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> The principal function of most corporations is not to maximize shareholder value, but to maximize the standard of living and quality of work life of those who

> The principal function of most corporations is not to maximize shareholder value, but to maximize the standard of living and quality of work life of those who manage the corporation. Providing the shareholders with a return on their investments is a requirement, not an objective. I love this quote. At first it sounds very critical, but thinking about it more it reveals something deeper: companies are a collection of people, if those people aren’t satisfied with the work they will move on and delivering value to investors will be that much harder. So maximize for worker happiness while delivering enough ROI to your investors, not the other way around.

mathattack 5y ago
It’s a subtle distinction between labor and capital. And gets blurred by debt vs equity. Who owns the company? The people who work there? The person who founded it? The people who the founders sold shares to? Or the people who lent it money? Legally it’s the people who own shares. And if they miss their debt payments, it’s the lenders. Companies can inform their shareholders “if you want to invest, here is how we operate differently.” Bezos and Buffet both do that in terms of defining focus and time horizons. One may want to optimize for worker happiness first, but that’s not legal ownership. (Employee engagement is a predictor of shareholder return, but it’s hard to measure, and different from happiness)
- adamcstephens 5y ago
  Except the quote isn’t about legal ownership it all. It’s about who has skin in the game, and who actually makes the company function. The vast majority of shareholders have very little skin in the game, while the employees of the company absolutely have a lot of skin in the game. The employees depend on the company for their livelihood, whereas a shareholder is generally just trying to make money on their money.
  - mathattack 5y ago
    I view him as defining value as to accrue to stakeholders, with employees as primary. One way to frame the question is “If the company gets a million dollar windfall, who should get it?” Employees? Owners? Even the most customer centric company won’t say a cash payment to customers, though they may say improving service or R and D.
Tarq0n 5y ago
Only maximizing happiness for the controlling workers. Fungible labor is going to be left out because moving on is no real threat from them.
- busterarm 5y ago
  Yes, because everyone at the level of employee is someone being exploited... Those of us who actually grew up with nothing and suffered through minimum wage labor and were able to change our class and turn our lives around through labor look at you people like you're from another planet.
  - Swenrekcah 5y ago
    Both following statements can be true at the same time: 1) It is possible for many to work their way through the labour ladder and find good life. 2) “The System” can incentivise corporations to maximise transfer of wealth towards the top brass without incentivising it to raise wages any more than only to keep people from leaving.
    - busterarm 5y ago
      > 2) “The System” can incentivise corporations to maximise transfer of wealth towards the top brass without incentivising it to raise wages any more than only to keep people from leaving. And they can do that without being exploitative. People go to their bosses and ask for more money. Some percentage of the time they get it. If you were in business for yourself you would have to negotiate your own prices. Being employed isn't really different, just the risk is much less. You're trading something away for the security of a regular paycheck.
      - Swenrekcah 5y ago
        Of course. Some people can do that and nobody I know of has ever said anything different. But what is also true is that some people can’t do it, sometimes people are trading their lives away for only basic sustenance and no job security.
Layke1123 5y ago
Unless you find a way to fuck your workers over by using government welfare to supplement their living costs, this enabling you to save money for yourself and provide ROI. Win win lose!
heymijo 5y ago
> companies are a collection of people Peter Drucker was on top of this. It's so obvious yet so often forgotten (ignored?). An organization is a group of people. Jumping back to systems thinking. People can respond a number of ways in organizations. Enter 'policy refusal' (see Donella Meadows' systems literature for more). Executive wants A to happen. A is not in employees' best interest. Employees ignore, delay, obfuscate, outright refuse, or actively undermine A. People are very good at policy refusal. Executives are good at not knowing its happening.
- shoto_io 5y ago
  What’s your favorite resource on Drucker? I love re-reading his book “The Effective Executive”.
  - heymijo 5y ago
    His 1973 tome Management: Tasks, Responsibilities, Practices, The Essential Drucker, and Managing for Results are three I find myself opening regularly. The Effective Executive is great as well. It's hard to narrow down because he was such a prolific writer. Recommendations are also hard because you've got to meet the reader where they are. I picked up and put down Drucker early in my career. Years later, the same pages burst with insight when I read them.
    - tomasdore 5y ago
      "You've got to meet the reader where they are....Years later, the same pages burst with insight when I read them. " - Thanks for this, I find it is a great way of phrasing it, and gets to the heart of much about both education and communication.
trixie_ 5y ago
I'm not a huge fan of this quote because it's an opinion presented as a fact.
- slumdev 5y ago
  It reads like a descriptive statement, not a normative one, because it calls out specifically that the corporation enriches its management, not its employees.
- jhayward 5y ago
  The entire article is basically "conclusions from a lifetime of systems thinking". Of course it is opinion (a conclusion), explicitly so.
shoto_io 5y ago
Yes. And also acknowledge that “happiness” can mean vastly different things to different groups of people. Thus the culture of one company may be very off-putting to some and highly attractive to others. Don’t tell we need to adapt your standard culture (e.g. new work) because that’s what makes everyone happy.
WalterBright 5y ago
The thing to remember is people are nearly always motivated by selfish impulses, not altruism. (Even the most dedicated communists in the USSR still participated in the black market.) Any system that relies on people being selfless is doomed to failure. (Even charity work is selfishly motivated - people like the status they get from donating to charity, praise from their social circle, and feeling good from doing it.)
- neolog 5y ago
  So a system that relies on people being altruistic can work fine as long as people feel good about being altruistic?
  - WalterBright 5y ago
    It can work fine if they can find enough people who feel good about being altruistic and don't want more. There are certainly people like that. Are there enough to run an economy? Not remotely. Are there enough to run a largish organization? Nope.
    - neolog 5y ago
      > Are there enough to run a largish organization? Nope. I'm not convinced this is true. I can think of some small organizations full of employees who could make more money elsewhere but who are dedicated to an altruistic cause.
      - WalterBright 5y ago
        > small Sounds like you agree with me. BTW, the D Language Foundation is an example :-)
        neolog 5y ago
        I can think of a bunch of small organizations. Together that's enough people to fill a large organization. Maybe there are some other properties of large organizations that make it impossible to compose them out of altruistic people.
znpy 5y ago
> So maximize for worker Uh, the article explicitly mentions "those who manage the corporation" not "those who work for the corporation". You're thinking of regular workers, but i would bet 10$ that the author is thinking about upper management (not even team-leaders or middle-managers).
- deleted 5y ago
  [deleted]
- ethanbond 5y ago
  All the way down to the person managing a single grill on the kitchen line, everyone is managing something. Their ability to steer the org toward their own quality of life improvements is dependent upon the scope of their management, but indeed everyone holds the exact same objective.
  - Nowado 5y ago
    Surely that was the intended meaning. When one says 'managerial class' it's clearly referring to those managing grills.
    - ethanbond 5y ago
      Where does the author say managerial class in relation to this statement? When one says “social system,” as this author actually does, do you think he arbitrarily excludes people below a certain pay grade?
      - Nowado 5y ago
        Huh. I did reread that part and I was clearly wrong. You are absolutely correct, it refers to a wider category. Now I kinda want to take person up the comment chain on their bet.
        ethanbond 5y ago
        I haven’t read any Ackoff but I’ve read a decent bit that is clearly in the intellectual orbit (e.g. Weick) and you would win that bet. The entire basis of their analysis is that these arbitrary distinctions people propagate in common parlance are not real.
abecedarius 5y ago
> to maximize the standard of living and quality of work life of those who manage the corporation. Considering that managers compete to climb the hierarchy, I'm surprised to hear this claim from a systems thinker. It'd predict that managers work 40 hours or less per week, for example. "Corporate behavior is shaped by managers shaped by this competition" seems a more realistic starting point.
jshen 5y ago
I’m not sure who he is thinking of when he says, “those who manage a corporation”. If he means senior executives then he is definitely wrong. Most executives do not have a high quality of work life. They may get money, power, and status, but it often comes at a high cost.
- dkubb 5y ago
  Your comment is being downvoted, but IME working at a few startups where the owner went from making 2M to 10M, then 50 and 100M+ a year I rarely saw founders who had a good work/life balance. Sure, they could afford to pay people to take care of all their domestic needs, their life consisted mostly of working 24/7. Even their vacations were often working vacations. I think your characterization is accurate.
  - jshen 5y ago
    Thanks, really not sure what people are voting it down for. I know a lot of sr execs at big companies, they definitely aren’t optimizing for their work life balance or their mental health. Most seem obsessed with status and seem generally anxious and unbalanced. Edit: I’m talking about big co execs, not founders. They are typically two different breeds.

mathattack 5y ago

It’s a subtle distinction between labor and capital. And gets blurred by debt vs equity. Who owns the company? The people who work there? The person who founded it? The people who the founders sold shares to? Or the people who lent it money? Legally it’s the people who own shares. And if they miss their debt payments, it’s the lenders. Companies can inform their shareholders “if you want to invest, here is how we operate differently.” Bezos and Buffet both do that in terms of defining focus and time horizons. One may want to optimize for worker happiness first, but that’s not legal ownership. (Employee engagement is a predictor of shareholder return, but it’s hard to measure, and different from happiness)

adamcstephens 5y ago
Except the quote isn’t about legal ownership it all. It’s about who has skin in the game, and who actually makes the company function. The vast majority of shareholders have very little skin in the game, while the employees of the company absolutely have a lot of skin in the game. The employees depend on the company for their livelihood, whereas a shareholder is generally just trying to make money on their money.
- mathattack 5y ago
  I view him as defining value as to accrue to stakeholders, with employees as primary. One way to frame the question is “If the company gets a million dollar windfall, who should get it?” Employees? Owners? Even the most customer centric company won’t say a cash payment to customers, though they may say improving service or R and D.

Tarq0n 5y ago

Only maximizing happiness for the controlling workers. Fungible labor is going to be left out because moving on is no real threat from them.

busterarm 5y ago
Yes, because everyone at the level of employee is someone being exploited... Those of us who actually grew up with nothing and suffered through minimum wage labor and were able to change our class and turn our lives around through labor look at you people like you're from another planet.
- Swenrekcah 5y ago
  Both following statements can be true at the same time: 1) It is possible for many to work their way through the labour ladder and find good life. 2) “The System” can incentivise corporations to maximise transfer of wealth towards the top brass without incentivising it to raise wages any more than only to keep people from leaving.
  - busterarm 5y ago
    > 2) “The System” can incentivise corporations to maximise transfer of wealth towards the top brass without incentivising it to raise wages any more than only to keep people from leaving. And they can do that without being exploitative. People go to their bosses and ask for more money. Some percentage of the time they get it. If you were in business for yourself you would have to negotiate your own prices. Being employed isn't really different, just the risk is much less. You're trading something away for the security of a regular paycheck.
    - Swenrekcah 5y ago
      Of course. Some people can do that and nobody I know of has ever said anything different. But what is also true is that some people can’t do it, sometimes people are trading their lives away for only basic sustenance and no job security.

Layke1123 5y ago

Unless you find a way to fuck your workers over by using government welfare to supplement their living costs, this enabling you to save money for yourself and provide ROI. Win win lose!

heymijo 5y ago

> companies are a collection of people Peter Drucker was on top of this. It's so obvious yet so often forgotten (ignored?). An organization is a group of people. Jumping back to systems thinking. People can respond a number of ways in organizations. Enter 'policy refusal' (see Donella Meadows' systems literature for more). Executive wants A to happen. A is not in employees' best interest. Employees ignore, delay, obfuscate, outright refuse, or actively undermine A. People are very good at policy refusal. Executives are good at not knowing its happening.

shoto_io 5y ago
What’s your favorite resource on Drucker? I love re-reading his book “The Effective Executive”.
- heymijo 5y ago
  His 1973 tome Management: Tasks, Responsibilities, Practices, The Essential Drucker, and Managing for Results are three I find myself opening regularly. The Effective Executive is great as well. It's hard to narrow down because he was such a prolific writer. Recommendations are also hard because you've got to meet the reader where they are. I picked up and put down Drucker early in my career. Years later, the same pages burst with insight when I read them.
  - tomasdore 5y ago
    "You've got to meet the reader where they are....Years later, the same pages burst with insight when I read them. " - Thanks for this, I find it is a great way of phrasing it, and gets to the heart of much about both education and communication.

trixie_ 5y ago

I'm not a huge fan of this quote because it's an opinion presented as a fact.

slumdev 5y ago
It reads like a descriptive statement, not a normative one, because it calls out specifically that the corporation enriches its management, not its employees.
jhayward 5y ago
The entire article is basically "conclusions from a lifetime of systems thinking". Of course it is opinion (a conclusion), explicitly so.

shoto_io 5y ago

Yes. And also acknowledge that “happiness” can mean vastly different things to different groups of people. Thus the culture of one company may be very off-putting to some and highly attractive to others. Don’t tell we need to adapt your standard culture (e.g. new work) because that’s what makes everyone happy.

WalterBright 5y ago

The thing to remember is people are nearly always motivated by selfish impulses, not altruism. (Even the most dedicated communists in the USSR still participated in the black market.) Any system that relies on people being selfless is doomed to failure. (Even charity work is selfishly motivated - people like the status they get from donating to charity, praise from their social circle, and feeling good from doing it.)

neolog 5y ago
So a system that relies on people being altruistic can work fine as long as people feel good about being altruistic?
- WalterBright 5y ago
  It can work fine if they can find enough people who feel good about being altruistic and don't want more. There are certainly people like that. Are there enough to run an economy? Not remotely. Are there enough to run a largish organization? Nope.
  - neolog 5y ago
    > Are there enough to run a largish organization? Nope. I'm not convinced this is true. I can think of some small organizations full of employees who could make more money elsewhere but who are dedicated to an altruistic cause.
    - WalterBright 5y ago
      > small Sounds like you agree with me. BTW, the D Language Foundation is an example :-)
      - neolog 5y ago
        I can think of a bunch of small organizations. Together that's enough people to fill a large organization. Maybe there are some other properties of large organizations that make it impossible to compose them out of altruistic people.

znpy 5y ago

> So maximize for worker Uh, the article explicitly mentions "those who manage the corporation" not "those who work for the corporation". You're thinking of regular workers, but i would bet 10$ that the author is thinking about upper management (not even team-leaders or middle-managers).

deleted 5y ago
[deleted]
ethanbond 5y ago
All the way down to the person managing a single grill on the kitchen line, everyone is managing something. Their ability to steer the org toward their own quality of life improvements is dependent upon the scope of their management, but indeed everyone holds the exact same objective.
- Nowado 5y ago
  Surely that was the intended meaning. When one says 'managerial class' it's clearly referring to those managing grills.
  - ethanbond 5y ago
    Where does the author say managerial class in relation to this statement? When one says “social system,” as this author actually does, do you think he arbitrarily excludes people below a certain pay grade?
    - Nowado 5y ago
      Huh. I did reread that part and I was clearly wrong. You are absolutely correct, it refers to a wider category. Now I kinda want to take person up the comment chain on their bet.
      - ethanbond 5y ago
        I haven’t read any Ackoff but I’ve read a decent bit that is clearly in the intellectual orbit (e.g. Weick) and you would win that bet. The entire basis of their analysis is that these arbitrary distinctions people propagate in common parlance are not real.

abecedarius 5y ago

> to maximize the standard of living and quality of work life of those who manage the corporation. Considering that managers compete to climb the hierarchy, I'm surprised to hear this claim from a systems thinker. It'd predict that managers work 40 hours or less per week, for example. "Corporate behavior is shaped by managers shaped by this competition" seems a more realistic starting point.

jshen 5y ago

I’m not sure who he is thinking of when he says, “those who manage a corporation”. If he means senior executives then he is definitely wrong. Most executives do not have a high quality of work life. They may get money, power, and status, but it often comes at a high cost.

dkubb 5y ago
Your comment is being downvoted, but IME working at a few startups where the owner went from making 2M to 10M, then 50 and 100M+ a year I rarely saw founders who had a good work/life balance. Sure, they could afford to pay people to take care of all their domestic needs, their life consisted mostly of working 24/7. Even their vacations were often working vacations. I think your characterization is accurate.
- jshen 5y ago
  Thanks, really not sure what people are voting it down for. I know a lot of sr execs at big companies, they definitely aren’t optimizing for their work life balance or their mental health. Most seem obsessed with status and seem generally anxious and unbalanced. Edit: I’m talking about big co execs, not founders. They are typically two different breeds.