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This is what happens when you let the accountants run the business. First the research goes. Then the product engineering drops. Then there's mass layoffs. The
by marcus_holmes 6y ago
This is what happens when you let the accountants run the business.
First the research goes. Then the product engineering drops. Then there's mass layoffs. Then the whole thing falls apart.
To an accountant, a drop in costs is as valuable to the business as a rise in revenue. To everyone else, this is obviously not true. Risking future profits to cut current costs is a great move according to an accountant. For everyone else, it's corporate suicide.
Edit: I realise COVID. But that's the excuse, not the reason.
- toomuchtodo 6y agoI cannot agree more, and yet it’s hard to keep these people out of going concerns.
- Avicebron 6y agoI find it amazing how much good companies will sacrifice for a good quarter or so of "growth". Great R&D can be unprofitable for a long time until it's suddenly Bell Labs. That doesn't happen without some infrastructure, but an accountant rocks up and suddenly the company is a husk, time and time again.
- CreRecombinase 6y agoEven Bell Labs wasn't suddenly Bell Labs though. Even when Bell Labs was "Bell Labs", was it ever profitable for those who were footing the bill (as opposed to society at large, which it obviously was)?
- Ericson2314 6y agoBell labs was good precisely because I doubt it ever made anyone much money. Hmmmm.....
- wwright 6y agoSomeone could make some good money by explaining how this squares with the conventional wisdom that optimizing for profit also optimizes for the good of mankind.
- jfk13 6y agoThat's "conventional wisdom"? It sounds like a pretty implausible proposition to me.
- Ericson2314 6y agohahaha I (think I) see what you did there
- spamizbad 6y agoWasn't Bell Labs funded by a tax/surcharge on people's phone bills? I believe there was some restrictions on commercializing its developments as well. It could do research, create things for internal use at AT&T, but not traditional product development.
- Ididntdothis 6y agoAlmost nobody who has a say has any incentive to think long term. For a CEO the next few years are important, shareholders can jump ship anytime. It’s a total alienation of somebody’s actions from the long term consequences.
- bluGill 6y agoMost shareholders are in it for the long term. They can dump Boeing, but only by putting money into something they think will do better. They won't put the money in a mattress or such. Most shares belong to 401k retirement accounts of the middle class.
- Ididntdothis 6y ago401k owners generally have no say due to low number of shares. And most likely they are not in a position to make a judgement of the decision a management makes. Who is looking out for them? Not the CEO and I don’t think the board either. You need to have a lot of shares before you have an influence.
- ryanwaggoner 6y agoYou don’t need a vote to sell your shares and drive the stock price down, which executives absolutely do care about.
- sokoloff 6y agoISS[0], Vanguard, and other fund families absolutely have massive say (powered by those 401k balances) over corporate conduct. [0] - https://www.issgovernance.com https://www.issgovernance.com
- mopsi 6y agoTheir corporate governance teams are surprisingly small. Vanguard has only something like 35 people overseeing thousands of companies and voting on hundreds of thousands proposals each year. As a result, some of that voting is running - literally - on autopilot, see https://www.issgovernance.com/solutions/proxy-voting-services/proxy-exchange/ https://www.issgovernance.com/solutions/proxy-voting-service... and https://corpgov.law.harvard.edu/2018/11/29/the-realities-of-robo-voting/ https://corpgov.law.harvard.edu/2018/11/29/the-realities-of-...
- type-2 6y agoHow many accountants are making these executive decisions?
- corebit 6y agoThe CEO of Boeing graduated with an accounting degree. He is literally an accountant.
- missedthecue 6y agoHe was appointed just a number of weeks ago. The CEO for the past number of years was an engineer by trade.
- vel0city 6y agoThe current CEO was appointed in January. It is currently the end of May. I guess we could still count that in weeks, but most would use months at this point.
- missedthecue 6y agoLost track of time, but point is he didn't create the crisis at hand. He's been at the helm a short period of time.
- ksj2114 6y agoI've worked on many cost cutting projects in the past, in consulting and private equity where cost-cutting was the norm. These statements very easy to say in retrospect. Many studies show that private equity owned companies, which typically run businesses the leanest, actually perform better.
- download13 6y agostfu parasite
- dang 6y agoIf you post like this again we will ban you. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- chucksmash 6y agoFor which measure of better?
- burkaman 6y agoCan you link to any of those studies?
- ksj2114 6y agoThis is one of the most comprehensive studies: https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_2019122.pdf https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_2019122.p...
- burkaman 6y agoYeah, that's the only one I could find. I definitely don't have the background to understand the whole paper, but it doesn't seem to paint a very positive picture. If you cut employment by 13% and grow labor productivity (output per employee) by 8%, aren't you worse off? At best, you're producing the same amount while benefiting society less and the owners more. Also: >Public-to-private buyouts involve greater leverage and bankruptcy risk but few advantages in financial returns, at least in recent decades. Private-to-private buyouts appear more likely to create value by relaxing financial constraints and improving management practices. Public-to-private buyouts are generally the ones people get angry about, and it seems that they're economically bad in addition to the social consequences. I don't think people generally object to one private equity firm buying from another.
- dustingetz 6y agoIt's not the accountants' fault. The only force binding together the thousands of people that make up a corporation is the accounting (accountability). Before the advent of accounting, there were not corporations, as any concentration of capital would be immediately diffused through fraud. It would be great if society could figure out how to be accountable to metrics other than profit and revenue, but so far we haven't figured out how to measure anything else, so we can't optimize for it.
- samatman 6y agoThe person you're replying to isn't saying not to have accountants. That would be absurd. They are saying, clearly: don't let the accountants run the business.
- specialbat 6y agoAccountants don't run the business. They provide accounting information to those that run the business.
- rchaud 6y ago> This is what happens when you let the accountants run the business. You're shooting the messenger when the core issue is that Boeing, like all publicly traded companies do not have medium to long-term views for their business. It is always quarter-to-quarter. That is what management is judged on, because their job and their compensation is tied to maximize shareholder returns.
- manquer 6y agoWhile generally true, The medium term view is why they need to let go in the first place . I am guessing aircraft manufacturing is going to severely depressed in the medium term. Customers are delaying deliveries, canceling orders etc. Demand will likely not return to pre covid levels in even one year. Even if it does, airlines are not in any financial position to make significant purchases for few years. On top of it 737-MAX issues and resulting hold in manufacturing of that line has not left Boeing in a great shape.
- brobdingnagians 6y agoThis is one of the best arguments I can think of against having large corporations with "corporate person hood". It does enable large capital accumulation over time, but that capital accumulation eventually becomes so de-personalized in how it gets used that it becomes detrimental to society. A single private owner tends to care and have more purpose, more personal stake in real long-term growth, and can take the real risk of investment. Corporations, as we see more and more, get huge amounts of capital and then start gaming the system for short term executive bonuses.
- Retric 6y agoEconomies of scale are extremely valuable to the overall economy as mega corps tend to charge lower prices. Similarly, SpaceX as a high risk high cost investment is vastly more likely with group funding than a single private owner. Clearly there are some downsides, but managing them via laws and regulations is possible.
- 6y ago
- _bxg1 6y agoI think it would be more accurate to say this is what happens when you let the shareholders who are too far removed from the business itself run the business. Those are the people who'd like a company to be a simple growing-asset in their portfolio, who specifically don't want to be bothered with its nuances or long-term health, and who have the leverage to impose their ill-informed will on everyone else. I have a pet theory that a large portion of the decay in our society can be traced back to the layers of abstraction between stakeholders and the things (and people) they have power over. Usually this kind of thing doesn't happen before a company has gone public.
- cls59 6y agoOr who don't even care about the long-term health. Extract all you can today and dump the remains. Having a company that remains healthy and prosperous for generations is not an outcome that some investors seem to be optimizing for.
- _bxg1 6y agoIt's not an outcome that public investors are incentivized to optimize for. That's the problem.
- Icathian 6y agoOn the one hand, from a systems perspective, this is obviously true. But I wonder at what point you have to draw the line and quit excusing any and all behavior as the result of misaligned incentives, and simply hold people morally and ethically accountable for the choices they make?
- _bxg1 6y agoI'm not excusing it, I'm only being pragmatic. It's well and good to push people to be more ethical, but relying on that trait is a separate question. The human conscience doesn't do very well with abstractions. The further removed someone's actions are from the damage caused down the line, the weaker that moral signal gets. If we want to improve our society, we have to be realistic about these things and design our institutions to buttress against them.
- thehappypm 6y agoAccountants? Really? Accountants just provide the reports and do the diligence. Executives are the ones making these calls.
- deepspace 6y agoThe problem is not with accountants per se but when accountants get promoted to executive positions. They will always run the business purely on a short term profit/cost basis, whereas operations and engineering managers who get promoted will know from experience that you need to spend money in the short term to make money in the long term.
- take_a_breath 6y agoThis is a pretty simplistic view of the world. The idea that accountants don’t understand R&D is silly.
- gamblor956 6y agoIt has been my experience as a consultant and in-house that engineering departments significantly overvalue the R&D they perform. R&D has value, but nowhere near what the engineers think it does, especially when all of the costs of bringing that R&D to market are taken into consideration. See, for example, Juicero, Bird, Boosted, Magic Leap, Theranos, etc.
- my_usernam3 6y agoPutting this dissenting opinion on HN will likely get you downvoted, but I for one appreciate it. There is a balancing act of profit vs development that us engineers to overlook. However, some of your examples aren't great IMO. Theranos should have been ONLY R&D, as it was never a product that was ready to bring to market. Same with Magic Leap. I think also due to Boeing's business of making tin cans move hundreds of miles of hour thousands of feet in the air, means the engineering department should be their primary focus as well, thus all the outrage at the company.
- TimSchumann 6y agoAs someone who lives in Seattle, and has several friends working for Boeing (I think still?), this comment hits the nail on the head.
- ryanwaggoner 6y agoIt is bizarre and disappointing to see this as the highest-ranked comment. Do you have any evidence that “accountants” made this decision? Or that COVID is merely an excuse? It is blindingly obvious that Boeing has been quite adversely affected by this pandemic and that global travel is unlikely to return to normal levels for at least 2-3 years. No amount of extra spending on R&D or product engineering is going to save your airplane company when people don’t want to get on the plane.
- deepspace 6y agoHere is a great article that addresses the issue : https://www.theatlantic.com/ideas/archive/2019/11/how-boeing-lost-its-bearings/602188/ https://www.theatlantic.com/ideas/archive/2019/11/how-boeing... Boeing lost their way in the 90s when the MD merger turned them into an accountant-managed company whereas they were previously engineering-managed. The resulting 737MAX disaster is the main source of their problems today, not COVID.
- gamblor956 6y agoYou're blaming the accountants for something the article clearly says is the result of management decisions...made by an engineer... (McDonnell's Stonecipher was an engineer that rose into management ranks and was the one that thought up the brilliant idea to just cut costs regardless of the consequences.)
- marcus_holmes 6y agomore mindset than actual qualifications. The point is really about losing sight of what the company does and focusing purely on the money
- drivebycomment 6y agoI think this is yet another manifestation of online discussions amplifying shallow and simplistic "analysis" that appeals to human biases and stereotypes. So I'd say it's not bizarre, but another sign of our times.
- taway902101 6y agoHere is the software engineering equivalent: - golf buddy convinces CEO of well-run software shop: your company is way too inefficient "your per-employee ratios are off the charts low!" - golf buddy gets hired as Chief Strategy Officer, hires a bunch of high paid underlings - they decide the freeze wages, reduces bonuses, reduces benefits for software engineers. Lots of savings to show! (unless you also count inflated salaries of new management) - Software engineers demoralized, best ones move on to better jobs, adverse selection, more demoralization - Golf buddy hires more project managers -- because obviously the answer to underpaid SWEs is to hire more managers. Beatings will continue until morale improves. - Now the company really does have bad metrics. Decisions are made to offshore half the staff -- save 30%, but increase work for onshore staff. Offshore staff is great, but at a disadvantage due to distance and not having context/proximity to business. - Golf buddy hires product managers to better define specs, more project managers to produce more reports. - Gold buddy, his friends, ride off with their big paychecks to spoil the next company
- specialist 6y agoInnovative CEO, a sales centric MBA who's never written a line of code, now overseeing acquired software company, imposes the golf buddy's investor pleasing "blended shore" model, the outsourcing of core knowledge work to noobs coupled with shipping the actual skilled labor to lowest cost locales, against the advice of everyone who's ever successfully shipped software, who are all now branded "seditious", and managed out of the company they built up from zero. Been there, been done like that.
- ksk 6y agoYour crude caricature relies on the existing CEO, and the board, to be incompetent and easily swayed by bogus numbers. If they were indeed incompetent, its not exactly a shock if the company implodes then is it?
- asperous 6y agoBased on the article it sounds like a lot of these are line staff and support staff which is a direct result of a decline in the number of orders. Unfortunately I think there's not much they can realistically do about that. The sudden shift in staffing comes from the sudden shift in demand.
- gamblor956 6y agoThis is what happens when you let the accountants run the business. This is so completely not true. Worked with the Finance Dept heavily at my last job. The accountants keep track of the expenses, and make sure everyone is sticking to the budgets...but the accountants don't make the budgets. Management does. The accountants are the ones making sure that the company can actually pay for everything. To an accountant, a drop in costs is as valuable to the business as a rise in revenue. This is also false. To an accountant, a drop in costs is literally the exact opposite of a rise in revenue. (For comparison, it would be like saying that to a software developer having a more powerful computer is the same as writing your software to be more efficient.) A drop in costs is only valuable to the accounting team if there's not enough money to pay for everything, because then the drop in costs makes it possible to pay for more of the bills that the rest of the company incurs. The Finance Dept would absolutely prefer to see more revenue over a drop in costs, because revenue is repeatable and sustainable, while reducing costs is not. Management are the folks that only cares about the bottom line regardless of how it's reached. Blame management.
- pm90 6y ago> Blame management. By "blame accountants" the OP was referring to management being accountants. Nobody sincerely believes that accountants have the power to do layoffs, but managements that were previously accountants won't see the long term destruction in value, only the short term profits.
- nightski 6y agoIf anyone understands the concept of investment, it is someone in finance. To claim they only care about cutting costs maximizing revenue today at the expense of the future is ridiculous.
- pm90 6y agoPeople in finance don’t really understand or care about engineering R&D and long term investment in engineering culture, possibly because the effects of these things haven’t been quantified scientifically. It’s simply another line item. They do acutely understand the effects of numbers on their stock compensation though.
- deleted 6y ago[deleted]
- autokad 6y agoboeing is having really hard times. Even if it were not for a pandemic that directly effects them, the max issues were going to hurt. I dont know if they had to lay off those workers, but I am not surprised at all.
- marcus_holmes 6y agokinda the point. If they were still run by engineers they wouldn't be having those Max issues. They might be having other issues, of course, but making planes that can't take off without crashing wouldn't be one of them
- deleted 6y ago[deleted]
- ken 6y agoNo, this is how Boeing has always operated. It's a cyclic industry. Google "boeing employment by year". The charts are practically a sine wave. "Hire 10,000 when demand is high, lay off 10,000 when demand is low" has been how they've operating since WWII. There are many issues with Boeing management today (I used to work there so I love flaming them as much as anyone), but it's hard for me to imagine how any aircraft company could avoid this. All aerospace employers are laying off (or furloughing) workers by the thousands: Airbus: https://www.reuters.com/article/us-health-coronavirus-airbus/airbus-warns-staff-on-jobs-with-its-survival-at-stake-idUSKCN2280S3 https://www.reuters.com/article/us-health-coronavirus-airbus... Bombardier: https://www.huffingtonpost.ca/entry/bombardier-layoffs-quebec-ontario_ca_5e7a50b2c5b62f90bc526bc7 https://www.huffingtonpost.ca/entry/bombardier-layoffs-quebe... Gulfstream: https://www.wtoc.com/2020/05/04/gulfstream-lays-off-employees-notifies-labor-dept/ https://www.wtoc.com/2020/05/04/gulfstream-lays-off-employee... No word from Embraer yet, but since their deal with Boeing fell through, I imagine it's only a matter of time.
- pcurve 6y agoEmbraer is cutting 4000 jobs too :(
- jussij 6y ago> No, this is how Boeing has always operated. While I have no doubt Boeings business has been cyclical, many of the problems they face today can also be attributed to bad management. These problems can be linked back to when Boeing merged with McDonnell Douglas, resulting in it's loss of engineering focus: https://www.msn.com/en-za/money/news/how-the-mcdonnell-douglas-boeing-merger-led-to-the-737-max-crisis/ar-BBYzJXz https://www.msn.com/en-za/money/news/how-the-mcdonnell-dougl... If you read the wiki page for McDonnell Douglas it reads a lot like the modern day Boeing: https://en.wikipedia.org/wiki/McDonnell_Douglas https://en.wikipedia.org/wiki/McDonnell_Douglas This gives a hint as to how that merger help to infect Boeing (no pun intended) with it's current bad management culture.
- bb88 6y ago> Boeing, which has been struggling for the past year with the safety of its 737 Max jet, has spent over $43 billion buying back stock over the past decade. https://www.newsweek.com/boeing-airlines-under-fire-90-billion-share-buybacks-stoke-controversy-bailout-pleas-least-1493934 https://www.newsweek.com/boeing-airlines-under-fire-90-billi... Step 1: Give billions in stock buy backs and ask for billions in tax cuts Step 2: Demand that taxpayers to bail you out in a recession Step 3: Repeat
- thrower123 6y agoWhat do you do when two of your biggest products flop as badly as the 737-MAX and the 787 have?
- marcus_holmes 6y agoHire more engineers and let them make decisions
- sushshshsh 6y agoTell that to Amazon? Frugality is one of the top principles of the company. Do more with less, learn how to solve hard problems so you don't have to pay other people who maybe won't actually fix those problems.
- paulcole 6y agoSerious question: Has a company run by engineers ever failed?
- _dark_matter_ 6y agoSeriously? By the tens of thousands.
- paulcole 6y agoI guess maybe I am too new here. I thought poor decisions were the realm of marketing people, managers, and accountants. Perhaps it is possible that an engineer is working in marketing/accounting and therefore has to accept some of the blame?
- marcus_holmes 6y agoCompanies that focus on doing the thing they do well tend to do well. Companies that focus on messing about with their finances to keep the investors happy tend to fail.
- paulcole 6y agoDo engineer ever do thing bad?
- marcus_holmes 6y agoDefine "bad"
- Vysero 6y ago"I realise COVID. But that's the excuse, not the reason." I would tend to agree. From what I understand Boeing has spent some 70%+ of their free cash flow on buybacks for the past 10 years; some 40+ billion dollars worth. They spent so much money trying to boost their own share prices (legal market manipulation?) it's no wonder they have no money.
- esoterica 6y ago> I realise COVID. But that's the excuse, not the reason. Demand for planes has cratered due to COVID. That's a 100% valid reason to cut jobs, not an "excuse".
- marcus_holmes 6y agoit cratered for Boeing's planes before that because of the Max disaster
- specialist 6y agoThe financiers, not the accountants. To wit, Boeing was doing stock buybacks while also "cutting costs" and shaking govts down for more cheddar. It's received wisdom that MD did a reverse takeover of Boeing, that Condit got snookered by Stonecipher. Have many friends, family, neighbors who've worked at Boeing, from 1960s thru this year. This version of the post mortem is a good starting point. https://www.theatlantic.com/ideas/archive/2019/11/how-boeing-lost-its-bearings/602188/ https://www.theatlantic.com/ideas/archive/2019/11/how-boeing... Hutzpah is begging the court's leniency, claiming to be an orphan, after murdering one's parents. Or eating the seed corn and then being surprised by the famine. You get the idea. I have zero sympathy for the wrecking crew who destroyed an American icon and rage on behalf of all the workers, families, and taxpayers who paid the price.
- missedthecue 6y agoBoeing has been run by engineers for decades. I'm tired of us accountants getting the blame for every downturn.
- deleted 6y ago[deleted]
- fred_is_fred 6y agoSlight correction: "To an accountant, a drop in costs is MORE valuable to the business as a rise in revenue." This is because an increase in revenue of 1M does not increase profits by 1M, but a cost cut of 1M can.
- megablast 6y agoOk. So they don’t have the orders. What should they do, keep paying those people for nothing?
- pascalxus 6y agoi think the boeing executives are better equiped to measure future demand. i'm sure they wouldn't be cutting costs unless they knew there would be future decline in demand.
- darksaints 6y agoThat's not how any accountant I know behaves. That's prime MBA territory right there.
- Gibbon1 6y agoI know a bunch of accountants. Yeah they aren't as stupid as MBA's or economists.