There are no shareholders anymore: how to run a business when your ownership turns over every year (or less).

• Author: Sutton, Gary
• Position: SUTTON'S LAWS

THE DIRECTOR'S JOB is clear. Serve the shareholders.

But recent trends make that neat job description tough to follow.

Say you're on the board of Exxon, Wal-Mart, or GE. At GE you've got about 10 billion shares outstanding, and on an average day 24 million shares are bought and sold. So the average investor is holding your shares for just over 400 days--a little more than a year.

"That's the effect of day traders and hedge funds pulling down the averages," you say.

"The institutions--Fidelity, T Rowe Price, Morgan Stanley, etc., etc.--hold on longer and are true investors." Not so. The average institutional holding period is one year. Institutions have become just as volatile as the individuals. And when you study the major shareholders of any public stock, seeing all of those institutions holding onto the stock, things look stable and long term.

This, however, is a mirage.

What most of these institutional investors do is what they call "trading around the core." In other words, when your stock hits a certain high number, they'll dump a percentage of their shares. When your stock dips to another predetermined number, they buy some more. This, in effect, determines your trading range. Barring some major announcement, this is how they make money--and it also means they turn over your shares once a year, on average, despite being a shareholder for longer periods.

So directors today don't work for shareholders, since they no longer exist. What we do have are sharetraders.

Don't look for this to change. With the money hedge funds are tossing around and the continued deployment of automated trading programs, any long-term vision among your public shareholders vanished years ago, probably about the same time ticker tape prices started scrolling across television screens. Have you noticed how ticker numbers are noticeably shy of fundamentals?

Wal-Mart is a shade different. The family holds 41 percent of those shares. Still, with 13 million shares of Wal-Mart being bought and sold daily, and 4 billion shares outstanding, this company is bought and sold every 350 days. That's less than a year. And since the family isn't dumping shares, the real holding period for Wal-Mart is best measured in months.

Exxon is in the same league, with an average turnover of ownership being just short of one year.

None of this is tragic; it's just different, and way different from common perceptions. Given today's average p/e ratios, public markets are still "cheap...