Consolidated Industries, Inc., an ailing computer manufacturer, has shareholders who are pushing for the removal of directors from its board, including that of its CEO, who, it is claimed, is paid more than $1 million annually

The stockholders’ argument makes several claims, but fails to present any evidence to support its conclusions. First, the statement states that Consolidated Industries’ profits fell below projections. From an objective standpoint, the only possible inference that can be drawn from this statement is that the board of directors made incorrect projections. This inference is dubious because Consolidated Industries is an ailing company and, therefore, it is unlikely that its projections for profits were ever accurate in the first place. To the extent that the stockholders’ statement is accurate, however, it merely indicates that Consolidated Industries’ profits were lower than expected, not that they made a loss. Second, it states that Consolidated Industries’ product line fell from 20 items to 5 items. This statement is vague and does not deserve much consideration. It could easily mean that Consolidated Industries eliminated unprofitable products from its lineup, or it could just as easily mean that it increased the number of different products that it offered. In either case, it is difficult to draw any conclusions from this information. Finally, the statement that Consolidated Industries’ expenditures for employee benefits increased by 15 percent also lacks any direct information. Although this statement seems to imply that Consolidated Industries spent more on employee benefits, it is possible that Consolidated Industries’ employees received larger raises or that the company added more benefits to its benefits package. The stockholders’ statement does not differentiate between these two possibilities, making it virtually impossible to assess the quality of the reasoning

The stockholders’ statement also fails to provide any reasoning to support its claim that Consolidated Industries’ directors should be replaced. The only argument it makes is that Consolidated Industries’ directors are unconcerned about increasing costs. As the CEO of Consolidated Industries, however, the CEO is likely well aware of Consolidated Industries’ financial situation. If the CEO is unconcerned about costs, it seems likely that the stockholders’ statement is incorrect. The stockholders’ claim that Consolidated Industries’ directors should ‘be replaced’ is therefore flawed, and the stockholders appear to lack a clear understanding of their corporate structure

The stockholders’ statement also appears to be flawed in its use of terms. ‘Cost of employee benefits’ and ‘cost of salaries’ are not clearly defined, and the definition of ‘cost of benefits’ and ‘costs of salaries’ could vary significantly, depending on the industry. If the stockholders’ statement had instead used terms such as ‘total employee compensation’, ‘total payroll costs’, or ‘total employee benefits expenses’, its argument might be more cogent. Moreover, the statement suggests that ‘increases’ in ‘cost of employee benefits’ and ‘cost of salaries’ are incompatible with ‘profits falling below projections’. This statement is dubious because it assumes that Consolidated Industries’ profits are determined by the ‘cost of employee benefits’ and ‘cost of salaries’, but this assumption is highly unlikely. Consolidated Industries’ profits are determined by many factors, including those related to sales, the market price of its stock, and its competitors’ products. As long as Consolidated Industries’ stock price remains high, it would be able to cover its expenses and remain profitable. Therefore, the stockholders’ statement seems irrelevant; if it were correct, Consolidated Industries’ stock price would not affect its profits, and if it were incorrect, Consolidated Industries’ stock price would not affect its profits

Perhaps the most troubling aspect of the stockholders’ statement is its lack of any discussion of alternative explanations. In the absence of any evidence that Consolidated Industries’ directors had acted inappropriately in the months before the stockholders’ meeting, it is difficult to conclude that the directors’ actions were the reason for Consolidated Industries’ problems. The stockholders’ statement also fails to analyze Consolidated Industries’ financial situation. The stockholders’ statement suggests that Consolidated Industries is not profitable because its ‘product line decreased from 20 items’, but this statement is vague and fails to provide any specific information. The statement does not state that the number of products sold decreased, or that the number of different products that Consolidated Industries offered remained unchanged. Without this information, it is impossible to determine whether Consolidated Industries was selling fewer products, or was offering fewer different product lines. The stockholders also fail to consider any of Consolidated Industries’ competitors that might have affected the company’s bottom line. For example, if a competitor introduced a product that was similar to Consolidated Industries’ existing products, in order to attract new customers, Consolidated Industries’ profits might decrease, even if the board of directors’s efforts were successful

Furthermore, the stockholders’ statement fails to consider alternatives that might actually strengthen their argument rather than weaken it. An analysis of Consolidated Industries’ competitors could reveal that the competitors’ products are superior to Consolidated Industries’ products. If Consolidated Industries’ customers were unwilling to pay for the competitors’ products, Consolidated Industries’ profits might increase. Moreover, an analysis of Consolidated Industries’ product line might reveal that the company’s products are less profitable than the company previously believed, and that eliminating the existing products would increase sales

The stockholders’ statement also fails to consider the value of Consolidated Industries’ directors.