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tl;dr: Our capitalistic economy, which incentivized the notion of "maximizing shareholder returns," created an environment in which Companies who are efficient

tl;dr: Our capitalistic economy, which incentivized the notion of "maximizing shareholder returns," created an environment in which Companies who are efficient in hiring the right amount of disposable assets. Because of this, employees better be ready to quit when they sense better pastures elsewhere. It was a good read, and a reminder that we are all subservient to the Shareholders (directly or indirectly). The companies of the previous generation had 3 pillars that needed to be strong: Sense of Customer, Employee Satisfaction, Shareholder support. All the attention is now shifted in winning Shareholder support. I wish we could abandon this cargo cult mentality that shareholders are the utmost important stakeholders of a company. It's already been discussed that maximizing shareholder value is meaningless: https://hbr.org/2016/09/the-false-premise-of-the-shareholder-value-debate https://hbr.org/2016/09/the-false-premise-of-the-shareholder...

haburka 9y ago
The issue with abandoning the maximizing the shareholders profit mentality is that it has to be replaced with something else, and unless we change the way investment works, then it will still be serving the shareholders. The shareholders should be the one with power to make decisions, as they own the company. Additionally, not all companies serve greedy shareholders. Believe it or not, shareholders are people too who have multi faceted interests besides making money.
- frgtpsswrdlame 9y ago
  >The shareholders should be the one with power to make decisions, as they own the company. They don't actually, see: Consider first Friedman’s erroneous belief that shareholders “own” corporations. Although laymen sometimes have difficulty understanding the point, corporations are legal entities that own themselves, just as human entities own themselves. What shareholders own are shares, a type of contact between the shareholder and the legal entity that gives shareholders limited legal rights. In this regard, shareholders stand on equal footing with the corporation’s bondholders, suppliers, and employees, all of whom also enter contracts with the firm that give them limited legal rights. http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2311&context=facpub http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?artic... [pdf] >The issue with abandoning the maximizing the shareholders profit mentality is that it has to be replaced with something else, and unless we change the way investment works, then it will still be serving the shareholders. But this is relatively easy! Instead of top level management being rewarded for stock price only, they should also be rewarded for other metrics, like customer satisfaction or how much they lowered the spread between median and mean wages. Hell, we could even allow it to be determined only by share price, but only the share price on a long time horizon, no sales within five years.
- rrivers 9y ago
  This is a good point; but perhaps we need to think a little more "meta" about the situation. In our era of late stage capitalism Finance dictates production - this is an inherently cannibalistic model of economics and it's not surprise that the U.S. labor market continues to degrade into a more "gig" (Considering a "tour of duty" a gig for arguments sake) economy that hurts the laborers the most. We should question if this is the system we want to continue to perpetuate, or on the flip side do we want more regulations and restructuring of our market economy? The question is not "More or less market?" but rather "What kind of market?"
- notfromhere 9y ago
  Companies used to also focus on their local communities, rather than a pure bottom-line focus.
  - icebraining 9y ago
    When?
- tradesmanhelix 9y ago
  The problem with the "shareholder value only" model is its focus on generating short-term returns vs. creating long-term value. How is this sustainable? I don't think we should abandon shareholder profit completely (after all, companies do need to make money in order to stay in business). However, I do think the philosophy needs to be balanced with other aims like investment in employees, giving back to the community, environmental stewardship, and thinking about the long-term future of the company. Importantly, these things shouldn't be after-thoughts - they should be cornerstones of the corporate philosophy.
  - deleted 9y ago
    [deleted]
TomSawyer 9y ago
Yes, and being passionate about your work — such as wanting to work with new developments in your chosen field or changing jobs for an opportunity where you'll be better able to apply your talents to your field of interest — is just a capitalist ploy.
- sidlls 9y ago
  It's not a capitalist ploy. Capitalists do exploit the passionate (to the detriment of us all) by giving them what they ask for: lower compensation in return for providing a job they're "passionate" about. It's not really any different from them exploiting youth.
  - TomSawyer 9y ago
    The exploited are being tricked into believing that there's intangible value in spending their life's work on something that they believe in and are passionate about, right? It's only virtuous to do that if someone doesn't profit from it, correct?
    - sidlls 9y ago
      There is virtue in laboring at a compensation far below the value generated (see: most science ever done). There is also intangible value at dedication to work. Neither is what I referred to, though.
- itamarst 9y ago
  You shouldn't be passionate about your work: http://www.virtuouscode.com/2014/02/10/the-passion-gospel/ http://www.virtuouscode.com/2014/02/10/the-passion-gospel/
briffle 9y ago
Perhaps we can move on from only caring about the stock price, if we stop providing bonuses/compensation to executives in stock, and also stop making the stock price a benchmark to getting many of those bonuses.
- sokoloff 9y ago
  As an [outside] investor in the company, I'm more than happy to vote for compensation packages that are driven by stock price (management wins iff shareholders win). I'm unlikely to vote for a compensation system where management can win big without shareholders gaining. It's not accidental that the tie between share price and executive comp came into being.
  - yourapostasy 9y ago
    > ...I'm more than happy to vote for compensation packages that are driven by stock price... The challenge with this approach is share price is a highly lossy metric. By the time it all rolls up into the share price, you've lost a pile of other information. And a whole hell of a lot can hide under that lost information. Example. IBM long ago sold off their PC hardware division and low-end servers. Those divisions' low profitability was dragging down the overall profitability metrics when the total numbers bubbled up the reporting. Selling off those assets gave a cash boost, and the shareholders were especially happy when the overall profitability numbers weren't getting held back by those laggard divisions. Big win! Now for the rest of the story. This comes from what I saw at the ground level, from speaking with many IBM sales people at the time. After the sale, extremely good, higher-end sales reps saw the front-end of their pipelines collapse. By getting rid of those "low-value" divisions, many of these reps no longer had a built-in excuse to frequently see many different accounts. Clients had no problem frequently seeing reps for these "low-value" products. The higher-end reps lots of times tagged along and found opportunities to help solve the client's pain points with higher-end solutions by simply being in the discussions, because these low-end products, in volume, interfaced with higher-end infrastructure all the time. Without this channel of contacting clients, these higher-end reps were reduced to cold-calling and bringing in hordes of inside sales staff to bring the cold-calling volume up to the point where they could get back to their original sales volumes. The low-profit products were making IBM a profit, just not enough, but what the shareholders really should have seen was those products were a sales and marketing channel where the clients paid for the sales and marketing to reach them. Now IBM is spending cash it can't really afford on brute-forcing that channel, which clients hate. I see this kind of "rest of the story" game played out in many different companies under many different guises, and the destruction of company value is pretty intense when it happens.
xxSparkleSxx 9y ago
I'm of the opinion that we will have to use technology to restructure the fundamental ways businesses work. Whether that means every person is their own business or we try some other type of union to give workers more leverage when negotiating or we crowd-fund the resources to start a competitor to shitty company A and have all the workers walk down to a new building and start company B with 95% of the same people but better deals all-around. Lots of ideas, very few potential solutions. I don't think the wealthy are ever going to change the game to make it easier for us plebs, so we've gotta figure out a way to play the game and beat them at it.

haburka 9y ago

The issue with abandoning the maximizing the shareholders profit mentality is that it has to be replaced with something else, and unless we change the way investment works, then it will still be serving the shareholders. The shareholders should be the one with power to make decisions, as they own the company. Additionally, not all companies serve greedy shareholders. Believe it or not, shareholders are people too who have multi faceted interests besides making money.

frgtpsswrdlame 9y ago
>The shareholders should be the one with power to make decisions, as they own the company. They don't actually, see: Consider first Friedman’s erroneous belief that shareholders “own” corporations. Although laymen sometimes have difficulty understanding the point, corporations are legal entities that own themselves, just as human entities own themselves. What shareholders own are shares, a type of contact between the shareholder and the legal entity that gives shareholders limited legal rights. In this regard, shareholders stand on equal footing with the corporation’s bondholders, suppliers, and employees, all of whom also enter contracts with the firm that give them limited legal rights. http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2311&context=facpub http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?artic... [pdf] >The issue with abandoning the maximizing the shareholders profit mentality is that it has to be replaced with something else, and unless we change the way investment works, then it will still be serving the shareholders. But this is relatively easy! Instead of top level management being rewarded for stock price only, they should also be rewarded for other metrics, like customer satisfaction or how much they lowered the spread between median and mean wages. Hell, we could even allow it to be determined only by share price, but only the share price on a long time horizon, no sales within five years.
rrivers 9y ago
This is a good point; but perhaps we need to think a little more "meta" about the situation. In our era of late stage capitalism Finance dictates production - this is an inherently cannibalistic model of economics and it's not surprise that the U.S. labor market continues to degrade into a more "gig" (Considering a "tour of duty" a gig for arguments sake) economy that hurts the laborers the most. We should question if this is the system we want to continue to perpetuate, or on the flip side do we want more regulations and restructuring of our market economy? The question is not "More or less market?" but rather "What kind of market?"
notfromhere 9y ago
Companies used to also focus on their local communities, rather than a pure bottom-line focus.
- icebraining 9y ago
  When?
tradesmanhelix 9y ago
The problem with the "shareholder value only" model is its focus on generating short-term returns vs. creating long-term value. How is this sustainable? I don't think we should abandon shareholder profit completely (after all, companies do need to make money in order to stay in business). However, I do think the philosophy needs to be balanced with other aims like investment in employees, giving back to the community, environmental stewardship, and thinking about the long-term future of the company. Importantly, these things shouldn't be after-thoughts - they should be cornerstones of the corporate philosophy.
- deleted 9y ago
  [deleted]

TomSawyer 9y ago

Yes, and being passionate about your work — such as wanting to work with new developments in your chosen field or changing jobs for an opportunity where you'll be better able to apply your talents to your field of interest — is just a capitalist ploy.

sidlls 9y ago
It's not a capitalist ploy. Capitalists do exploit the passionate (to the detriment of us all) by giving them what they ask for: lower compensation in return for providing a job they're "passionate" about. It's not really any different from them exploiting youth.
- TomSawyer 9y ago
  The exploited are being tricked into believing that there's intangible value in spending their life's work on something that they believe in and are passionate about, right? It's only virtuous to do that if someone doesn't profit from it, correct?
  - sidlls 9y ago
    There is virtue in laboring at a compensation far below the value generated (see: most science ever done). There is also intangible value at dedication to work. Neither is what I referred to, though.
itamarst 9y ago
You shouldn't be passionate about your work: http://www.virtuouscode.com/2014/02/10/the-passion-gospel/ http://www.virtuouscode.com/2014/02/10/the-passion-gospel/

briffle 9y ago

Perhaps we can move on from only caring about the stock price, if we stop providing bonuses/compensation to executives in stock, and also stop making the stock price a benchmark to getting many of those bonuses.

sokoloff 9y ago
As an [outside] investor in the company, I'm more than happy to vote for compensation packages that are driven by stock price (management wins iff shareholders win). I'm unlikely to vote for a compensation system where management can win big without shareholders gaining. It's not accidental that the tie between share price and executive comp came into being.
- yourapostasy 9y ago
  > ...I'm more than happy to vote for compensation packages that are driven by stock price... The challenge with this approach is share price is a highly lossy metric. By the time it all rolls up into the share price, you've lost a pile of other information. And a whole hell of a lot can hide under that lost information. Example. IBM long ago sold off their PC hardware division and low-end servers. Those divisions' low profitability was dragging down the overall profitability metrics when the total numbers bubbled up the reporting. Selling off those assets gave a cash boost, and the shareholders were especially happy when the overall profitability numbers weren't getting held back by those laggard divisions. Big win! Now for the rest of the story. This comes from what I saw at the ground level, from speaking with many IBM sales people at the time. After the sale, extremely good, higher-end sales reps saw the front-end of their pipelines collapse. By getting rid of those "low-value" divisions, many of these reps no longer had a built-in excuse to frequently see many different accounts. Clients had no problem frequently seeing reps for these "low-value" products. The higher-end reps lots of times tagged along and found opportunities to help solve the client's pain points with higher-end solutions by simply being in the discussions, because these low-end products, in volume, interfaced with higher-end infrastructure all the time. Without this channel of contacting clients, these higher-end reps were reduced to cold-calling and bringing in hordes of inside sales staff to bring the cold-calling volume up to the point where they could get back to their original sales volumes. The low-profit products were making IBM a profit, just not enough, but what the shareholders really should have seen was those products were a sales and marketing channel where the clients paid for the sales and marketing to reach them. Now IBM is spending cash it can't really afford on brute-forcing that channel, which clients hate. I see this kind of "rest of the story" game played out in many different companies under many different guises, and the destruction of company value is pretty intense when it happens.

xxSparkleSxx 9y ago

I'm of the opinion that we will have to use technology to restructure the fundamental ways businesses work. Whether that means every person is their own business or we try some other type of union to give workers more leverage when negotiating or we crowd-fund the resources to start a competitor to shitty company A and have all the workers walk down to a new building and start company B with 95% of the same people but better deals all-around. Lots of ideas, very few potential solutions. I don't think the wealthy are ever going to change the game to make it easier for us plebs, so we've gotta figure out a way to play the game and beat them at it.