rant further space in this book. Those individual shareholders who
have enough gumption to make their presence felt at annual meet-
ings—generally a completely futile performance—will not need
our counsel on what points to raise with the managements. For
others the advice would probably be wasted. Nevertheless, let us
close this section with the plea that shareholders consider with an
open mind and with careful attention any proxy material sent them
by fellow-shareholders who want to remedy an obviously unsatis-
factory management situation in the company.Shareholders and Dividend Policy
In the past the dividend policy was a fairly frequent subject of
argument between public, or “minority,” shareholders and man-
agements. In general these shareholders wanted more liberal divi-
dends, while the managements preferred to keep the earnings in
the business “to strengthen the company.” They asked the share-
holders to sacrifice their present interests for the good of the enter-
prise and for their own future long-term benefit. But in recent years
the attitude of investors toward dividends has been undergoing a
gradual but significant change. The basic argument now for paying
small rather than liberal dividends is not that the company
“needs” the money, but rather that it can use it to the shareholders’
direct and immediate advantage by retaining the funds for prof-
itable expansion. Years ago it was typically the weak company that
was more or less forced to hold on to its profits, instead of paying
out the usual 60% to 75% of them in dividends. The effect was
almost always adverse to the market price of the shares. Nowadays
it is quite likely to be a strong and growing enterprise that deliber-
ately keeps down its dividend payments, with the approval of
investors and speculators alike.*
There was always a strong theoretical case for reinvesting prof-
Shareholders and Managements 489* The irony that Graham describes here grew even stronger in the 1990s,
when it almost seemed that the stronger the company was, the less likely it
was to pay a dividend—or for its shareholders to want one. The “payout
ratio” (or the percentage of their net income that companies paid out as div-
idends) dropped from “60% to 75%” in Graham’s day to 35% to 40% by
the end of the 1990s.