TalkClimateChange

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.

Further reading: New York Times - Exxon Mobil Needs a Hug