6 ms·

Steve Jobs and the Purpose of the Corporation

56 points by rfreytag 15y ago

jayfuerstenberg 15y ago
Publicly held corporations usually side with the shareholders' wants and needs first. That's one of the reasons Apple was so remarkable. Steve Jobs realized that if you give people stuff they'll love, they'll fork over their hard earned money, and that is ultimately what shareholders want so they let him do it over and over. Have people at all levels with vision, commitment, and passion for the work they do. They must be cross-disciplined and most importantly they must understand that their actions and decisions connect directly to the success of the company as a whole. Then you will have some of the magic of Apple.
- mwsherman 15y ago
  This seems like markets 101 (and I mean that as no dis to above commenter, but as amazement that so few companies get this). Apple worked like markets are supposed to work. That Apple was exceptional means that there is still a lot of cruft to be cleared out.
  - jayfuerstenberg 15y ago
    No dis taken. :)
  - redwood 15y ago
    The key is again the temporal timeframe: shareholder value NEXT QUARTER? or shareholder value two decades from now? The American car companies, for example, always look for the former (hence pushing trucks and whatever'll sell this season through marketing expenditures rather than innovation)
nostromo 15y ago
> [Shareholder pressures] have led many business leaders to manage to the "expectations market" of the public stock exchanges. This in turn has led to narrow short-termism, accounting manipulation, cutting of ethical and legal corners, failures to invest in the long-term, and to the financial crisis. I've actually heard from a salesperson at a big SaaS company that it's normal to delay sales to the next quarter once your sales quota is fulfilled for this quarter. This surprised me because it's obviously worse for the company as a whole to not capture that revenue as soon as possible (and to put it at risk entirely) and potentially worse for the customer. However, it's better for the salesperson to have an easy win next quarter, and easier for the management to show nice quarter-over-quarter growth. I think this is a good example of putting short-term gain before the interests of the company, and it seems to be quite common.
- joezydeco 15y ago
  Look at how Apple's stock price got a short pounding this week because they "didn't meet analyst expectations", citing a fall in iPhone sales. People were waiting for the new phone to launch. Apple moved nearly USD $3,000,000,000 in product in a single weekend just after the quarter ended and before the earnings report. And still, the stock got sold off. I've heard that Apple tends to underestimate their earnings, and I'm starting to wonder if Jobs played the 4S launch date just to screw with market analysts even more.
  - yuhong 15y ago
    I wonder if it is by trading machines running algorithms.
    - veyron 15y ago
      too expensive for most HFTs to play with
      - mahyarm 15y ago
        If there was a stock trading tax of X cents per share, would it wipe out HFT? What would X have to be?
        yummyfajitas 15y ago
        Yes. You'd also increase the bid/ask spread by at least X, which is not a good thing.
        veyron 15y ago
        The reason why AAPL is so expensive is because of the TAF (a tax assessed by the SEC). Currently its 19$ / million dollars sold. Note that this fee is proportional to dollars sold, not per share (other transaction costs are per-share). Let's say you received $.0020/sh for adding liquidity and paid a commission of $.0001/sh. The tax would be, assuming aapl is $400/sh, $.0076/sh. This is much larger than the rebates, which means you need to buy at least one cent below your sell price on every trade. Now look at bank of america. It's been hovering around 6.50 for the past week. The tax there is .000114, so in fact it's possible to buy and sell BAC at the same price and make money! But getting back to your question, blind market making loses money when the tax exceeds the returns. For the larger players, they make .00295/sh before commissions (and ostensibly they are free because larger shops have their own clearing divisions), so X would have to be close to .29. For alpha-based (generating a predictive signal) trading, most HF signals have an amortized edge of .2 cents per share after fees, so I would say something like X=.2 would wipe out HFT
pedalpete 15y ago
Nobody ever created a business with the goal of 'maximizing shareholder value'. That is a mission of companies who have lost their purpose and passion.
- jasonshen 15y ago
  If you ever start your own company - trust me, you'll be extremely interested in maximizing shareholder value. You may also want to satisfy customers and build amazing experiences but as the owner of the company, you will also care very much about the value of your shares.
  - yuhong 15y ago
    Yea, the problem is that "shareholder value" is defined as stock price, which is flawed.
    - dpe82 15y ago
      What other metric do you use? A warm fuzzy feelings index? The problem is "shareholder value" is defined using a measure of TODAY's stock price, which is highly volatile and subject to really minor changes in quarterly reports. So companies tend to spend an inordinate amount of resources trying to level out the volatility of their short term stock price by doing whatever they can to meet quarterly expectations, which leads to misallocation of capital. A better measure might be the potential value of a stock some number of years out, which can be roughly measured using stock options trading if the options markets have access to enough data. That type of data would include things like customer satisfaction metrics, R&D spending, etc. (ie the types of things Steve Jobs optimized for).
      - yuhong 15y ago
        Yea, this is exactly what I mean.
  - pedalpete 15y ago
    I have started two companies. I'm not suggesting that the value of the company isn't important, but I've seen many times where the quality of the product drops due to a focus on shareholder value, resulting in a drop in that very value they were trying to protect.
ajtaylor 15y ago
Perhaps it's only obvious to me, but unless a corporation has great products that customers want to buy, the long-term shareholder value can only fall. Customers buying a corporation's products is a prerequisite to profits at said corporation. Isn't that what shareholders want? If a company goes bankrupt, pays penalties, has bad press, etc because executives can't take a long-term view, how is that good for shareholders?
mwsherman 15y ago
The purpose of a corporation is not to maximize shareholder value, per se. It’s to allow a group of people to work together under a legal framework, which includes things like public offerings of stock. Shareholders can buy into that for whatever reason they want. (Also, this article makes business theory sound frighteningly simplistic and divorced from markets. I hope I am wrong.)
- redwood 15y ago
  ..a legal framework whereby the owners of the company have limited liability for the company's financial obligations
po 15y ago
Although I agree with this article, I would take it one step further and say that the reason for a corporation to exist should be to improve society as a whole. Society grants corporations certain expanded rights and protections (more now than ever) because we believe it is a net improvement to the world. We should therefore expect certain behavior. If a corporation damages the public at large for the benefit of a few shareholders what have we gained?
- philwelch 15y ago
  The entire idea of the free market is that, once externalities are internalized and the market is properly governed, the best way for a corporation to improve society as a whole is to increase its own profits. It turns out that improving society as a whole is a vaguely defined and difficult goal, while increasing profits is directly measurable. The market works by taking something vague and difficult for anyone to set out to do on their own (improve the well-being of society) and turning it into a direct, self-interested, measurable goal (increasing profit). There are other systems that work a similar way. For instance, the adversarial system in criminal justice works by throwing together two opposing lawyers, each of whom wants only to win the case, and as a result does a pretty decent job of both enforcing the law and protecting civil rights.
  - po 15y ago
    You're absolutely right about how that should work in theory. once externalities are internalized and the market is properly governed If a company chasing down profits hurts the general public it is a failure of the market, not the company. However, for this to work in practice, there needs to be a strong firewall between the companies competing, the regulators defining the market and even the media informing the public about what is going on. We're watching a rigged game where the coaches have paid off the referees and the sports reporters have realized there's more money in becoming promoters.
    - philwelch 15y ago
      So the market only partially works. Perfection is an unattainable goal. Fine. As you run a business, it should be pretty obvious to you whether you're profiting by exploiting flaws in the system. If you're not exploiting flaws in the system and you're still profiting, I don't think you need to worry a great deal about whether you're actually benefiting society. Most businesses do a small, dull, unexciting part of benefiting society, and that's fine.
dr_ 15y ago
There's not much of a story here. If a corporation delivers great products - profits and increased shareholder value will follow. If not, or if they stop doing so, profits and shareholder value will drop. They can get gimmicky all they want for a short while, but eventually they will drop. The only exception to this would be the banking/finance industries - which pretty much create nothing yet historically for the most part generate enormous profits for themselves.
alfbolide 15y ago
I am wondering what good does Apple do to customers when it forbids users from using software not paying to Apple or buying content that has nothing to do with Apple without paying Apple.
- seclorum 15y ago
  Good, quality, affordable software, of course. Have you seen how easy it is to buy a high quality 79c game and play with it in a few minutes?

56 points by rfreytag 15y ago

Publicly held corporations usually side with the shareholders' wants and needs first. That's one of the reasons Apple was so remarkable. Steve Jobs realized that if you give people stuff they'll love, they'll fork over their hard earned money, and that is ultimately what shareholders want so they let him do it over and over. Have people at all levels with vision, commitment, and passion for the work they do. They must be cross-disciplined and most importantly they must understand that their actions and decisions connect directly to the success of the company as a whole. Then you will have some of the magic of Apple.

mwsherman 15y ago
This seems like markets 101 (and I mean that as no dis to above commenter, but as amazement that so few companies get this). Apple worked like markets are supposed to work. That Apple was exceptional means that there is still a lot of cruft to be cleared out.
- jayfuerstenberg 15y ago
  No dis taken. :)
- redwood 15y ago
  The key is again the temporal timeframe: shareholder value NEXT QUARTER? or shareholder value two decades from now? The American car companies, for example, always look for the former (hence pushing trucks and whatever'll sell this season through marketing expenditures rather than innovation)

nostromo 15y ago

> [Shareholder pressures] have led many business leaders to manage to the "expectations market" of the public stock exchanges. This in turn has led to narrow short-termism, accounting manipulation, cutting of ethical and legal corners, failures to invest in the long-term, and to the financial crisis. I've actually heard from a salesperson at a big SaaS company that it's normal to delay sales to the next quarter once your sales quota is fulfilled for this quarter. This surprised me because it's obviously worse for the company as a whole to not capture that revenue as soon as possible (and to put it at risk entirely) and potentially worse for the customer. However, it's better for the salesperson to have an easy win next quarter, and easier for the management to show nice quarter-over-quarter growth. I think this is a good example of putting short-term gain before the interests of the company, and it seems to be quite common.

joezydeco 15y ago
Look at how Apple's stock price got a short pounding this week because they "didn't meet analyst expectations", citing a fall in iPhone sales. People were waiting for the new phone to launch. Apple moved nearly USD $3,000,000,000 in product in a single weekend just after the quarter ended and before the earnings report. And still, the stock got sold off. I've heard that Apple tends to underestimate their earnings, and I'm starting to wonder if Jobs played the 4S launch date just to screw with market analysts even more.
- yuhong 15y ago
  I wonder if it is by trading machines running algorithms.
  - veyron 15y ago
    too expensive for most HFTs to play with
    - mahyarm 15y ago
      If there was a stock trading tax of X cents per share, would it wipe out HFT? What would X have to be?
      - yummyfajitas 15y ago
        Yes. You'd also increase the bid/ask spread by at least X, which is not a good thing.
      - veyron 15y ago
        The reason why AAPL is so expensive is because of the TAF (a tax assessed by the SEC). Currently its 19$ / million dollars sold. Note that this fee is proportional to dollars sold, not per share (other transaction costs are per-share). Let's say you received $.0020/sh for adding liquidity and paid a commission of $.0001/sh. The tax would be, assuming aapl is $400/sh, $.0076/sh. This is much larger than the rebates, which means you need to buy at least one cent below your sell price on every trade. Now look at bank of america. It's been hovering around 6.50 for the past week. The tax there is .000114, so in fact it's possible to buy and sell BAC at the same price and make money! But getting back to your question, blind market making loses money when the tax exceeds the returns. For the larger players, they make .00295/sh before commissions (and ostensibly they are free because larger shops have their own clearing divisions), so X would have to be close to .29. For alpha-based (generating a predictive signal) trading, most HF signals have an amortized edge of .2 cents per share after fees, so I would say something like X=.2 would wipe out HFT

pedalpete 15y ago

Nobody ever created a business with the goal of 'maximizing shareholder value'. That is a mission of companies who have lost their purpose and passion.

jasonshen 15y ago
If you ever start your own company - trust me, you'll be extremely interested in maximizing shareholder value. You may also want to satisfy customers and build amazing experiences but as the owner of the company, you will also care very much about the value of your shares.
- yuhong 15y ago
  Yea, the problem is that "shareholder value" is defined as stock price, which is flawed.
  - dpe82 15y ago
    What other metric do you use? A warm fuzzy feelings index? The problem is "shareholder value" is defined using a measure of TODAY's stock price, which is highly volatile and subject to really minor changes in quarterly reports. So companies tend to spend an inordinate amount of resources trying to level out the volatility of their short term stock price by doing whatever they can to meet quarterly expectations, which leads to misallocation of capital. A better measure might be the potential value of a stock some number of years out, which can be roughly measured using stock options trading if the options markets have access to enough data. That type of data would include things like customer satisfaction metrics, R&D spending, etc. (ie the types of things Steve Jobs optimized for).
    - yuhong 15y ago
      Yea, this is exactly what I mean.
- pedalpete 15y ago
  I have started two companies. I'm not suggesting that the value of the company isn't important, but I've seen many times where the quality of the product drops due to a focus on shareholder value, resulting in a drop in that very value they were trying to protect.

ajtaylor 15y ago

Perhaps it's only obvious to me, but unless a corporation has great products that customers want to buy, the long-term shareholder value can only fall. Customers buying a corporation's products is a prerequisite to profits at said corporation. Isn't that what shareholders want? If a company goes bankrupt, pays penalties, has bad press, etc because executives can't take a long-term view, how is that good for shareholders?

mwsherman 15y ago

The purpose of a corporation is not to maximize shareholder value, per se. It’s to allow a group of people to work together under a legal framework, which includes things like public offerings of stock. Shareholders can buy into that for whatever reason they want. (Also, this article makes business theory sound frighteningly simplistic and divorced from markets. I hope I am wrong.)

redwood 15y ago
..a legal framework whereby the owners of the company have limited liability for the company's financial obligations

po 15y ago

Although I agree with this article, I would take it one step further and say that the reason for a corporation to exist should be to improve society as a whole. Society grants corporations certain expanded rights and protections (more now than ever) because we believe it is a net improvement to the world. We should therefore expect certain behavior. If a corporation damages the public at large for the benefit of a few shareholders what have we gained?

philwelch 15y ago
The entire idea of the free market is that, once externalities are internalized and the market is properly governed, the best way for a corporation to improve society as a whole is to increase its own profits. It turns out that improving society as a whole is a vaguely defined and difficult goal, while increasing profits is directly measurable. The market works by taking something vague and difficult for anyone to set out to do on their own (improve the well-being of society) and turning it into a direct, self-interested, measurable goal (increasing profit). There are other systems that work a similar way. For instance, the adversarial system in criminal justice works by throwing together two opposing lawyers, each of whom wants only to win the case, and as a result does a pretty decent job of both enforcing the law and protecting civil rights.
- po 15y ago
  You're absolutely right about how that should work in theory. once externalities are internalized and the market is properly governed If a company chasing down profits hurts the general public it is a failure of the market, not the company. However, for this to work in practice, there needs to be a strong firewall between the companies competing, the regulators defining the market and even the media informing the public about what is going on. We're watching a rigged game where the coaches have paid off the referees and the sports reporters have realized there's more money in becoming promoters.
  - philwelch 15y ago
    So the market only partially works. Perfection is an unattainable goal. Fine. As you run a business, it should be pretty obvious to you whether you're profiting by exploiting flaws in the system. If you're not exploiting flaws in the system and you're still profiting, I don't think you need to worry a great deal about whether you're actually benefiting society. Most businesses do a small, dull, unexciting part of benefiting society, and that's fine.

dr_ 15y ago

There's not much of a story here. If a corporation delivers great products - profits and increased shareholder value will follow. If not, or if they stop doing so, profits and shareholder value will drop. They can get gimmicky all they want for a short while, but eventually they will drop. The only exception to this would be the banking/finance industries - which pretty much create nothing yet historically for the most part generate enormous profits for themselves.

alfbolide 15y ago

I am wondering what good does Apple do to customers when it forbids users from using software not paying to Apple or buying content that has nothing to do with Apple without paying Apple.

seclorum 15y ago
Good, quality, affordable software, of course. Have you seen how easy it is to buy a high quality 79c game and play with it in a few minutes?