10 ms·

The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that,

by mabbo 4y ago

The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it. Blaming the CEO for doing the job they were hired to do seems short-sighted. Blame the broken system that incentivizes this, that makes doing it profitable. And then, let's change the system.

gsatic 4y ago
That's what Mario Savio said. Bodies upon the gears people.
toomuchtodo 4y ago
> The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. This is a poor take. The function of the CEO of a publicly traded company is to execute on major objectives of the firm. This might be optimizing for max profit, but it might not, depending on what your majority shareholders communicate to the board and management (as well as how they vote their shares). Agree with the rest of your comment that you have to reach a better power equilibrium between labor, management, and shareholders (who should also be employees to some degree, aligning interests and all that jazz).
- coding123 4y ago
  This is actually much more correct. We also happen to be in an environment that will want most boards to slow and more carefully steer the ship. Layoffs often come with that.
- Invictus0 4y ago
  [flagged]
  - anonymousab 4y ago
    And profit maximizing in the mid or long term can sometimes require moves that reduce profit in the short term, such as R&D expenditure. Sometimes shareholders will seek a CEO that can solve a pending existential problem rather than maximize short-term profit.
- njovin 4y ago
  I'd like to see a few recent examples of CEOs making decisions for the future health of the company that knowingly lower the stock price for more than 2Q.
  - nightski 4y ago
    There are lots of examples of CEOs making decisions for the future health of the company that are rewarded by Wall Street. The trope that investors only care about the current quarter profits is just bs. In fact in my experience future growth potential is rewarded a lot more by Wall Street than consistent profits.
    - SketchySeaBeast 4y ago
      I think this point would be helped with some examples.
      - creato 4y ago
        Amazon
      - WJW 4y ago
        - Any form of R&D spending. Biotech companies are an extreme case of this, many making no money at all for years until they get FDA approval or go bankrupt. A lot of companies will invest in new development of new machines in order to gain an edge in the long run. - Any form of expansion into new markets. Will take a lot of cash to get started and may take years before it becomes successful. - Most marketing for brands that you already know, to keep them "top of mind". Nobody needs ads to know that Coca Cola exists, but they still spend a ton on marketing to maintain their brand image and make sure that people hear about them regularly.
        kritiko 4y ago
        I said this in another comment, but the gp is talking about stock price, not profits. Your examples seem to refer to P&L.
- foul 4y ago
  > The function of the CEO of a publicly traded company is to execute on major objectives of the firm. Amongst the major objectives of a firm there is honoring debts and shareholders are mostly creditors.
  - AlbertCory 4y ago
    > shareholders are mostly creditors You need to understand the fundamental difference between debt and equity. A creditor gets his money back with interest, and that's all. The firm could prosper or flail and it makes no difference as long as they pay him back. If the firm goes bankrupt, he's first in line for what's left of it. A stockholder might get nothing back, but if the firm prospers, he shares in it. He's last in line in a bankruptcy.
    - foul 4y ago
      "Mostly" is there exactly because they trade risk for power (and a virtually endless profit, in the best case scenario). Edit: With that power they may notice a gap in capital during a financial crisis, and they may force the firm to fill it with layoffs.
      - AlbertCory 4y ago
        I don't know if you've ever studied econ, accounting, or finance, but I doubt it. the second sentence is beyond normal ignorance. We're done here.
  - sokoloff 4y ago
    A shareholder is not a creditor. They are an investor. A bond-holder or other lender is a creditor.
- efficax 4y ago
  corporations have a fiduciary duty to their shareholders. what that means is not well defined, and a ceo could say: i’m not doing layoffs because my analysis is that they will hurt our business, not help, but generally the meaning of their duty to shareholders is that they increase share prices and layoffs make that happen.
  - toomuchtodo 4y ago
    https://www.marketplace.org/2022/04/25/how-shareholders-jumped-to-first-in-line-for-profits-rerun/ https://www.marketplace.org/2022/04/25/how-shareholders-jump... > “There is a widespread and completely erroneous belief out there that there is some sort of legal duty that corporate managers have to ‘maximize profits’ or ‘maximize shareholder value,’” said Cornell law professor Lynn Stout, author of “The Shareholder Value Myth.” In Stout’s view, the misplaced assumption comes from an old case that cites stockholders’ interests. That case did not set legal precedent, she said, compared to a more recent case. > “You can just pick up the Supreme Court case ‘Hobby Lobby’ decided just a few years ago,” she said. “Read the majority opinion, where Justice Alito says, and I quote, ‘modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else.’” > By contrast, Delaware Chancery Court Judge Leo Strine, now chief justice of the state Supreme Court, wrote in the Wake Forest Law Review: “Corporate law requires directors, as a matter of their duty of loyalty, to pursue a good faith strategy to maximize profits for the stockholders.” The debate goes on. https://www.americanbar.org/content/dam/aba/publications/business_lawyer/2015/70_1/article-hobby-lobby-201501.pdf https://www.americanbar.org/content/dam/aba/publications/bus... > We evaluate the U.S. Supreme Court’s controversial decision in the Hobby Lobby case from the perspective of state corporate law. We argue that the Court is correct in holding that corporate law does not mandate that business corporations limit themselves to pursuit of profit. Rather, state law allows incorporation for any lawful purpose. We elaborate on this important point and also explain what it means for a corporation to “exercise religion.” In addition, we address the larger implications of the Court’s analysis for an accurate understanding both of state law’s essentially agnostic stance on the question of corporate purpose and also of the broad scope of managerial discretion. It is not as black and white as "you must maximize profits" although this is consistently parroted by folks.
- next_xibalba 4y ago
  This is a poor, uninformed take. The incentive structure of public companies is only to maximize share price. If a CEO fails to do this, an activist investor will spot the opportunity, buy up shares, and agitate for strategy or leadership change until share price maximization is once again the top priority.
  - thwayunion 4y ago
    > maximize share price This is obviously not true. Even in the most extreme version of the "shareholder value" philosophy, the goal is not to maximize share price alone. The goal is to maximize total return way that is sustainable within the timeframe that the major of (voting) shareholders consider relevant. The simplest counter-example is the existence of dividends. Any time a company issues a dividend, they could often instead buy back shares and achieve a higher share price at some instantaneous point in time. But in many cases that would come at the expense of total shareholder return, which shareholders obviously care more about than price alone. There are also all sorts of hilariously destructive financial engineering tricks that a company could do to make their share price shoot to the moon just before cratering to zero. Eg: take on as much debt as possible, sell all of your assets, layoff all of your employees, buy back all shares at any price, and declare bankruptcy. There might even be legal ways of doing this. Firms never do those things except on long enough time-frames with big enough personalities; GE is the poster-child here. Most firms, especially large ones, have a complex set of strategic considerations. Short term share price plays an outsized role in decision making, imo, but it's almost never the entire objective function of a firm.
    - next_xibalba 4y ago
      > The simplest counter-example is the existence of dividends. No. All professional valuation models account for dividends and buybacks. Both can and do effect share price. > financial engineering tricks that a company could do to make their share price shoot to the moon just before cratering to zero Yes, I would have assumed it obvious that a company wouldn't seek to maximize their share price over an infinitesimal time frame. I am not advocating for the correctness or perfectness of the current incentive structure. Rather, I am pointing out that any company which is not seeking to improve their share price will very quickly be targeted by short sellers and activists. And thus, management will change priorities to align with increasing shareholder returns or they will be replaced.
- HDThoreaun 4y ago
  This isn't wrong, but firms are made up of large groups of investors. It is exceedingly rare for their priorities to align with anything other than "maximize long term discounted profits" or "maximize short term profits". If you have any examples of publicly owned companies that aren't executing on one of those two missions I would like to hear them. Even ESG can easily be seen as a way to maximize long term discounted profits by making the company more sustainable.
watwut 4y ago
In most cases, mass layoff is result of unreasonable expansion or other mismanagement years prior.
loeg 4y ago
I think the argument is that the CEOs could have made shareholders more money with the foresight to not overhire.
Chinjut 4y ago
What you are responding to is a proposal to change the system.
izzydata 4y ago
I think their goal is to make money by guiding the company in the right direction. If your company needs to lay off a large portion of workers that seems to indicate they failed at something. Either they failed to correctly judge how many people were needed for future growth or they failed to predict the companies direction. The board might not care about this though. Maybe they even intentionally put themselves in risky positions with too many employees because they see employees as easily disposable.
- hector_vasquez 4y ago
  Do you fail at driving if you touch your brakes? I don't think so. The best drivers in the world certainly don't seem to think so. It's just one of the control inputs to driving your vehicle. Staffing levels are a resource company execs can increase or decrease as they see fit for the company. This idea that they should only hire someone if they predict they will need them forever is frankly bizarre and indicates a profound misunderstanding of what shareholders expect of their execs.
ulfw 4y ago
Then why did they hire them? Something must have gone wrong if you hire 1000 and then fire 1000 a year later. And no, it's not "the economy" for every single (extremely diverse industry) tech company.
- colinmorelli 4y ago
  It is "the economy" insofar as it represents investor sentiment. Investor sentiment for the last 10 years was to fund losses in exchange for capturing market share. That sentiment is changing as investors seek to prioritize profitability and more sustainable growth trajectories. This is, generally, happening across the macro market. It's just that "tech companies" were most susceptible to the grow-at-all-costs mindset, so they're shedding the greatest weight now. When that shift happens, if you're the company that continues the "old" (I.e. likely always unsustainable) way of operating, then you'll be left holding the bag.
manuelabeledo 4y ago
If their job is to make money for the shareholders, and quarterly reports show that they are either making less money, or incurring in losses, then they aren't doing their job. They laid off people who had little to zero influence in defining the company mission, trying to cut spending. This suggests that the C-suite over-spent. > Blaming the CEO for doing the job they were hired to do seems short-sighted. Blame the broken system that incentivizes this, that makes doing it profitable. You can do both. A CEO would not need to lay off people if their long term plans worked accordingly, which means that they suck at their job. It's easy being the boss when everything goes fine and everyone buys your stuff. When things turn rough, these CEOs would issue a sorrowful apology, lay off tens of thousands, and still pocket hundreds of millions for the foreseeable future.
- gabereiser 4y ago
  Those are trends of company health, not performance metrics of the CEO. The performance metrics of the CEO is "In discovery of this down trend, what can we do to reorg the business and trim the fat so that we can turn this down trend upwards? (put together plan) (fires those that don't fit within that plan)". This is a good CEO. Maybe hated by those he/she fired, but loved by those who depend on the company to succeed (including those owned by the employees themselves). If I'm making a garden with 10 folks and realize my yard is full of clay, why would I continue to employ gardeners when clearly it's time to build a pool? Should I lose my house because I couldn't make a garden? Or is my vision of a garden home incorrect for the current location and I must change my vision to match what the market/location is telling me?
  - manuelabeledo 4y ago
    You hired ten people to work on soil you knew nothing about. Maybe you shouldn't be doing gardening at all.
    - gabereiser 4y ago
      Companies often build solutions to problems they know nothing about. Often they learn as they go. All research and market analysis points to this being the perfect place for a garden home so that's what we set off to create. But that was a few years ago when we did that market analysis and now the soil is clay. Ill suited for a garden without a lot of work and money to maintain it. It's time to change the direction of the home. You are right, maybe we shouldn't be doing gardening at all. Thank you for gardening with me (or attempting to). Your services are no longer needed here.
tarotuser 4y ago
> The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it. At what timescale? Firing the whole company would save a whole lot of money at the detriment of destroying the company. Or are we looking at just a quarter? There's plenty of terrible choices that will net a whole pile of profit in the quarter. And it's a string of these quarterly choices are what brought Sears, Toys-R-Us, and other vulture capital mediated destruction that a LOT of quarterly gains. And there's also just making terrible business decisions like Netflix updated account rules (Whoop, accidentally posted... sure). How about a year? If your company has existed that long, you're still trying to fit in and make your niche. But if you've been around for decades, a year is still super short-sighted. Its very hard to gain respect, and very easy to destroy it over night. 5 years? That's the absolute maximum US stock markets look at. Which means nothing past 5y is "calculable". Long term choices aren't a thing.
bachmeier 4y ago
> Blaming the CEO for doing the job they were hired to do seems short-sighted I find that to be ironic. One of the problems with a CEO is that they'll maximize short-run profit rather than do what's in the best interest of the shareholders.
- bsg75 4y ago
  That is because shareholders are focused on current / next quarter gains, and will blame management if short term expectations are not met. Then when long term goals fail, shareholders will blame management when long term expectations are not met. Shareholders are not strategic, with the possible exception of a few rarities.
  - papito 4y ago
    It's as if the shareholders are of one mind and there are absolutely no investors out there in it in for the long-term. If they want to get rich quick, they are free to try the OTC market with high risks and high rewards, or Vegas.
nblgbg 4y ago
This is such a short term take on the things. If employees loses morale then their future profits are risk. Most of these layoffs are handled in such a poor way you do loose real talent from the company. In short term yes they may improve the balance sheet but in long term it jeopardize the company.
rcme 4y ago
> The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it. How is failing to predict market conditions a few months into the future and over hiring part of making a publicly traded company money? If anything, these layoffs are an admission from management that they're wasting money.
- hackernewds 4y ago
  It's not wasted money. They hired people at peak, and fired them when peak reverted. If they'd ceded market share to competitors who were aggressive when peaking then these CEOs should have been fired.
  - rcme 4y ago
    No, it's a pretty clear example of following the puck.
  - hello_moto 4y ago
    > They hired people at peak, and fired them when peak reverted They fired people because they're getting pushed by Investors asking for better Return via stock price just keep that in mind. META culled 11k and stated that they save $1Bn last year. Fast forward to last week: they somehow have $40Bn to buyback their stock, rewarding investors for a decent gain: 44% within a month. There's a good possibility that other companies will follow suite and execute stock buyback. Stock Based Compensation just got wiped out from the book as well: typical RSU is 4 years, if some of these folks are on their first and second year (or have refresher), those future expenses are gone too, back to the pocket of Corps. Salesforce is surrounded by vultures (activist investor) right now. Juuust... keep that in mind: the mob wants their money back and they set aim at the CEOs.
  - marcosdumay 4y ago
    > They hired people at peak, and fired them when peak reverted. I never noticed this, but hell, CEOs "manage hires" like most people manage their stock investments.
- 4y ago
papito 4y ago
Yes, let's treat the sacred shareholder as a needy spoiled child. So, make "as much money as possible" while building a solid and sustainable business long-term, or make as much money as possible within a quarter or two and then walk away from ruins with a fat bonus for a handful of people? Because we have seen this before, and it ends with gutted, non-competitive husks of companies - GE, Boeing, to name a couple. This idea that the shareholders need to get 10x returns even if it means a destroyed business has gone out of control. Pure capitalism is bad enough, but mix insatiable instant gratification, and it's completely destructive.
xwdv 4y ago
If anything, fire the finance guys. They took on debt at variable interest rates during COVID and now that interest rates are hiking up that debt got a lot more expensive, resulting in the need to reduce head count, which is often the biggest expense at any tech company.
bradleyjg 4y ago
The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it. Ok. By hiring too many people in the last couple of years and therefore now needing to incur the expenses and reputation hits of layoffs, those CEOs screwed up and fell short of their goals, right? So maybe they aren’t the best people for those jobs?
JustSomeNobody 4y ago
> The goal of the CEO of a publicly traded company is to make the shareholders money. Arguably, their goal is to maximize share price because most of their "income" is paid in shares. An argument can be made that they are not acting rationally by laying off so many employees.
hello_moto 4y ago
> And then, let's change the system. How about ... get ready for a taboo word in hi-tech: unionized? at a certain size, a hi-tech company must face labour union? Before anyone suggests that Union protect low performer and penalized high performer, keep in mind that right now, at this moment, high performers are culled left and right in FAANG because their salary is too high. High performers also gravitated towards "cool new projects" that are getting wiped out as well. "High performers" know that if they performed well, they will get paid more, simple. They know the game so they will choose greenfield/moonshot projects (zero maintenance, more output regardless the biz-ROI). Also on the topic of Union pushes Offshore/Outsource => already happened for some of these FAANGs anyway. Amazon India salary is going up up up up up up to a point where it is close to US salary.
- e_i_pi_2 4y ago
  I'm also a big fan of the model Germany uses where once a company reaches a certain size they're required to have employees on the board, who can then be accountable to their coworkers and make sure they have a say in major decisions that will affect them
- noisenotsignal 4y ago
  Being laid off isn’t sufficient to make this a bad situation for high performers. If they’re getting new jobs quickly, it’s just a short-term setback. Note that I’m not commenting on how high performers are doing in terms of getting new jobs! It could be bad, it could be good, I don’t know. But layoffs with less worker protections have always been the trade-off for higher compensation for top performers. Just because the understood risk occurred doesn’t mean that it was a bad risk to take, or even that it was much of a risk at all (especially if top performers have emergency funds that tide them over to their next job)! All this to say that your rebuttal to the high performer argument isn’t super convincing. I’m sure it could be made better, but as it stands it’s not offering much.
  - hello_moto 4y ago
    > Note that I’m not commenting on how high performers are doing in terms of getting new jobs! It could be bad, it could be good, I don’t know. > But layoffs with less worker protections have always been the trade-off for higher compensation for top performers. We'll have to wait and see how this play out in order to validate your statement. Will the days of top-compn for high-performers come back again? Or are we heading for correction? Hi-tech high-compn is one factor of inflation that bleeds to housing sector (see property prices in hi-tech dense area). My other argument would be nobody can be LeBron James: high-performer for 20+ years consistently. Some only did for one stretch (3-5 years, or just in one company; different companies have different problems and organizational challenges), some longer (10 maybe, if they're lucky). Burnout is real in hi-tech. Nobody has done any data or correlation between high-performers, top compensation, and burnout. I see your angle "if it's a well understood risk" a.k.a making a deal with the devil ;). Having said that, I'd like to see how things play out rather than using previous state of the hi-tech high-compn culture that exist thanks to cheap money via US printing machine.
Spooky23 4y ago
That’s a position held by Wall St types as it benefits them. The orgy of tech hiring with the objective of denying candidates to other companies is evidence that the large tech CEOs no longer feel beholden to that. Automotive CEOs do, hence the COVID “we love you, remember us” ads, followed by shooting themselves in the head by breaking their supply chains.
danabrams 4y ago
And over the last 12 months, most of the CEOs have lost lots and lots of investor money as share prices collapses, yet they still have their jobs
danabrams 4y ago
And over the last 12 months, most of the CEOs have lost lots and lots of investor money as share prices collapsed, yet they still have their jobs
danabrams 4y ago
Haven't the big tech firms mostly had their share prices drop precipitously in the past 12 months. Shouldn't the CEOs be fired if they not only failed to make shareholders money, but in fact lost lots and lots of money for them?
standardUser 4y ago
I don't see how hiring and then firing huge numbers of people over the course of 3 years is making anyone any money. In fact, that sounds incredibly costly, not to mention the impact on morale and reputation. Perhaps the "best way" was to make better staffing decisions, which a lot of these C teams failed at spectacularly.
- gwright 4y ago
  You are using hindsight to make that judgement.
montagg 4y ago
People don’t have the guts to make the changes necessary to truly shift how power is distributed, because it would be painful to every level of society until it settled. I believe where we are today is our local maxima until something more tragic than the pandemic happens that shifts public appetite for large structural changes to our (at least western) society. I’m all for smaller changes occurring where possible, like worker reps on boards, more employee ownership, wealth taxes—something is better than nothing—but we won’t change the fact that power compounds, and gaining enough power allows you to evade all those rules such that those incentives don’t matter at a certain point. Changing that requires more chaos and uncertainty than most people have an appetite for today, and we should all be clear-eyed about that when saying things like “let’s change the system.” I believe it will change and we can change it, but I also believe it can only happen in response to trauma.
eatsyourtacos 4y ago
I largely agree. In fact the whole fucking problem with most of this world is this concept of the bullshit stock market. I hate it with a passion so much.
deleted 4y ago
[deleted]
kerkeslager 4y ago
Holding CEOs accountable or even firing them, would provide a powerful incentive to not do this. And more to the point, "I was following incentives" is no different from "I was following orders." It doesn't become suddenly okay to do harm just because there's an incentive to do harm. Hacker News and corporate culture in general are toxic because of people blaming market conditions instead of taking responsibility for their own actions. You're literally just saying we can't disincentivize sociopathic behavior, because those behaving sociopathically are just following incentives.

by mabbo 4y ago

gsatic 4y ago

That's what Mario Savio said. Bodies upon the gears people.

toomuchtodo 4y ago

> The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. This is a poor take. The function of the CEO of a publicly traded company is to execute on major objectives of the firm. This might be optimizing for max profit, but it might not, depending on what your majority shareholders communicate to the board and management (as well as how they vote their shares). Agree with the rest of your comment that you have to reach a better power equilibrium between labor, management, and shareholders (who should also be employees to some degree, aligning interests and all that jazz).

coding123 4y ago
This is actually much more correct. We also happen to be in an environment that will want most boards to slow and more carefully steer the ship. Layoffs often come with that.
Invictus0 4y ago
[flagged]
- anonymousab 4y ago
  And profit maximizing in the mid or long term can sometimes require moves that reduce profit in the short term, such as R&D expenditure. Sometimes shareholders will seek a CEO that can solve a pending existential problem rather than maximize short-term profit.
njovin 4y ago
I'd like to see a few recent examples of CEOs making decisions for the future health of the company that knowingly lower the stock price for more than 2Q.
- nightski 4y ago
  There are lots of examples of CEOs making decisions for the future health of the company that are rewarded by Wall Street. The trope that investors only care about the current quarter profits is just bs. In fact in my experience future growth potential is rewarded a lot more by Wall Street than consistent profits.
  - SketchySeaBeast 4y ago
    I think this point would be helped with some examples.
    - creato 4y ago
      Amazon
    - WJW 4y ago
      - Any form of R&D spending. Biotech companies are an extreme case of this, many making no money at all for years until they get FDA approval or go bankrupt. A lot of companies will invest in new development of new machines in order to gain an edge in the long run. - Any form of expansion into new markets. Will take a lot of cash to get started and may take years before it becomes successful. - Most marketing for brands that you already know, to keep them "top of mind". Nobody needs ads to know that Coca Cola exists, but they still spend a ton on marketing to maintain their brand image and make sure that people hear about them regularly.
      - kritiko 4y ago
        I said this in another comment, but the gp is talking about stock price, not profits. Your examples seem to refer to P&L.
foul 4y ago
> The function of the CEO of a publicly traded company is to execute on major objectives of the firm. Amongst the major objectives of a firm there is honoring debts and shareholders are mostly creditors.
- AlbertCory 4y ago
  > shareholders are mostly creditors You need to understand the fundamental difference between debt and equity. A creditor gets his money back with interest, and that's all. The firm could prosper or flail and it makes no difference as long as they pay him back. If the firm goes bankrupt, he's first in line for what's left of it. A stockholder might get nothing back, but if the firm prospers, he shares in it. He's last in line in a bankruptcy.
  - foul 4y ago
    "Mostly" is there exactly because they trade risk for power (and a virtually endless profit, in the best case scenario). Edit: With that power they may notice a gap in capital during a financial crisis, and they may force the firm to fill it with layoffs.
    - AlbertCory 4y ago
      I don't know if you've ever studied econ, accounting, or finance, but I doubt it. the second sentence is beyond normal ignorance. We're done here.
- sokoloff 4y ago
  A shareholder is not a creditor. They are an investor. A bond-holder or other lender is a creditor.
efficax 4y ago
corporations have a fiduciary duty to their shareholders. what that means is not well defined, and a ceo could say: i’m not doing layoffs because my analysis is that they will hurt our business, not help, but generally the meaning of their duty to shareholders is that they increase share prices and layoffs make that happen.
- toomuchtodo 4y ago
  https://www.marketplace.org/2022/04/25/how-shareholders-jumped-to-first-in-line-for-profits-rerun/ https://www.marketplace.org/2022/04/25/how-shareholders-jump... > “There is a widespread and completely erroneous belief out there that there is some sort of legal duty that corporate managers have to ‘maximize profits’ or ‘maximize shareholder value,’” said Cornell law professor Lynn Stout, author of “The Shareholder Value Myth.” In Stout’s view, the misplaced assumption comes from an old case that cites stockholders’ interests. That case did not set legal precedent, she said, compared to a more recent case. > “You can just pick up the Supreme Court case ‘Hobby Lobby’ decided just a few years ago,” she said. “Read the majority opinion, where Justice Alito says, and I quote, ‘modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else.’” > By contrast, Delaware Chancery Court Judge Leo Strine, now chief justice of the state Supreme Court, wrote in the Wake Forest Law Review: “Corporate law requires directors, as a matter of their duty of loyalty, to pursue a good faith strategy to maximize profits for the stockholders.” The debate goes on. https://www.americanbar.org/content/dam/aba/publications/business_lawyer/2015/70_1/article-hobby-lobby-201501.pdf https://www.americanbar.org/content/dam/aba/publications/bus... > We evaluate the U.S. Supreme Court’s controversial decision in the Hobby Lobby case from the perspective of state corporate law. We argue that the Court is correct in holding that corporate law does not mandate that business corporations limit themselves to pursuit of profit. Rather, state law allows incorporation for any lawful purpose. We elaborate on this important point and also explain what it means for a corporation to “exercise religion.” In addition, we address the larger implications of the Court’s analysis for an accurate understanding both of state law’s essentially agnostic stance on the question of corporate purpose and also of the broad scope of managerial discretion. It is not as black and white as "you must maximize profits" although this is consistently parroted by folks.
next_xibalba 4y ago
This is a poor, uninformed take. The incentive structure of public companies is only to maximize share price. If a CEO fails to do this, an activist investor will spot the opportunity, buy up shares, and agitate for strategy or leadership change until share price maximization is once again the top priority.
- thwayunion 4y ago
  > maximize share price This is obviously not true. Even in the most extreme version of the "shareholder value" philosophy, the goal is not to maximize share price alone. The goal is to maximize total return way that is sustainable within the timeframe that the major of (voting) shareholders consider relevant. The simplest counter-example is the existence of dividends. Any time a company issues a dividend, they could often instead buy back shares and achieve a higher share price at some instantaneous point in time. But in many cases that would come at the expense of total shareholder return, which shareholders obviously care more about than price alone. There are also all sorts of hilariously destructive financial engineering tricks that a company could do to make their share price shoot to the moon just before cratering to zero. Eg: take on as much debt as possible, sell all of your assets, layoff all of your employees, buy back all shares at any price, and declare bankruptcy. There might even be legal ways of doing this. Firms never do those things except on long enough time-frames with big enough personalities; GE is the poster-child here. Most firms, especially large ones, have a complex set of strategic considerations. Short term share price plays an outsized role in decision making, imo, but it's almost never the entire objective function of a firm.
  - next_xibalba 4y ago
    > The simplest counter-example is the existence of dividends. No. All professional valuation models account for dividends and buybacks. Both can and do effect share price. > financial engineering tricks that a company could do to make their share price shoot to the moon just before cratering to zero Yes, I would have assumed it obvious that a company wouldn't seek to maximize their share price over an infinitesimal time frame. I am not advocating for the correctness or perfectness of the current incentive structure. Rather, I am pointing out that any company which is not seeking to improve their share price will very quickly be targeted by short sellers and activists. And thus, management will change priorities to align with increasing shareholder returns or they will be replaced.
HDThoreaun 4y ago
This isn't wrong, but firms are made up of large groups of investors. It is exceedingly rare for their priorities to align with anything other than "maximize long term discounted profits" or "maximize short term profits". If you have any examples of publicly owned companies that aren't executing on one of those two missions I would like to hear them. Even ESG can easily be seen as a way to maximize long term discounted profits by making the company more sustainable.

watwut 4y ago

In most cases, mass layoff is result of unreasonable expansion or other mismanagement years prior.

loeg 4y ago

I think the argument is that the CEOs could have made shareholders more money with the foresight to not overhire.

Chinjut 4y ago

What you are responding to is a proposal to change the system.

izzydata 4y ago

I think their goal is to make money by guiding the company in the right direction. If your company needs to lay off a large portion of workers that seems to indicate they failed at something. Either they failed to correctly judge how many people were needed for future growth or they failed to predict the companies direction. The board might not care about this though. Maybe they even intentionally put themselves in risky positions with too many employees because they see employees as easily disposable.

hector_vasquez 4y ago
Do you fail at driving if you touch your brakes? I don't think so. The best drivers in the world certainly don't seem to think so. It's just one of the control inputs to driving your vehicle. Staffing levels are a resource company execs can increase or decrease as they see fit for the company. This idea that they should only hire someone if they predict they will need them forever is frankly bizarre and indicates a profound misunderstanding of what shareholders expect of their execs.

ulfw 4y ago

Then why did they hire them? Something must have gone wrong if you hire 1000 and then fire 1000 a year later. And no, it's not "the economy" for every single (extremely diverse industry) tech company.

colinmorelli 4y ago
It is "the economy" insofar as it represents investor sentiment. Investor sentiment for the last 10 years was to fund losses in exchange for capturing market share. That sentiment is changing as investors seek to prioritize profitability and more sustainable growth trajectories. This is, generally, happening across the macro market. It's just that "tech companies" were most susceptible to the grow-at-all-costs mindset, so they're shedding the greatest weight now. When that shift happens, if you're the company that continues the "old" (I.e. likely always unsustainable) way of operating, then you'll be left holding the bag.

manuelabeledo 4y ago

If their job is to make money for the shareholders, and quarterly reports show that they are either making less money, or incurring in losses, then they aren't doing their job. They laid off people who had little to zero influence in defining the company mission, trying to cut spending. This suggests that the C-suite over-spent. > Blaming the CEO for doing the job they were hired to do seems short-sighted. Blame the broken system that incentivizes this, that makes doing it profitable. You can do both. A CEO would not need to lay off people if their long term plans worked accordingly, which means that they suck at their job. It's easy being the boss when everything goes fine and everyone buys your stuff. When things turn rough, these CEOs would issue a sorrowful apology, lay off tens of thousands, and still pocket hundreds of millions for the foreseeable future.

gabereiser 4y ago
Those are trends of company health, not performance metrics of the CEO. The performance metrics of the CEO is "In discovery of this down trend, what can we do to reorg the business and trim the fat so that we can turn this down trend upwards? (put together plan) (fires those that don't fit within that plan)". This is a good CEO. Maybe hated by those he/she fired, but loved by those who depend on the company to succeed (including those owned by the employees themselves). If I'm making a garden with 10 folks and realize my yard is full of clay, why would I continue to employ gardeners when clearly it's time to build a pool? Should I lose my house because I couldn't make a garden? Or is my vision of a garden home incorrect for the current location and I must change my vision to match what the market/location is telling me?
- manuelabeledo 4y ago
  You hired ten people to work on soil you knew nothing about. Maybe you shouldn't be doing gardening at all.
  - gabereiser 4y ago
    Companies often build solutions to problems they know nothing about. Often they learn as they go. All research and market analysis points to this being the perfect place for a garden home so that's what we set off to create. But that was a few years ago when we did that market analysis and now the soil is clay. Ill suited for a garden without a lot of work and money to maintain it. It's time to change the direction of the home. You are right, maybe we shouldn't be doing gardening at all. Thank you for gardening with me (or attempting to). Your services are no longer needed here.

tarotuser 4y ago

> The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it. At what timescale? Firing the whole company would save a whole lot of money at the detriment of destroying the company. Or are we looking at just a quarter? There's plenty of terrible choices that will net a whole pile of profit in the quarter. And it's a string of these quarterly choices are what brought Sears, Toys-R-Us, and other vulture capital mediated destruction that a LOT of quarterly gains. And there's also just making terrible business decisions like Netflix updated account rules (Whoop, accidentally posted... sure). How about a year? If your company has existed that long, you're still trying to fit in and make your niche. But if you've been around for decades, a year is still super short-sighted. Its very hard to gain respect, and very easy to destroy it over night. 5 years? That's the absolute maximum US stock markets look at. Which means nothing past 5y is "calculable". Long term choices aren't a thing.

bachmeier 4y ago

> Blaming the CEO for doing the job they were hired to do seems short-sighted I find that to be ironic. One of the problems with a CEO is that they'll maximize short-run profit rather than do what's in the best interest of the shareholders.

bsg75 4y ago
That is because shareholders are focused on current / next quarter gains, and will blame management if short term expectations are not met. Then when long term goals fail, shareholders will blame management when long term expectations are not met. Shareholders are not strategic, with the possible exception of a few rarities.
- papito 4y ago
  It's as if the shareholders are of one mind and there are absolutely no investors out there in it in for the long-term. If they want to get rich quick, they are free to try the OTC market with high risks and high rewards, or Vegas.

nblgbg 4y ago

This is such a short term take on the things. If employees loses morale then their future profits are risk. Most of these layoffs are handled in such a poor way you do loose real talent from the company. In short term yes they may improve the balance sheet but in long term it jeopardize the company.

rcme 4y ago

> The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it. How is failing to predict market conditions a few months into the future and over hiring part of making a publicly traded company money? If anything, these layoffs are an admission from management that they're wasting money.

hackernewds 4y ago
It's not wasted money. They hired people at peak, and fired them when peak reverted. If they'd ceded market share to competitors who were aggressive when peaking then these CEOs should have been fired.
- rcme 4y ago
  No, it's a pretty clear example of following the puck.
- hello_moto 4y ago
  > They hired people at peak, and fired them when peak reverted They fired people because they're getting pushed by Investors asking for better Return via stock price just keep that in mind. META culled 11k and stated that they save $1Bn last year. Fast forward to last week: they somehow have $40Bn to buyback their stock, rewarding investors for a decent gain: 44% within a month. There's a good possibility that other companies will follow suite and execute stock buyback. Stock Based Compensation just got wiped out from the book as well: typical RSU is 4 years, if some of these folks are on their first and second year (or have refresher), those future expenses are gone too, back to the pocket of Corps. Salesforce is surrounded by vultures (activist investor) right now. Juuust... keep that in mind: the mob wants their money back and they set aim at the CEOs.
- marcosdumay 4y ago
  > They hired people at peak, and fired them when peak reverted. I never noticed this, but hell, CEOs "manage hires" like most people manage their stock investments.
4y ago

papito 4y ago

Yes, let's treat the sacred shareholder as a needy spoiled child. So, make "as much money as possible" while building a solid and sustainable business long-term, or make as much money as possible within a quarter or two and then walk away from ruins with a fat bonus for a handful of people? Because we have seen this before, and it ends with gutted, non-competitive husks of companies - GE, Boeing, to name a couple. This idea that the shareholders need to get 10x returns even if it means a destroyed business has gone out of control. Pure capitalism is bad enough, but mix insatiable instant gratification, and it's completely destructive.

xwdv 4y ago

If anything, fire the finance guys. They took on debt at variable interest rates during COVID and now that interest rates are hiking up that debt got a lot more expensive, resulting in the need to reduce head count, which is often the biggest expense at any tech company.

bradleyjg 4y ago

The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it. Ok. By hiring too many people in the last couple of years and therefore now needing to incur the expenses and reputation hits of layoffs, those CEOs screwed up and fell short of their goals, right? So maybe they aren’t the best people for those jobs?

JustSomeNobody 4y ago

> The goal of the CEO of a publicly traded company is to make the shareholders money. Arguably, their goal is to maximize share price because most of their "income" is paid in shares. An argument can be made that they are not acting rationally by laying off so many employees.

hello_moto 4y ago

> And then, let's change the system. How about ... get ready for a taboo word in hi-tech: unionized? at a certain size, a hi-tech company must face labour union? Before anyone suggests that Union protect low performer and penalized high performer, keep in mind that right now, at this moment, high performers are culled left and right in FAANG because their salary is too high. High performers also gravitated towards "cool new projects" that are getting wiped out as well. "High performers" know that if they performed well, they will get paid more, simple. They know the game so they will choose greenfield/moonshot projects (zero maintenance, more output regardless the biz-ROI). Also on the topic of Union pushes Offshore/Outsource => already happened for some of these FAANGs anyway. Amazon India salary is going up up up up up up to a point where it is close to US salary.

e_i_pi_2 4y ago
I'm also a big fan of the model Germany uses where once a company reaches a certain size they're required to have employees on the board, who can then be accountable to their coworkers and make sure they have a say in major decisions that will affect them
noisenotsignal 4y ago
Being laid off isn’t sufficient to make this a bad situation for high performers. If they’re getting new jobs quickly, it’s just a short-term setback. Note that I’m not commenting on how high performers are doing in terms of getting new jobs! It could be bad, it could be good, I don’t know. But layoffs with less worker protections have always been the trade-off for higher compensation for top performers. Just because the understood risk occurred doesn’t mean that it was a bad risk to take, or even that it was much of a risk at all (especially if top performers have emergency funds that tide them over to their next job)! All this to say that your rebuttal to the high performer argument isn’t super convincing. I’m sure it could be made better, but as it stands it’s not offering much.
- hello_moto 4y ago
  > Note that I’m not commenting on how high performers are doing in terms of getting new jobs! It could be bad, it could be good, I don’t know. > But layoffs with less worker protections have always been the trade-off for higher compensation for top performers. We'll have to wait and see how this play out in order to validate your statement. Will the days of top-compn for high-performers come back again? Or are we heading for correction? Hi-tech high-compn is one factor of inflation that bleeds to housing sector (see property prices in hi-tech dense area). My other argument would be nobody can be LeBron James: high-performer for 20+ years consistently. Some only did for one stretch (3-5 years, or just in one company; different companies have different problems and organizational challenges), some longer (10 maybe, if they're lucky). Burnout is real in hi-tech. Nobody has done any data or correlation between high-performers, top compensation, and burnout. I see your angle "if it's a well understood risk" a.k.a making a deal with the devil ;). Having said that, I'd like to see how things play out rather than using previous state of the hi-tech high-compn culture that exist thanks to cheap money via US printing machine.

Spooky23 4y ago

That’s a position held by Wall St types as it benefits them. The orgy of tech hiring with the objective of denying candidates to other companies is evidence that the large tech CEOs no longer feel beholden to that. Automotive CEOs do, hence the COVID “we love you, remember us” ads, followed by shooting themselves in the head by breaking their supply chains.

danabrams 4y ago

And over the last 12 months, most of the CEOs have lost lots and lots of investor money as share prices collapses, yet they still have their jobs

danabrams 4y ago

And over the last 12 months, most of the CEOs have lost lots and lots of investor money as share prices collapsed, yet they still have their jobs

danabrams 4y ago

Haven't the big tech firms mostly had their share prices drop precipitously in the past 12 months. Shouldn't the CEOs be fired if they not only failed to make shareholders money, but in fact lost lots and lots of money for them?

standardUser 4y ago

I don't see how hiring and then firing huge numbers of people over the course of 3 years is making anyone any money. In fact, that sounds incredibly costly, not to mention the impact on morale and reputation. Perhaps the "best way" was to make better staffing decisions, which a lot of these C teams failed at spectacularly.

gwright 4y ago
You are using hindsight to make that judgement.

montagg 4y ago

People don’t have the guts to make the changes necessary to truly shift how power is distributed, because it would be painful to every level of society until it settled. I believe where we are today is our local maxima until something more tragic than the pandemic happens that shifts public appetite for large structural changes to our (at least western) society. I’m all for smaller changes occurring where possible, like worker reps on boards, more employee ownership, wealth taxes—something is better than nothing—but we won’t change the fact that power compounds, and gaining enough power allows you to evade all those rules such that those incentives don’t matter at a certain point. Changing that requires more chaos and uncertainty than most people have an appetite for today, and we should all be clear-eyed about that when saying things like “let’s change the system.” I believe it will change and we can change it, but I also believe it can only happen in response to trauma.

eatsyourtacos 4y ago

I largely agree. In fact the whole fucking problem with most of this world is this concept of the bullshit stock market. I hate it with a passion so much.

deleted 4y ago

[deleted]

kerkeslager 4y ago

Holding CEOs accountable or even firing them, would provide a powerful incentive to not do this. And more to the point, "I was following incentives" is no different from "I was following orders." It doesn't become suddenly okay to do harm just because there's an incentive to do harm. Hacker News and corporate culture in general are toxic because of people blaming market conditions instead of taking responsibility for their own actions. You're literally just saying we can't disincentivize sociopathic behavior, because those behaving sociopathically are just following incentives.