4 ms·

There's evidence of significant problems in business/management philosophy, as the consensus is that you need to optimize for now, and later is somebody else's

There's evidence of significant problems in business/management philosophy, as the consensus is that you need to optimize for now, and later is somebody else's problem. Dead on. I've seen boards of directors ask for fried ice: Management: We haven't put adequate time into building a sales training program. Board: Focus only on revenue this quarter. It's the only thing that matters! Then next quarter: Board: Why aren't your new sales guys producing?! They need to drive revenue! Management: Uh... you told us not to spend time on training.

nicoburns 6y ago
Indeed. Ultimately it's the (specific incarnation of the) shareholder model of capitalism that's at fault. Shareholders have ultimate control of companies, and their incentives are aligned all wrong (to the short term).
- pdonis 6y ago
  > Shareholders have ultimate control of companies, and their incentives are aligned all wrong (to the short term). This is actually not true of individual shareholders; most individual shareholders are investing for the long term, because most individual shareholders are investing for a long-term goal, like retirement. The problem is that most shares in most companies are no longer owned by individual shareholders, but mutual funds, and from the standpoint of an individual stock, a mutual fund does have short-term incentives, since if the stock's performance goes down the fund will just sell it and buy something else. The individual investors whose assets are held by the mutual fund, and who have a longer time horizon (most mutual fund accounts are retirement accounts), don't care about which individual stocks the fund holds or how often it trades them. So the longer time horizon of the actual individual investors is masked and only the short term incentives are visible to the individual companies.
  - nicoburns 6y ago
    I agree with basically everything you've said. I'd add: the system is such that mutual funds are able to make greater profits from the system by playing things in this way. This means that over the long-term, capital accumulates in these funds, further skewing the proportion of investment that is driven through these vehicles.
    - d0mine 6y ago
      It is not obvious why trading more often (quarter-scale) would lead to greater profits long-term. Do any mutual funds ever beat the market? (on the "retirement" decades time scale)
- frenchy 6y ago
  Ultimately, "long-sighted" shareholders should be able to outperform the short-sited ones, as long as they can retain control of the company. I wonder if there's any way to form a sort of shareholders union to maintain the control of an organization by shareholders who plain to keep stock for a long time.
  - Jolter 6y ago
    The sibling comments by pdonis and nicoburns, about mutual funds, explain pretty well why the short-term investors will increase over time.
  - cbhl 6y ago
    The two-class stock structure (ala Facebook and Google) is one experiment in this, but being able to establish such a structure depends on investors' appetite for it during IPO-time.
- tehjoker 6y ago
  Such an incentive problem is easy to fix. Simply put the people who do the work at the company in charge. Their incentives are aligned to doing the work well, keeping the business stable, and developing a healthy culture.
  - ll931110 6y ago
    Nope, not that easy. Look at Scuderia Ferrari F1 team. In 2014 - 2018 the team principal was a business guy (Maurizio Arrivabene), whom was pushed out to make room for a technical guy (Mattia Binotto), whom led the technical work to bring Ferrari challenging the F1 title. And look at what happens now: they went backward from the 2nd best team to shared 5th-6th, burning a budget of $400M for a car that was a lot slower than their own version last year.
    - philjohn 6y ago
      And yet when they put a technical guy in charge during the Schumacher years they flourished. I don't think the problem is either Arrivabene or Binotto - it was Marchionne and it's going to take a long time to fix.
      - ll931110 6y ago
        Right, but Ross Brawn was hardly alone. He worked well with Jean Todt whom did the negotiation and business handling. For all the credits to Binotto, he's not a good negotiator.

nicoburns 6y ago

Indeed. Ultimately it's the (specific incarnation of the) shareholder model of capitalism that's at fault. Shareholders have ultimate control of companies, and their incentives are aligned all wrong (to the short term).

pdonis 6y ago
> Shareholders have ultimate control of companies, and their incentives are aligned all wrong (to the short term). This is actually not true of individual shareholders; most individual shareholders are investing for the long term, because most individual shareholders are investing for a long-term goal, like retirement. The problem is that most shares in most companies are no longer owned by individual shareholders, but mutual funds, and from the standpoint of an individual stock, a mutual fund does have short-term incentives, since if the stock's performance goes down the fund will just sell it and buy something else. The individual investors whose assets are held by the mutual fund, and who have a longer time horizon (most mutual fund accounts are retirement accounts), don't care about which individual stocks the fund holds or how often it trades them. So the longer time horizon of the actual individual investors is masked and only the short term incentives are visible to the individual companies.
- nicoburns 6y ago
  I agree with basically everything you've said. I'd add: the system is such that mutual funds are able to make greater profits from the system by playing things in this way. This means that over the long-term, capital accumulates in these funds, further skewing the proportion of investment that is driven through these vehicles.
  - d0mine 6y ago
    It is not obvious why trading more often (quarter-scale) would lead to greater profits long-term. Do any mutual funds ever beat the market? (on the "retirement" decades time scale)
frenchy 6y ago
Ultimately, "long-sighted" shareholders should be able to outperform the short-sited ones, as long as they can retain control of the company. I wonder if there's any way to form a sort of shareholders union to maintain the control of an organization by shareholders who plain to keep stock for a long time.
- Jolter 6y ago
  The sibling comments by pdonis and nicoburns, about mutual funds, explain pretty well why the short-term investors will increase over time.
- cbhl 6y ago
  The two-class stock structure (ala Facebook and Google) is one experiment in this, but being able to establish such a structure depends on investors' appetite for it during IPO-time.
tehjoker 6y ago
Such an incentive problem is easy to fix. Simply put the people who do the work at the company in charge. Their incentives are aligned to doing the work well, keeping the business stable, and developing a healthy culture.
- ll931110 6y ago
  Nope, not that easy. Look at Scuderia Ferrari F1 team. In 2014 - 2018 the team principal was a business guy (Maurizio Arrivabene), whom was pushed out to make room for a technical guy (Mattia Binotto), whom led the technical work to bring Ferrari challenging the F1 title. And look at what happens now: they went backward from the 2nd best team to shared 5th-6th, burning a budget of $400M for a car that was a lot slower than their own version last year.
  - philjohn 6y ago
    And yet when they put a technical guy in charge during the Schumacher years they flourished. I don't think the problem is either Arrivabene or Binotto - it was Marchionne and it's going to take a long time to fix.
    - ll931110 6y ago
      Right, but Ross Brawn was hardly alone. He worked well with Jean Todt whom did the negotiation and business handling. For all the credits to Binotto, he's not a good negotiator.