Question

In 2000, one share of General Motors stock was worth about $80. In 2008, it was worth about $18. Then GM declared bankruptcy and each share is essentially worthless (they have since re-formed with substantial taxpayer assistance but the original shareholders are out of luck).
If you were a shareholder, how would you feel about GM's management?

Why do you think GM failed so dramatically?

What are stakeholders and who are they in this case?

Answer 1

As a shareholder, it seems GM's management had very little to offer to its shareholders. GM went for debt restructuring in 2008 where it offered to convert its existing debt to equity and subsequently carry out a 1 for 100 reverse stick split - essentially wiping out the stake of its equity holders. GM had been borrowing huge amounts of money from the government and the 2008 financial crisis hit the company hard causing it to default on its payments to creditors. As part of bankruptcy settlement, GM decided to convert its $27 billion debt to equity on its equity market value of just $1.6 billion. This step by the management to short-change its equity holders for creditors reeks of poor corporate governance practice and lack of shareholder consideration.

Stakeholders are entities that are directly or indirectly affected by the operations of a company. These include creditors, shareholders, employees, customers, suppliers, government, environments, etc. In this case, the stakeholders are equity shareholders, creditors (who also happen to be the government), taxpayers, and employees (management)