Short-Term U.S. Corporate Thinking

Short-Term U.S. Corporate Thinking

I mentioned earlier the 1993 law that pretty much required large corporations to compensate their officers in stock options, rather than large salaries--and how this encouraged very short-term thinking--just a quarter or two into the future. A reader mentioned that when Pier-Carlo Falotti took over ASK/Ingres, he commented about how strange it was that U.S. corporations (unlike European corporations) were focused on the quarterly results.

I believe that I have read about another U.S. law that encourages very short-term thinking by U.S. corporations. It was apparently a Depression-era law that requires corporations to either spend their profits within three years, or parcel them out to stockholders. I would love to find more details--but I am not sure where to start looking.

You may be asking yourself, "Why would Congress pass a law that discourages long-term planning?" If this law actually exists (and isn't just a libertarian urban legend), my guess is that there could have been two different motivations:

1. Force corporations to not hoard their money--because Keynes was arguing that Say's Law (which argues that supply and demand for goods are equal) was wrong--that the rich, by hoarding their wealth, were creating an imbalance that caused a shortage of demand for goods.

2. Fear that corporations, if allowed to save up money for decades on end, would become too powerful. You can see this idea expressed in both socialist dystopian novels (H.G. Wells' When The Sleeper Awakes) and socialist utopian novels (Edward Bellamy's Looking Backward). There's a lot of Depression era law that sought to break the power of corporations, such as the Public Utility Holding Company Act of 1935, which had the indirect effect of forcing the sale of the Red Line light rail system in Southern California.

So: is there an expert out there who can point me to the law or regulation that requires corporations to spend or dividend their profits within three years?