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The singular focus on shareholder value, to the exclusion of all else, has greatly damaged society. There needs be a conscientious realignment to maximizing st
by multiplegeorges 7y ago
The singular focus on shareholder value, to the exclusion of all else, has greatly damaged society.
There needs be a conscientious realignment to maximizing stakeholder value.
The corporation is best way to organize labour and capital in productive ways that we've ever come up with and it can be a tool for immense good, but not if it disregards the society, the environment, or the community it operates in.
- eternalny1 7y agoTotally agreed. If I was CEO this wouldn't be rocket science, you fire a bunch of people prior to reporting numbers. Expenses go way down, stock goes up, repeat this. Throw in some M&A's and you are good to go. Not that I would do this, but that's how you maximize "shareholder value". Of course, it's not good for the actual business in the long term.
- adharmad 7y agoPartly, the emphasis on extreme short term gains, in turn accentuated by short term trading (options) and HFTs disincentivizes any management actions that try to optimize for the long term. The CEO will be under tremendous pressure if he/she tries to optimize for a 1 year timeframe (for example) as opposed to quarter-by-quarter. I wish boards can come up with a compensation structure for execs which optimizes for long term.
- Bartweiss 7y ago> The CEO will be under tremendous pressure if he/she tries to optimize for a 1 year timeframe (for example) as opposed to quarter-by-quarter. Its bizarre to talk to well-meaning execs (even below C-suite) at public companies and hear them overtly say this. "Well we know X and Y are sound investments for the company's success, but it's a question of finding a way to sell something that long-term without tanking our stock price." I try not to cry market inefficiency without good evidence, but "shareholders promote good corporate governance" starts feeling pretty bizarre when the people running a company describe shareholders like corporate raiders encouraging them to destroy value for a quick payout. > I wish boards can come up with a compensation structure for execs which optimizes for long term. For all the talk about "when founders should get out of the way" and "what makes a good founder doesn't always make a good CEO", it's interesting to see that research still finds companies with founder-CEOs performing substantially better. Higher share prices (which might stem from overconfidence), but also better long-term financials, more R&D spending, more influential patent filings, etc. And that doesn't necessarily mean founders are super-geniuses, exceptional managers, or even unusually attuned to their market. They get less of their salaries in cash, hold options and stocks longer, and vary their behavior less in response to compensation structure. (Also, they often hold so much stock they can't sell in full without panicking the market.) So it really does look like we just haven't found a good way to compensate non-founder CEOs: their behavior is extremely responsive to their compensation, but nobody has found a scheme that makes them act long-term to the degree a founder would.
- Apocryphon 7y agoAs an aside, it’s sort of insane that there are some ideologies that consider democracies suspect because of office holders are focused on winning short-term elections, when modern corporations make decisions on even shorter timeframes!
- whatshisface 7y agoHFTs aren't related to business short-termism. Welch's short term lives on the month to month scale, HFTs live on the nanosecond scale and are mainly concerned with pricing every option in the universe down to the picopenny.
- wpietri 7y agoAbsolutely. In recent decades CEO tenure has fallen by ~half, while CEO compensation is circa 10x bigger. I think that's behind a lot of current business and economic problems. Giving someone only a short time to extract a lot of money is an absolutely terrible setup for creating sustained value delivery.
- TuringNYC 7y agoSpot on. Any doubters can go check out GE stock. After several rounds of mining, there is nothing left in the poor rock. PS You know things are really bad when the stock chart starts to go to log price scale because it has gone down so much!
- dantheman 7y agoLook at elon musks tesla compensation - extremely long term and ambitious.
- minikites 7y ago>fire a bunch of people prior to reporting numbers Call it "stack ranking" and you too can be lionized by the business press.
- robofanatic 7y agoand it's perfect when you are one of the biggest shareholders. Your pockets will always be filled no matter what.
- Kluny 7y agoSeems like it would be possible to correct for this by requiring the numbers to include the salaries of anyone who was fired in the past quarter - after all, the value they took with them when they left ought to count as a loss.
- PascLeRasc 7y agoWayfair's trying this right now, but it doesn't look too good for them.
- Grimm1 7y agoSo given the fiduciary responsibility to maximize shareholder value that is hard right now, but the existence of Edit: The above is apparently more cultural than legal but I still like the below option. https://en.wikipedia.org/wiki/Benefit_corporation https://en.wikipedia.org/wiki/Benefit_corporation Give's me hope as a mode to found a company, the gist is: "that includes positive impact on society, workers, the community and the environment in addition to profit as its legally defined goals" My understanding is that in the context of the current startup climate is that it is harder but not impossible to raise money under that type of corp though I haven't seen it myself yet.
- kens 7y agoThere generally isn't a responsibility to maximize shareholder value. See, for instance https://www.lawschool.cornell.edu/academics/clarke_business_law_institute/corporations-and-society/Common-Misunderstandings-About-Corporations.cfm https://www.lawschool.cornell.edu/academics/clarke_business_...
- Grimm1 7y agoOh interesting, I've heard that repeated so many times by so many different people in different places in business including the worry that they might be going against their fiduciary responsibility to the company I kind of just took it as fact. Thanks! I still think that baking the non financial responsibilities into the founding legal documents would go a long way towards preventing those goals from being eroded after the initial founders move on even more so after what you shared as people clearly make the personal decision to prioritize shareholder value above all else then, which is somewhat more disheartening.
- ska 7y ago> So given the fiduciary responsibility to maximize shareholder value that is hard right now This is more cultural than legal (and, as the article points out, he had a lot to do with this shift)
- pc86 7y ago
- tehjoker 7y agoThe reason the corporation makes bad decisions is because it is a dictatorship by the people that run it. The only way to reform such a system isn't with peans to morality that run in the face of self interest, it is to totally restructure the stakeholder structure to be dominated by the workers and the people they serve.
- andruc 7y agoAre there any great examples of worker-co-ops in the tech space?
- Apocryphon 7y agoDo FOSS projects count as something like that?
- Kalium 7y agoIf your goal is to show strictly that technical things can be produced by cooperatives, yes. If your goal is to show successful businesses that pay the bills of everyone involved through their technical labor, perhaps not.
- Apocryphon 7y agoThere are examples of successful co-ops outside of tech: Mondragon, REI, and credit unions like Alliant come to mind. The absence of co-ops in tech could just be because the model hasn’t been tried yet. It doesn’t provide any signal about the viability of the model, or lack thereof.
- Kalium 7y agoYou're absolutely right - the world is full of cooperatives! REI, every credit union, Vanguard, and State Farm all spring to mind. With that said, might some consider it noteworthy that these are primarily customer-owned cooperatives rather than worker-owned ones? That seems like it might not be completely inconsequential, but perhaps I am being excessively picky. Please accept my apologies for being less than entirely clear. It is my opinion that FOSS projects are unlikely to be considered good examples of worker-owned cooperatives that are also successful businesses. As you say, this offers no comment in any way on the viability or suitability of the model. A quick search suggests that the worker-owned cooperative model is being tried! https://www.techworker.coop/ https://www.techworker.coop/
- wpietri 7y agoDefinitely. Here's a good post from the founder of a software consulting company I respect. His background is in engineering, and there are a bunch of common business assumptions that he questions, and that one is first on the list: https://greatnotbig.com/2020/03/unquestioned-business-assumptions/ https://greatnotbig.com/2020/03/unquestioned-business-assump...
- Apocryphon 7y agoLooks like something worth submitting to the front page.
- wpietri 7y agoDone! Thanks for suggesting it. https://news.ycombinator.com/item?id=22477075 https://news.ycombinator.com/item?id=22477075
- scarface74 7y agoSo did Jack Welch also influence the “grow big and exit all cost without a plan to be profitable” VC startup culture.
- markus_zhang 7y agoThis needs a total revamp of pretty much every thought and policy in modern capitalism because so many of them have their roots in the stock price above everything ideology. But I believe we need to do it if we want a brighter future.
- deleted 7y ago[deleted]
- toohotatopic 7y agoYou have laws to protect society, the environment and the community. Tax environmental and socially harmful activities and let the drive for shareholder maximization lead to environmental and social improvements. Companies don't vote.
- hjkgfdfgh 7y agoNo. They just purchase votes.
- jjoonathan 7y agoIn bulk. For cheap.
- xenospn 7y agoWhat laws? You mean the ones corporations spend millions of dollars lobbying against/for and practically writing?
- mushufasa 7y agoyou are probably a stakeholder if you have investments such as a 401k. over 50% of american adults have investments in stocks. you can vote your proxies to direct companies to do better. i built a website to make this more intuitive and easier, and you can support shareholder initiatives just like signing an online petition. e.g. https://www.yourstake.org/petition/disclose-corporate-political-activity/ https://www.yourstake.org/petition/disclose-corporate-politi...
- waldohatesyou 7y agoIt's lovely that you've done this! That being said, I'm inclined to believe that it's too difficult to get your average Joe to engage in shareholder initiatives, it's hard enough getting them to vote (in Canada at least). I would suspect that a path that would show more promise is the notion of corporate contracts that Elizabeth Warren proposed but unfortunately, it seems that she won't be the nominee.
- Kalium 7y agoIt's worth bearing in mind that there are a lot of parties who are, in some fashion, a stakeholder. Stockholders, debt holders, employees, vendors, contractors, towns where offices are, environments, governments of various levels, etc. Many of the things that produce value for them will be in opposition to the things that produce value for other stakeholders (expanding in one town vs another vs environment, etc.). In theory, it's clearly the job of leadership to balance the needs of all stakeholders to maximize value for everyone. In practice, there's a lot of room to use stakeholder value as a cover for doing what leadership wants to do anyway. Almost everything leadership would want to do provides value to some stakeholder, after all... One of the few upsides to shareholder value capitalism is that it provides a clear metric. This can help reduce difficulties from the principal-agent problem in a way that a stakeholder approach may have more trouble with. Perhaps it's excessively cynical of me, but when CEOs talk about stakeholder value I hear powerful people looking to be less accountable.
- multiplegeorges 7y agoI definitely did not mean to imply it was easy to do. It requires good-faith actors and a long-term, holistic view. Humans are not very good at these things.
- Kalium 7y agoCynically, designing systems that only work when humans behave in ways humans are reliably not very good at seems like it might be a recipe for failure. Or abuse. Perhaps designing with the crooked timber of humanity in mind could be worth considering?
- 2OEH8eoCRo0 7y agoWhy were stocks invented? It seems that stocks were not even invented for trading but for funding things. Being able to profit from trading seems secondary. The whole idea that stocks must rise forever or society collapses seems insane to me. I've always had a pet theory that 401k is a Republican ploy (or extremely useful). Tie everyone's retirement to the stock market as the only thing that matters.
- Glawen 7y agoYes of course it is a ploy, it has 2 effects: It is maddening employees by binding them to stock market (preventing strikes for example), to make them accept pay cuts more easily. It increases stocks because there is a lot more money on the market
- triceratops 7y agoThe 401k works in two ways actually. The way you mentioned. Plus, because employees have no choice of bank or investments in their 401k so they can be screwed over on fees more easily.
- xref 7y agoYou usually can’t choose who holds your 401k money, but most often get several to dozens of choices for investments (like most things in life, of varying quality).
- triceratops 7y ago
- blululu 7y agoShareholder value is a perfectly fine way to organize a business, but this leaves the question of short-term vs long-term value. Jack Welch, and The 80's in general saw a very strong push toward short term profits at the expense of long term viability.
- tomjen3 7y agoI would say that the singular focus on next financial report is the damaging part. You should expect to hold stock for years before selling it. If you want to do charity with your money, that is almost certainly best done entirely separately from your investments (e.g maximize profits on lifesaving drugs and spend the extra income on givewell).