4 ms·

If that argument were compelling, shareholders would do that. They aren't in it just to spite workers.

throwaway2048 8y ago
Shareholders don't always act in a rational way, plenty of companies and trillions in shareholder value have been destroyed by stupid short sighted shareholder demands.
- prepend 8y ago
  In the aggregate long term they do. Shareholders don’t act rationally, but the market eventually does.
  - AlexandrB 8y ago
    > Shareholders don’t act rationally, but the market eventually does. Citation needed. I hate to bring up 2008 again, but the market first acted irrationally by over-investing in garbage CDOs and then "corrected" in a way that would have tanked the economy without massive public intervention. If that's rational behavior than perhaps we should nominate the next person drunkenly weaving between two lanes for Driver of the Year.
    - prepend 8y ago
      “Eventually” being a key word as there are corrects. 2008 is one year out of many.
  - gowld 8y ago
    "Rational" does not mean "maximizing profit". Sometimes rational mean throwing a failed experiment in the trash, after a past irrational or poor decision.
danaris 8y ago
How compelling an argument is doesn't necessarily have anything to do with how much truth it holds.
Kadin 8y ago
Many shareholders (of medium to large-cap, publicly traded companies) seem to only be interested in short-term gains, not longer term. Some claim to be interested in longer-term profits and business sustainability, but they don't seem to act like it. The market does not seem to be good at optimizing for long-term outcomes, bluntly.
- chii 8y ago
  Because long term, we are all dead. Profits today can be easily invested in another short term profit project tomorrow. Therefore, I say long term should be done by a foundation that has the explicit goal to achieve, rather than a corp whose sole purpose is to make profit.
  - pluma 8y ago
    > rather than a corp whose sole purpose is to make profit So we've all now universally accepted the Friedman doctrine? You're aware that the Friedman doctrine isn't held as an inherent truth everywhere and by everyone, right? Not every culture sees corporations as having the sole moral duty of maximising shareholder value with no regard for societal wellbeing.
    - imglorp 8y ago
      Actually neither! There is one level more pessimistic than Friedman, which is Greenspan's parting realization. [1] So it's three layers of theft now. Public corps ... Society's wellbeing < shareholder's value < executive's value So you get these axemen who show up, extract whatever they can from the corporation, and then walk away from the ruins for the next thief, if anything is left. They're TWO layers removed from society. 1. https://www.nytimes.com/2008/10/24/business/economy/24panel.html https://www.nytimes.com/2008/10/24/business/economy/24panel....
- tryptophan 8y ago
  Could you actually give an example of the short term mentality? I keep hearing it repeated over and over and over but nobody actually points to an example or study or anything.
TheOtherHobbes 8y ago
it's not about spite, it's about noblesse oblige. Corporations are essentially feudal, and one of the biggest unstated goals is to maintain and signal class power differentials. You don't do that by including social inferiors in board-level deliberations - no matter how inane, misguided, and ultimately self-destructive those deliberations turn out to be. Here is one example of a board-level decision that a majority of workers would have said was a very bad idea, but which executives decided to complete anyway. It's really ridiculously easy to list other examples from corporate history: https://www.theguardian.com/lifeandstyle/2018/mar/30/homebase-is-undoubtedly-the-most-disastrous-retail-acquisition-in-the-uk-ever https://www.theguardian.com/lifeandstyle/2018/mar/30/homebas...
- prepend 8y ago
  If it were actually more valuable then someone would buy the company, fire the noblesse oblige and hire new management. The reality is that there’s a point of decreasing returns for productivity. If the “happy workers make more money for the company” truly had a positive ROI, then the market would pay it. There’s plenty of capital willing to make long term investments that would take companies private to jack up wages.
  - AlexandrB 8y ago
    > If it were actually more valuable then someone would buy the company, fire the noblesse oblige and hire new management. Comical. "The Market" is far from perfect - especially in more monopolized industries. Consider the 2008 housing crash for a recent[1] example where "the market" did not behave rationally across a wide swath of professional investors. Add to that the fact that the "someone" in your example is most likely part of the noblesse oblige themselves and will default to respecting the opinion of the board (no matter how wrong) and not the workers. > If the “happy workers make more money for the company” truly had a positive ROI, then the market would pay it. Most often, the market behaves like a gradient descent algorithm - seeking slightly more optimal operating conditions without rocking the boat too much. This normally leads to finding local minima, not global ones. The most notable exception is "startups", where the initial conditions of the search may be radically different than a typical big-co - sometimes leading to better results. Now consider that most medium-to-large companies have been operating for years (maybe decades) on the assumption that cutting costs - including wages - is the best way incrementally optimize profit. Reversing direction would mean going back uphill for a while as the culture, employee attitudes, and recruitment pipeline slowly change in response. How many boards do you think would put up with years of declining profits during the attempt to find the better way? This doesn't mean that there aren't examples of companies that take this approach even for low-skilled labor[2][3]. Just that it's rare because of conventional wisdom and the corporate politics involved in making it happen. [1] An even more recent example is Theranos - where companies that should have known better bet big on partnerships with a vaporware medical company against the explicit advice of consultants they had hired to advise them on these matters. [2] https://www.businessinsider.com/costco-pays-retail-employees-20-an-hour-2014-10 https://www.businessinsider.com/costco-pays-retail-employees... [3] http://brandautopsy.com/2007/01/the_starbucks_e.html http://brandautopsy.com/2007/01/the_starbucks_e.html

throwaway2048 8y ago

Shareholders don't always act in a rational way, plenty of companies and trillions in shareholder value have been destroyed by stupid short sighted shareholder demands.

prepend 8y ago
In the aggregate long term they do. Shareholders don’t act rationally, but the market eventually does.
- AlexandrB 8y ago
  > Shareholders don’t act rationally, but the market eventually does. Citation needed. I hate to bring up 2008 again, but the market first acted irrationally by over-investing in garbage CDOs and then "corrected" in a way that would have tanked the economy without massive public intervention. If that's rational behavior than perhaps we should nominate the next person drunkenly weaving between two lanes for Driver of the Year.
  - prepend 8y ago
    “Eventually” being a key word as there are corrects. 2008 is one year out of many.
- gowld 8y ago
  "Rational" does not mean "maximizing profit". Sometimes rational mean throwing a failed experiment in the trash, after a past irrational or poor decision.

danaris 8y ago

How compelling an argument is doesn't necessarily have anything to do with how much truth it holds.

Kadin 8y ago

Many shareholders (of medium to large-cap, publicly traded companies) seem to only be interested in short-term gains, not longer term. Some claim to be interested in longer-term profits and business sustainability, but they don't seem to act like it. The market does not seem to be good at optimizing for long-term outcomes, bluntly.

chii 8y ago
Because long term, we are all dead. Profits today can be easily invested in another short term profit project tomorrow. Therefore, I say long term should be done by a foundation that has the explicit goal to achieve, rather than a corp whose sole purpose is to make profit.
- pluma 8y ago
  > rather than a corp whose sole purpose is to make profit So we've all now universally accepted the Friedman doctrine? You're aware that the Friedman doctrine isn't held as an inherent truth everywhere and by everyone, right? Not every culture sees corporations as having the sole moral duty of maximising shareholder value with no regard for societal wellbeing.
  - imglorp 8y ago
    Actually neither! There is one level more pessimistic than Friedman, which is Greenspan's parting realization. [1] So it's three layers of theft now. Public corps ... Society's wellbeing < shareholder's value < executive's value So you get these axemen who show up, extract whatever they can from the corporation, and then walk away from the ruins for the next thief, if anything is left. They're TWO layers removed from society. 1. https://www.nytimes.com/2008/10/24/business/economy/24panel.html https://www.nytimes.com/2008/10/24/business/economy/24panel....
tryptophan 8y ago
Could you actually give an example of the short term mentality? I keep hearing it repeated over and over and over but nobody actually points to an example or study or anything.

TheOtherHobbes 8y ago

it's not about spite, it's about noblesse oblige. Corporations are essentially feudal, and one of the biggest unstated goals is to maintain and signal class power differentials. You don't do that by including social inferiors in board-level deliberations - no matter how inane, misguided, and ultimately self-destructive those deliberations turn out to be. Here is one example of a board-level decision that a majority of workers would have said was a very bad idea, but which executives decided to complete anyway. It's really ridiculously easy to list other examples from corporate history: https://www.theguardian.com/lifeandstyle/2018/mar/30/homebase-is-undoubtedly-the-most-disastrous-retail-acquisition-in-the-uk-ever https://www.theguardian.com/lifeandstyle/2018/mar/30/homebas...

prepend 8y ago
If it were actually more valuable then someone would buy the company, fire the noblesse oblige and hire new management. The reality is that there’s a point of decreasing returns for productivity. If the “happy workers make more money for the company” truly had a positive ROI, then the market would pay it. There’s plenty of capital willing to make long term investments that would take companies private to jack up wages.
- AlexandrB 8y ago
  > If it were actually more valuable then someone would buy the company, fire the noblesse oblige and hire new management. Comical. "The Market" is far from perfect - especially in more monopolized industries. Consider the 2008 housing crash for a recent[1] example where "the market" did not behave rationally across a wide swath of professional investors. Add to that the fact that the "someone" in your example is most likely part of the noblesse oblige themselves and will default to respecting the opinion of the board (no matter how wrong) and not the workers. > If the “happy workers make more money for the company” truly had a positive ROI, then the market would pay it. Most often, the market behaves like a gradient descent algorithm - seeking slightly more optimal operating conditions without rocking the boat too much. This normally leads to finding local minima, not global ones. The most notable exception is "startups", where the initial conditions of the search may be radically different than a typical big-co - sometimes leading to better results. Now consider that most medium-to-large companies have been operating for years (maybe decades) on the assumption that cutting costs - including wages - is the best way incrementally optimize profit. Reversing direction would mean going back uphill for a while as the culture, employee attitudes, and recruitment pipeline slowly change in response. How many boards do you think would put up with years of declining profits during the attempt to find the better way? This doesn't mean that there aren't examples of companies that take this approach even for low-skilled labor[2][3]. Just that it's rare because of conventional wisdom and the corporate politics involved in making it happen. [1] An even more recent example is Theranos - where companies that should have known better bet big on partnerships with a vaporware medical company against the explicit advice of consultants they had hired to advise them on these matters. [2] https://www.businessinsider.com/costco-pays-retail-employees-20-an-hour-2014-10 https://www.businessinsider.com/costco-pays-retail-employees... [3] http://brandautopsy.com/2007/01/the_starbucks_e.html http://brandautopsy.com/2007/01/the_starbucks_e.html