parachutes" running into the tens and even hundreds of millions, all the other spiffs and perks such as free health care for life, use of the company jets for private business, 11 billion buck quarterly profit... hell, I don't have to list it all, do I?

Those are the cold hard realities that no defender of the status quo wants to talk about.

Seems to me that if the little shareholders you keep tossing up as a counter to concerns over the millions of people who actuallywork their asses off to put all that loot in the pockets of the one percenters were as important to the BODs and CEOs and CFOs and all those other anagrams, they wouldn't have to be standing here trying to justify taking THEIR cut from the people below them on the food chain.

The MAJOR difference between shareholders and employees is that shareholders have a choice... they are not required to buy shares in any company. If they're unhappy with their return, they can take their money and put it somewhere else.

Employees on the other hand, HAVE to WORK somewhere.

Seems to me the the one "cold hard reality" you keep right on refusing to give its full due is the absolute and total greed of the people running the show.

Joined: 09 Feb 2008 Posts: 1292 Location: Brand Central

Employees on the other hand, HAVE to WORK somewhere.

Or, they could start their own enterprise and hire others to work for them.

And this discussion is about Exxon's 'windfall' profits, not CEO salaries.

You might want to start your own thread on that topic.

Mr. Green

Joined: 06 Jul 2003 Posts: 6742 Location: Central CA

*ignoring the falsely premised attempt at snark* Wink

Joined: 09 Feb 2008 Posts: 1292 Location: Brand Central

*ignoring the falsely premised attempt at snark*

LOL

doooood. I was KIDDING.

Joined: 26 Aug 2005 Posts: 1367

Joined: 06 Jul 2003 Posts: 6742 Location: Central CA

Joined: 06 Jul 2003 Posts: 6742 Location: Central CA

Joined: 08 Jul 2003 Posts: 4793

Mags-where's my 25 million exit package

Why your 25 million exit package is with your buddies on the boards of directors or friends there of.Or on an exec with fish lips on his butt.

The boards of directors sign off on a public companies business.If the boards of directors really wanted to give something back to public or 'seem' like an ethical company they would do it.But they might loose their seat on bod.

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