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Why do large publicly owned companies optimize for maximizing the next quarters results at the expense of everything else then? Perfectly rational investors wi

Why do large publicly owned companies optimize for maximizing the next quarters results at the expense of everything else then? Perfectly rational investors with infinite lifespans might do what you say, but in reality most people are fickle, short sighted and don't actually do much thinking.

baddox 7y ago
How do you even define “optimize for maximizing the next quarters results at the expense of everything else”? Obviously big companies don’t literally do this. I’m pretty sure every big public tech company is currently spending money on products that will not be released before the end of the next quarter.
- codys 7y ago
  Big companies make decisions all the time that harm long term prospects (sometimes in ways that are difficult to measure) in favor of obvious short term gains. As an example, when I worked for IBM, they furloughed the entire Systems technology group (essentially the folks working on things that aren't pure software or contracting) for a week. This was done purely to reduce the payroll for the STG so that it's income would look better on the quarterly earnings. Neither the inability to get anything done for 2 weeks (furlough was staggered so only approx half of folks were out each week) nor any of the follow on effects on project or work force was not enough to impede this type of roughshod pursuit of quarterly accounting numbers.
  - baddox 7y ago
    Sure, but now the claim is simply that companies focus on varying time scales, and sometimes those time scales are shorter than what some people would like to see. That’s fairly clearly true, but it’s a very different claim than that big public companies optimize for the next quarter over everything else.
    - perl4ever 7y ago
      Note that this is unrelated to my (original) comments and I wasn't expressing an opinion on whether companies "optimize for the next quarter".
  - perl4ever 7y ago
    Sure they do, but people can and do get just as angry when companies ignore short term harm with the promise of long term gains. So the issue isn't short term vs. long term, but rather being right vs. wrong and honest vs. dishonest. It's really hard to always be right. I mean, if you want "long term thinking", does that mean that WeWork is a better model than Boeing? Because people seem to hold it up as a failure of capitalism just as much.
perl4ever 7y ago
I'm not saying stock investors take a long view in some absolute sense, I'm just saying they obviously inherently take a longer view than any other stakeholder. A bond holder doesn't get paid their interest payment, it's a crisis. The government doesn't get the taxes due, it's a crisis. An employee doesn't get their paycheck, it's a crisis. Dividends are an "if we feel like it" thing. Many, many companies simply say "we have never paid any dividends and we may never pay any at all". Stockholders by definition can only rely on the nebulous entire future of a company for stock value - either it will be sold some day for $X, or the dividends will total $X. That's a longer term perspective than anyone else has.

baddox 7y ago

How do you even define “optimize for maximizing the next quarters results at the expense of everything else”? Obviously big companies don’t literally do this. I’m pretty sure every big public tech company is currently spending money on products that will not be released before the end of the next quarter.

codys 7y ago
Big companies make decisions all the time that harm long term prospects (sometimes in ways that are difficult to measure) in favor of obvious short term gains. As an example, when I worked for IBM, they furloughed the entire Systems technology group (essentially the folks working on things that aren't pure software or contracting) for a week. This was done purely to reduce the payroll for the STG so that it's income would look better on the quarterly earnings. Neither the inability to get anything done for 2 weeks (furlough was staggered so only approx half of folks were out each week) nor any of the follow on effects on project or work force was not enough to impede this type of roughshod pursuit of quarterly accounting numbers.
- baddox 7y ago
  Sure, but now the claim is simply that companies focus on varying time scales, and sometimes those time scales are shorter than what some people would like to see. That’s fairly clearly true, but it’s a very different claim than that big public companies optimize for the next quarter over everything else.
  - perl4ever 7y ago
    Note that this is unrelated to my (original) comments and I wasn't expressing an opinion on whether companies "optimize for the next quarter".
- perl4ever 7y ago
  Sure they do, but people can and do get just as angry when companies ignore short term harm with the promise of long term gains. So the issue isn't short term vs. long term, but rather being right vs. wrong and honest vs. dishonest. It's really hard to always be right. I mean, if you want "long term thinking", does that mean that WeWork is a better model than Boeing? Because people seem to hold it up as a failure of capitalism just as much.

perl4ever 7y ago

I'm not saying stock investors take a long view in some absolute sense, I'm just saying they obviously inherently take a longer view than any other stakeholder. A bond holder doesn't get paid their interest payment, it's a crisis. The government doesn't get the taxes due, it's a crisis. An employee doesn't get their paycheck, it's a crisis. Dividends are an "if we feel like it" thing. Many, many companies simply say "we have never paid any dividends and we may never pay any at all". Stockholders by definition can only rely on the nebulous entire future of a company for stock value - either it will be sold some day for $X, or the dividends will total $X. That's a longer term perspective than anyone else has.