The ultra-rich, our billionaires, are in for a great deal of antagonism. However, only a few hundred people know where they came from and no one seems to have written about it.
I see two sources, and a combination of the two.
A). One came from the genius of Harold Geneen, who became President of International Telephone and Telegraph Company in 1959. He proceeded to create and run the first genuine ‘conglomerate.’ Within a decade he had bought 350 companies in 80 countries. He had experience as a runner at the NY Stock Exchange and as an accountant. Geneen created the corporation market. Corporations are now bought and sold like cars and shoes.
After Geneen showed it could be done, corporations became marketable objects. Geneen managed his acquisition by standardized financial statements and careful top- level supervision.
After Geneen showed it could be done, corporations became market objects just like any other good on the market. Buying and selling corporations and making improvements in the operations became a source of riches for anyone who was good at it.
Three lines of development extended from Geneen’s invention.
- First, corporate takeovers. The best known name in this field is Carl Icahn. Icahn began in the early 1980’s. In a corporate takeover, a shareholder buys enough stock and gets enough votes to take over a company and change top management. With improved share value the company is sold by the takeover shareholder.
- The consulting firm, Bain, founded in 1971, found many other corporations that could be improved but refused to make the profitable changes Bain suggested. Bain then had Mitt Romney and Orit Gadiesh form a company in 1991, Bain Capital, for the purpose of buying corporations and making managerial improvements and then selling the corporations.
- The third line of development was the creation of special purpose funds to imitate Bain Capital and raise funds in the stock market. The largest three, called private equity, are BlackRock, Apollo, and KKR. With combined assets worth $2 trillion.
As can be seen in the examples above, the stock market has been an important source of capital to realize the net gains in corporate value as the corporations improve operating performance.
B.) The stock market has been a more direct source of gain for the dozen or so entrepreneurs who created giant companies de novo. The unique source of stock market wealth has been the special stock holding status of founders.
The lawyers in Silicon Valley who created the corporate structure of many of the extraordinarily successful high-tech companies, made sure the founders and the early investors got an extraordinary proportion of the wealth generated by the stock in these companies. This modality is the source of many of the extraordinary fortunes of the top founding entrepreneurs.