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There is only one valid definition of a business purpose: to create a customer. No. The one valid definition of a business purpose is this: A business should

by mhartl 15y ago

There is only one valid definition of a business purpose: to create a customer. No. The one valid definition of a business purpose is this: A business should do what the owners want it to do. Otherwise, the notion of ownership loses meaning. If the owners want to create lots of customers, they do that. If they would rather have a smaller number of highly profitable customers, they do that. If they want to create a nice side business so that they can surf in the summer and snowboard in the winter, they do that. Scottish philosopher David Hume drew an essential distinction between factual matters—is—and moral matters—ought. Asking "What should a business do?" looks like a Humean ought, but it's actually a Humean is. A business is a vehicle for achieving the ends of its owners. How then can we make sense of the maxim "a business should maximize shareholder value"? In certain kinds of businesses—especialy those owned by a large number of shareholders—the interests of the owners may generally conflict, but they can usually agree on one thing: maximize the value of the company. This describes virtually all publicly traded companies and many family businesses as well. It doesn't describe, e.g., my present business (the Ruby on Rails Tutorial), which I created as a 4-Hour Work Week–style product company to let me relax for a while, travel the world in style, and have the financial freedom to develop longer-range plans for world domination. Its purpose is definitely not to maximize shareholder value; I'm the only shareholder, so it does whatever I damn well tell it to do. Let the owners worry about what a company ought to do. Unless you're an owner, it's none of your business.

sliverstorm 15y ago
Where on earth did you get the ridiculous idea that your business can do what you want it to? [/sarcasm]
- deleted 15y ago
  [deleted]
barrkel 15y ago
Incorporation is a privilege granted by society; and property rights are never absolute. What you state is extremely individualistic, but it is unrealistic and naive for the same reason. I understand your exhortation, but it does not amount to an argument. For example, most large companies with broad shareholder bases have no owner interests that you can easily point to; the shareholder base has collective action problems, and frequently cannot meaningfully affect the company. I think you're at risk of deriving an ought from an is yourself. You take capitalist ownership structures, which exist for the hopeful progress of society at large, but you infer an ought from them, that the only thing that is fair is that ownership is absolute in control over what it owns.
- dextorious 15y ago
  """What you state is extremely individualistic, but it is unrealistic and naive for the same reason.""" Actually not at all. It just takes a certain type of society that wants to have and enforces such norms.
- alexqgb 15y ago
  This is a much more civilized response than my initial reaction, which was "go fuck yourself, mhartl". The reason for that indignation was, as you pointed out, the obvious truth that without society's extension of limited legal liability, there would be no business in the first place - or, at least, not one with the scale and structure of a publicly traded company. And no, society does not grant this liability protection for free. Nor does it expect to get the short end of the deal. It has a stake in the outcome, and it expects that stake to be rewarded - no less than an investor expects a return on his capital. mhartl's implication that "only shareholders have any legitimate interest" represents a trifecta of ignorance (of the law) ingratitude (for what it grants) and arrogance (in assuming that his counter-party is irrelevant). It is supremely egocentric and inevitably destructive. You see the same warped sense of self expressed by people who go around saying "I'm a job creator" as though they were god-like individuals who combined - in a single person - holy trinity of supply, demand, and the ability to connect them that comprise any given job. In reality, jobs - like economic growth - are a product of several interactions that create a favorable situation for employment. No one person or organization controls all of them, or even (in most cases) a majority of them. What these "job creators" can safely say is "I hire and fire." That's a much more honest description, and one that clearly implies the existence of factors outside their control about which they simply make judgements. Their role is good and necessary, but it is not creative in the sense of having invented, built, or authored a thing. More importantly, people who hire and fire well (aka "managers") are acutely aware of the broader milieu in which they operate, the extent to which they depend on it, and the degree to which their own well-being depends on the health of those around them. Obliviousness to this vital interdependency remains deeply stupid. And unlike a temporary impairment (e.g. getting very drunk) or a moral impairment (e.g. a propensity to steal), the ethical blindness it represents is not something that the people who have it are usually aware of. Nor is it something about which they can easily be made aware. They simply lack the frame of reference needed to understand what they lack. Just consider colorblindness; a person who cannot see a limited part of the spectrum can still grasp the idea of color, and can make allowances for what they can't detect directly. But a person who has no sense of color whatsoever has no point of reference they can use to grasp even the idea of color. When it comes to responsibility, people like mhartl fall into the latter camp. Their minds simply cannot process the idea of social reciprocity. That is to say, they have no real ethics. In extreme cases, this makes them properly sociopathic. If you find yourself working with a person like this, distance yourself as soon as possible. They are dangerous, entirely self-serving, and prolonged exposure will get you hurt.
blrgeek 15y ago
The owners can do what they want to do without a business. So why create a business? If the owners just want to have a place to park their money, they can have a trust. If they want to do good in the world they can make a non-profit, or an NGO. The only valid definition of a business purpose - creating customers. If they don't want customers (one, few or many), they shouldn't start a business. http://dictionary.reference.com/browse/business http://dictionary.reference.com/browse/business
- beagle3 15y ago
  > If they don't want customers (one, few or many), they shouldn't start a business. Legally, there is no such a thing as a "business". A corporation or LLP exists to limit liability. That's it. "Business" is not well defined in the real world. Is an HFT proprietary trading firm, trading its own money on an anonymous exchange, with no customers or clients, not a business?
  - Shorel 15y ago
    So you say that the real world is mostly made from legal definitions? I would wonder what that would mean for string theory.
    - beagle3 15y ago
      > So you say that the real world is mostly made from legal definitions? No. I'm saying that arguing about what a "business" is or isn't is futile, because something which is a business to one is not a business to the other. Had there been a legal definition, there would have been merit to such a discussion. > I would wonder what that would mean for string theory. I wonder too. So far, string theory has not been predictive, and as such is a very interesting intellectual experiment, but not a lot more. When it can actually predict something testable that disagrees with another theory, we'll be able to call it "science".
  - nknight 15y ago
    > Legally, there is no such a thing as a "business". The US Internal Revenue Service would probably disagree with you there. If I didn't file Schedule C ("Profit or Loss From Business") every year, I'd be in prison. > Is an HFT proprietary trading firm, trading its own money on an anonymous exchange, with no customers or clients, not a business? An HFT with no "customers" is simply an agent of its owners. The only sense in which you could call it a business is that it happens to have the form of an incorporated entity, which many businesses also happen to have the form of. A is part of B, C is part of B, does that mean all As are Cs? You've latched on to one of the bizarre artifacts of the modern American legal system, not a fundamental principle of business.
philwelch 15y ago
If it's really your business, and you're the one deciding what it does, and you choose what you want most from that business, then you are maximizing shareholder value, because you are the shareholder and you're maximizing the business's value in your life.
- mhartl 15y ago
  Of course you're right in a sense, but when people say "businesses should maximize shareholder value", they use "value" specifically to mean financial value.
xinjiang 15y ago
Saying your business can do whatever it damn well pleases because you own it is like saying I can drive my car any way I want. Not so. Your actions affect others. You are using public infrastructure and there are rules. Move to an island where you can be all by your lonesome and run a business any way you want there.
- tomjen3 15y ago
  First I see that you are new here, so welcome. That isn't much of an argument you are presenting though -- you could argue against a person being allowed to do anything based on that. The reason I can't drive a car the way I want is that it represents a clear and present danger to the health of third-parties. On the other hand running my business the way I want doesn't present a clear harm to others, so I can't.
  - Andrew_Quentin 15y ago
    The BP oil spill is a clear example of dangers to others, as is the credit crash. There are numerous other examples, one given in the article itself, where the actions of business can do great damage to individuals. Is my toothpaste safe? What about my tomatoes?
    - davidw 15y ago
      In economics this is called an "externality", specifically a negative one in this case. http://en.m.wikipedia.org/wiki/Externality http://en.m.wikipedia.org/wiki/Externality
    - chc 15y ago
      This seems like a bizarre leap from what mhartl was talking about when he said "A business should do what the owners want it to do", which is what tomjen3 was defending. Given the choice between a reasonable interpretation of someone's comment and an unreasonable one, it seems unkind to choose the unreasonable one without even asking for clarification. When you hear someone say something like "People should be free to choose their own destiny," do you come in guns-a-blazin' about how they shouldn't be free to choose a destiny where they kill people or beat children? Because that's usually not what people mean when they say that. I think mhartl and tomjen3 were just suggesting that this same principle applies even when the person is a business owner — that people don't suddenly have any one particular goal forced on them just because they happen to be running a business.
epo 15y ago
"No. The one valid definition of a business purpose is this: A business should do what the owners want it to do. Otherwise, the notion of ownership loses meaning." This is specious, not all shareholders are equal and most have no practical consequence from their shareholding because they hold too few. Large shareholders are rarely, if ever, interested in being owners, they want short term tradeable instruments. Maximising shareholder value is pandering to the whims of these people whose goals are never in the interests of the underlying business.

by mhartl 15y ago

sliverstorm 15y ago

Where on earth did you get the ridiculous idea that your business can do what you want it to? [/sarcasm]

deleted 15y ago
[deleted]

barrkel 15y ago

Incorporation is a privilege granted by society; and property rights are never absolute. What you state is extremely individualistic, but it is unrealistic and naive for the same reason. I understand your exhortation, but it does not amount to an argument. For example, most large companies with broad shareholder bases have no owner interests that you can easily point to; the shareholder base has collective action problems, and frequently cannot meaningfully affect the company. I think you're at risk of deriving an ought from an is yourself. You take capitalist ownership structures, which exist for the hopeful progress of society at large, but you infer an ought from them, that the only thing that is fair is that ownership is absolute in control over what it owns.

dextorious 15y ago
"""What you state is extremely individualistic, but it is unrealistic and naive for the same reason.""" Actually not at all. It just takes a certain type of society that wants to have and enforces such norms.
alexqgb 15y ago
This is a much more civilized response than my initial reaction, which was "go fuck yourself, mhartl". The reason for that indignation was, as you pointed out, the obvious truth that without society's extension of limited legal liability, there would be no business in the first place - or, at least, not one with the scale and structure of a publicly traded company. And no, society does not grant this liability protection for free. Nor does it expect to get the short end of the deal. It has a stake in the outcome, and it expects that stake to be rewarded - no less than an investor expects a return on his capital. mhartl's implication that "only shareholders have any legitimate interest" represents a trifecta of ignorance (of the law) ingratitude (for what it grants) and arrogance (in assuming that his counter-party is irrelevant). It is supremely egocentric and inevitably destructive. You see the same warped sense of self expressed by people who go around saying "I'm a job creator" as though they were god-like individuals who combined - in a single person - holy trinity of supply, demand, and the ability to connect them that comprise any given job. In reality, jobs - like economic growth - are a product of several interactions that create a favorable situation for employment. No one person or organization controls all of them, or even (in most cases) a majority of them. What these "job creators" can safely say is "I hire and fire." That's a much more honest description, and one that clearly implies the existence of factors outside their control about which they simply make judgements. Their role is good and necessary, but it is not creative in the sense of having invented, built, or authored a thing. More importantly, people who hire and fire well (aka "managers") are acutely aware of the broader milieu in which they operate, the extent to which they depend on it, and the degree to which their own well-being depends on the health of those around them. Obliviousness to this vital interdependency remains deeply stupid. And unlike a temporary impairment (e.g. getting very drunk) or a moral impairment (e.g. a propensity to steal), the ethical blindness it represents is not something that the people who have it are usually aware of. Nor is it something about which they can easily be made aware. They simply lack the frame of reference needed to understand what they lack. Just consider colorblindness; a person who cannot see a limited part of the spectrum can still grasp the idea of color, and can make allowances for what they can't detect directly. But a person who has no sense of color whatsoever has no point of reference they can use to grasp even the idea of color. When it comes to responsibility, people like mhartl fall into the latter camp. Their minds simply cannot process the idea of social reciprocity. That is to say, they have no real ethics. In extreme cases, this makes them properly sociopathic. If you find yourself working with a person like this, distance yourself as soon as possible. They are dangerous, entirely self-serving, and prolonged exposure will get you hurt.

blrgeek 15y ago

The owners can do what they want to do without a business. So why create a business? If the owners just want to have a place to park their money, they can have a trust. If they want to do good in the world they can make a non-profit, or an NGO. The only valid definition of a business purpose - creating customers. If they don't want customers (one, few or many), they shouldn't start a business. http://dictionary.reference.com/browse/business http://dictionary.reference.com/browse/business

beagle3 15y ago
> If they don't want customers (one, few or many), they shouldn't start a business. Legally, there is no such a thing as a "business". A corporation or LLP exists to limit liability. That's it. "Business" is not well defined in the real world. Is an HFT proprietary trading firm, trading its own money on an anonymous exchange, with no customers or clients, not a business?
- Shorel 15y ago
  So you say that the real world is mostly made from legal definitions? I would wonder what that would mean for string theory.
  - beagle3 15y ago
    > So you say that the real world is mostly made from legal definitions? No. I'm saying that arguing about what a "business" is or isn't is futile, because something which is a business to one is not a business to the other. Had there been a legal definition, there would have been merit to such a discussion. > I would wonder what that would mean for string theory. I wonder too. So far, string theory has not been predictive, and as such is a very interesting intellectual experiment, but not a lot more. When it can actually predict something testable that disagrees with another theory, we'll be able to call it "science".
- nknight 15y ago
  > Legally, there is no such a thing as a "business". The US Internal Revenue Service would probably disagree with you there. If I didn't file Schedule C ("Profit or Loss From Business") every year, I'd be in prison. > Is an HFT proprietary trading firm, trading its own money on an anonymous exchange, with no customers or clients, not a business? An HFT with no "customers" is simply an agent of its owners. The only sense in which you could call it a business is that it happens to have the form of an incorporated entity, which many businesses also happen to have the form of. A is part of B, C is part of B, does that mean all As are Cs? You've latched on to one of the bizarre artifacts of the modern American legal system, not a fundamental principle of business.

philwelch 15y ago

If it's really your business, and you're the one deciding what it does, and you choose what you want most from that business, then you are maximizing shareholder value, because you are the shareholder and you're maximizing the business's value in your life.

mhartl 15y ago
Of course you're right in a sense, but when people say "businesses should maximize shareholder value", they use "value" specifically to mean financial value.

xinjiang 15y ago

Saying your business can do whatever it damn well pleases because you own it is like saying I can drive my car any way I want. Not so. Your actions affect others. You are using public infrastructure and there are rules. Move to an island where you can be all by your lonesome and run a business any way you want there.

tomjen3 15y ago
First I see that you are new here, so welcome. That isn't much of an argument you are presenting though -- you could argue against a person being allowed to do anything based on that. The reason I can't drive a car the way I want is that it represents a clear and present danger to the health of third-parties. On the other hand running my business the way I want doesn't present a clear harm to others, so I can't.
- Andrew_Quentin 15y ago
  The BP oil spill is a clear example of dangers to others, as is the credit crash. There are numerous other examples, one given in the article itself, where the actions of business can do great damage to individuals. Is my toothpaste safe? What about my tomatoes?
  - davidw 15y ago
    In economics this is called an "externality", specifically a negative one in this case. http://en.m.wikipedia.org/wiki/Externality http://en.m.wikipedia.org/wiki/Externality
  - chc 15y ago
    This seems like a bizarre leap from what mhartl was talking about when he said "A business should do what the owners want it to do", which is what tomjen3 was defending. Given the choice between a reasonable interpretation of someone's comment and an unreasonable one, it seems unkind to choose the unreasonable one without even asking for clarification. When you hear someone say something like "People should be free to choose their own destiny," do you come in guns-a-blazin' about how they shouldn't be free to choose a destiny where they kill people or beat children? Because that's usually not what people mean when they say that. I think mhartl and tomjen3 were just suggesting that this same principle applies even when the person is a business owner — that people don't suddenly have any one particular goal forced on them just because they happen to be running a business.

epo 15y ago

"No. The one valid definition of a business purpose is this: A business should do what the owners want it to do. Otherwise, the notion of ownership loses meaning." This is specious, not all shareholders are equal and most have no practical consequence from their shareholding because they hold too few. Large shareholders are rarely, if ever, interested in being owners, they want short term tradeable instruments. Maximising shareholder value is pandering to the whims of these people whose goals are never in the interests of the underlying business.