6 ms·

Returns to investors are the only reason the company exists.

idontpost 3y ago
[dead]
hiddencost 3y ago
That is a belief that emerged at a specific time from a specific place with a specific set of goals. https://en.m.wikipedia.org/wiki/Shareholder_value https://en.m.wikipedia.org/wiki/Shareholder_value
- 5350-uiop-1130 3y ago
  > "Economist Milton Friedman introduced the Friedman doctrine..." > "...In it, he argued that a company has no social responsibility to the public or society; its only responsibility is to its shareholders." the demon friedman strikes again.
  - robertlagrant 3y ago
    What's wrong with that statement? Other than it was spoken by a demon.
    - lesuorac 3y ago
      Originally governments didn't just give out corperations whilly-nilly so if you weren't doing something that benefited the public you just didn't get one. Which really wasn't a big deal since you could always do business as yourself although you (and not the corporation) also got liability then.
      - thinkerswell 3y ago
        Ah so the government got to pick winners and losers
      - robertlagrant 3y ago
        I don't see why this matters. Whether they "give out corporations" or they regulate corporations, they can still choose to throw you in jail because they have power. Corporations should obey the law, but they should chase shareholder value. That doesn't mean short-termism at all costs, which is what some people hear when that is said, but it means, say, if you're Disney don't release a string of movies that all lose incredible amounts of money. Or if you do, then senior management needs changing pronto.
    - 5350-uiop-1130 3y ago
      laying the ideological foundation for socialising of losses, privatising of profits and destruction of the environment.
      - robertlagrant 3y ago
        It's really not. Profits are taxed. Losses are lost by investors. The environment should be protected by regulations, not by relying on good will. That way the boundaries are clear and companies can do what they do best: allocate resources efficiently, towards demand, within rules.
        cwillu 3y ago
        Regulations should be a backstop after decency and goodwill fails. No one facet of the structure society is made of can support all of society, there needs to be safety factors in the building materials.
        robertlagrant 3y ago
        > Regulations should be a backstop after decency and goodwill fails People won't know the implications of decisions without regulations to help them. Of course businesses are populated by people, who will try and do the right thing if that's how they are, but that doesn't mean they know what the right thing is. > No one facet of the structure society is made of can support all of society, there needs to be safety factors in the building materials. I can't parse this, sorry. Happy to have a read if you reword.
        cwillu 3y ago
        Relying on one mechanism (say, regulations) as the sole means of making sure that society functions well, is a recipe for dysfunction.
        robertlagrant 3y ago
    - treprinum 3y ago
      Friedman's assumption was that regulations work towards social/general good so a company can just focus on maximizing shareholder value within existing law and that combination would keep everything OK. However, in practice regulation was often faulty so the maximization of shareholder value often led to many negative internal and external effects. It's like applying machine learning trained at times of plenty to times of crisis.
      - margalabargala 3y ago
        Or more specifically, it assumes that those two systems remain completely separate from one another. In reality, as the system for maximizing shareholder value can interact with the system creating the regulations. Thus: > in practice regulation was often faulty wasn't a coincidence of a situation, but rather was a direct result of the shareholder-value-maximizing machine working towards the removal of regulations that hindered shareholder value.
        robertlagrant 3y ago
        This is a huge letting off the hook of the people who write the regulations. Companies always want regulations changed, because regulations are not handed down from on high as perfect stone tablets full of rules. They're sometimes bad. So there needs to be a mechanism by which companies lobby to have them changed. If that is misused, the blame lies with the regulation writers. They get to take free money from people as taxes solely so they can be impartial and write good regulations. If they can't even do that, then why give them free money?
        margalabargala 3y ago
        My intention is not to let regulation writers off the hook, but rather to share the blame between the regulation writers and the corporations that lobby to have regulations changed in a way that they know is bad for society but good for them. Everybody hates corrupt government officials already, but as a society (in the US) we tend to handwave away companies doing destructive self-interested things as "oh of course they do that", when it's not actually something we need to tolerate. Oil companies in the 70s knowing that they were causing global warming but engaging in a campaign to pretend that didn't exist? Should be jail for the regulation writers, and jail for the oil company execs who signed off on it. The Sacklers pretending that their special opioids aren't addictive and causing the opioid crisis? Should be jail for the regulators they bribed, and jail for the people at the company who knew. Cause the 2008 financial crisis by deliberately mis-grading subprime mortgages? Should be jail for everyone who let that fly.
  - soganess 3y ago
    This has always been his magnum opus. Sounds neutral to the layman while legitimizing the "brushing under the rug" of all the sins possible without severe legal recourse. Then promptly followed by some hand waving that really puts the you-know-what in fiduciary, Mr. Potter.
    - deleted 3y ago
      [deleted]
    - rchaud 3y ago
      > "brushing under the rug" of all the sins possible without severe legal recourse. The invisible hand of the market seems to mostly be involved in sweeping problems under the rug.
  - deleted 3y ago
    [deleted]
mempko 3y ago
What was the reason before 1960s, when this idea of shareholder value, for companies to exist?
- Kerrick 3y ago
  If I remember anything from my high school social studies class, the reason was the ability to spread investment risk across multiple investors while also shielding the investors and employees from some personal legal liability. I think I even remember that companies/corporations predate stock exchanges.
  - Pet_Ant 3y ago
    > Remember that companies/corporations predate stock exchanges. While not definitive, ChatGPT says that: > The idea of organizing a group of people to work towards a common goal for profit or mutual benefit has evolved over centuries. The modern concept of a company, with legal structures and formalized business practices, has its roots in the emergence of capitalism during the Industrial Revolution in the 18th and 19th centuries. Whereas the first stock exchange is somewhere between 1300 and 1600: https://en.wikipedia.org/wiki/Stock_exchange#History https://en.wikipedia.org/wiki/Stock_exchange#History Wikipedia doesn't have a history section on it's page for company, but it says this: > By 1303, the word company referred to trade guilds. Usage of the term company to mean "business association" was first recorded in 1553, and the abbreviation "co." dates from 1769. You can tweak your definition by the means you'd like, but I think an honest assessment would be at this point to say they were concurrent. https://en.wikipedia.org/wiki/Company#Semantics_and_usage https://en.wikipedia.org/wiki/Company#Semantics_and_usage So your statement seems incorrect. I'm no expert, just curious.
- sdsd 3y ago
  A company isn't the same as a corporation. A corporation is a legal privilege granted by the government to give a company legal personhood. Thus the word "corporation", from latin "corpus", signifying that the state considers this specific company to be a single, legal body. Corporations aren't a free market concept, it's a way for the state to give special protections to certain companies that need it for some prosocial reason. A short history: https://newint.org/features/2002/07/05/history https://newint.org/features/2002/07/05/history Basically, the original idea is, a corporate charter is granted to create a corporation, which acts on behalf of its shareholders (who the government trusts, have some worthy interest in mind).
pjmorris 3y ago
Think about that the next time you flip a light switch or flush a toilet and consider whether returns should be the only reason.
- rchaud 3y ago
  the Juicero principle.
zaptheimpaler 3y ago
Yup companies exist to make money, people work jobs to make money, investors invest to make money, we all just really love to move $s around from one bank to another or trade pretty green bills. No other reason nah.
- NotYourLawyer 3y ago
  People exist for many reasons. Companies do not.
  - the_gastropod 3y ago
    But also corporations are people, right? https://en.wikipedia.org/wiki/Corporate_personhood https://en.wikipedia.org/wiki/Corporate_personhood
    - paulddraper 3y ago
      In some contexts, yes. They can't vote, can't get married, etc.
      - jen20 3y ago
        They can do better than vote, in the US though.
        dartos 3y ago
        Tbf if you, as a real person, had the same amount of money as a corp you could do the same.
  - itishappy 3y ago
    Sure they do. https://en.wikipedia.org/wiki/Nonprofit_organization https://en.wikipedia.org/wiki/Nonprofit_organization
Waterluvian 3y ago
Doesn’t this fundamentally guarantee the enshittification of every company driven this way? If you must grow by x% every year, and infinite growth is impossible, you begin shoving more and more low quality ads into your search results, partake in more legally and ethically grey activities, and eventually rupture? Are there any examples of large corporations that have said, “we make billions in profit each year. We’re going to focus on maintaining that enormous success. We’re not going to focus on growth.” (I can already hear the spreadsheet squinting logic about how growth is necessary for some reason)
- SoftTalker 3y ago
  No, I don't see that it does. Basically the idea is that a company should operate in a way that is beneficial to its owners (shareholders). This is what any sole proprietorship or partership also does. Growth is not the only way to measure that. Many companies do focus on maintaining success and return value to the owners by paying dividends. Driving the company to failure by relentlessly cutting costs in the name of "growth" is not in the interests of the owners.
  - HumblyTossed 3y ago
    > This is what any sole proprietorship or partership also does. Growth is not the only way to measure that. And yet, a bad quarterly earnings report will tank a stock... > Driving the company to failure by relentlessly cutting costs in the name of "growth" is not in the interests of the owners. Sure it is. They've maximized their personal revenue and now it's time to get out. The sooner the better.
- lotsofpulp 3y ago
  > We’re going to focus on maintaining that enormous success. We’re not going to focus on growth.” (I can already hear the spreadsheet squinting logic about how growth is necessary for some reason) Where is Xerox going to get the money to do R&D to not be obviated? Replace Xerox with any other business. All the businesses obviated by spreadsheets, mobile networks, smartphones, GPS? Maintaining success is continuing to make bets and moving forward, and bets require money. More money means bigger bets. Another example, you have two businesses, one with a 5% profit margin (because they feel like 5% is enough), one with a 10% profit margin. The one with 10% profit margin is going to be able to continue renovating the business, upgrading the facility, buying more land, hiring better employees with higher payrates. What will happen to the 5% profit margin business? Do you think customers will keep rewarding them (assuming the 10% profit margin business is worth the additional marginal cost)? You can insert restaurant, hotel, retail store, etc in here. Note that having a higher profit margin is not the only way to survive, having a lower profit margin to better compete on price and gain market share is another way too. Balancing the two and delivering the right product at the right price for your customers is the key skill, but it’s a moving target.
zzzbra 3y ago
I am reluctant to say I am glad a comment has been down voted, because I am wary of mob mentality, but in this case I am very glad this comment has been so thoroughly down voted.
- paulddraper 3y ago
  why?
  - dartos 3y ago
    Why not?
tonyedgecombe 3y ago
But Xerox's returns to investors have been dismal.
Zetobal 3y ago
Xerox was a private company at first.
milesvp 3y ago
Nonsense! You lack imagination! There are numerous reasons for companies to exist. Off the top of my head I can think of a few. To provide goods to populations. To provide services for populations. To give the owner something to do. To perpetuate themselves. To provide something to do for employees. To do something an individual can’t. None of these require investors. There are countless businesses that can be started that don’t even require a significant outlay of capital. On top of that there are differing philosophies that might suggest investors should be last in line for benefits from a business. I could make a strong argument that society allows businesses to exist and as such society should benefit first and foremost. Businesses typically fail to exist without employees, so I could argue employees should come before investors. Please don’t perpetuate the naive notion that investors are somehow more important than anything else. I am a dyed in the wool capitalist and while I tend to highly value profitability, even I don’t believe shareholder value is some sacred edict.

[dead]

That is a belief that emerged at a specific time from a specific place with a specific set of goals. https://en.m.wikipedia.org/wiki/Shareholder_value https://en.m.wikipedia.org/wiki/Shareholder_value

5350-uiop-1130 3y ago
> "Economist Milton Friedman introduced the Friedman doctrine..." > "...In it, he argued that a company has no social responsibility to the public or society; its only responsibility is to its shareholders." the demon friedman strikes again.
- robertlagrant 3y ago
  What's wrong with that statement? Other than it was spoken by a demon.
  - lesuorac 3y ago
    Originally governments didn't just give out corperations whilly-nilly so if you weren't doing something that benefited the public you just didn't get one. Which really wasn't a big deal since you could always do business as yourself although you (and not the corporation) also got liability then.
    - thinkerswell 3y ago
      Ah so the government got to pick winners and losers
    - robertlagrant 3y ago
      I don't see why this matters. Whether they "give out corporations" or they regulate corporations, they can still choose to throw you in jail because they have power. Corporations should obey the law, but they should chase shareholder value. That doesn't mean short-termism at all costs, which is what some people hear when that is said, but it means, say, if you're Disney don't release a string of movies that all lose incredible amounts of money. Or if you do, then senior management needs changing pronto.
  - 5350-uiop-1130 3y ago
    laying the ideological foundation for socialising of losses, privatising of profits and destruction of the environment.
    - robertlagrant 3y ago
      It's really not. Profits are taxed. Losses are lost by investors. The environment should be protected by regulations, not by relying on good will. That way the boundaries are clear and companies can do what they do best: allocate resources efficiently, towards demand, within rules.
      - cwillu 3y ago
        Regulations should be a backstop after decency and goodwill fails. No one facet of the structure society is made of can support all of society, there needs to be safety factors in the building materials.
        robertlagrant 3y ago
        > Regulations should be a backstop after decency and goodwill fails People won't know the implications of decisions without regulations to help them. Of course businesses are populated by people, who will try and do the right thing if that's how they are, but that doesn't mean they know what the right thing is. > No one facet of the structure society is made of can support all of society, there needs to be safety factors in the building materials. I can't parse this, sorry. Happy to have a read if you reword.
        cwillu 3y ago
        Relying on one mechanism (say, regulations) as the sole means of making sure that society functions well, is a recipe for dysfunction.
        robertlagrant 3y ago
  - treprinum 3y ago
    Friedman's assumption was that regulations work towards social/general good so a company can just focus on maximizing shareholder value within existing law and that combination would keep everything OK. However, in practice regulation was often faulty so the maximization of shareholder value often led to many negative internal and external effects. It's like applying machine learning trained at times of plenty to times of crisis.
    - margalabargala 3y ago
      Or more specifically, it assumes that those two systems remain completely separate from one another. In reality, as the system for maximizing shareholder value can interact with the system creating the regulations. Thus: > in practice regulation was often faulty wasn't a coincidence of a situation, but rather was a direct result of the shareholder-value-maximizing machine working towards the removal of regulations that hindered shareholder value.
      - robertlagrant 3y ago
        This is a huge letting off the hook of the people who write the regulations. Companies always want regulations changed, because regulations are not handed down from on high as perfect stone tablets full of rules. They're sometimes bad. So there needs to be a mechanism by which companies lobby to have them changed. If that is misused, the blame lies with the regulation writers. They get to take free money from people as taxes solely so they can be impartial and write good regulations. If they can't even do that, then why give them free money?
        margalabargala 3y ago
        My intention is not to let regulation writers off the hook, but rather to share the blame between the regulation writers and the corporations that lobby to have regulations changed in a way that they know is bad for society but good for them. Everybody hates corrupt government officials already, but as a society (in the US) we tend to handwave away companies doing destructive self-interested things as "oh of course they do that", when it's not actually something we need to tolerate. Oil companies in the 70s knowing that they were causing global warming but engaging in a campaign to pretend that didn't exist? Should be jail for the regulation writers, and jail for the oil company execs who signed off on it. The Sacklers pretending that their special opioids aren't addictive and causing the opioid crisis? Should be jail for the regulators they bribed, and jail for the people at the company who knew. Cause the 2008 financial crisis by deliberately mis-grading subprime mortgages? Should be jail for everyone who let that fly.
- soganess 3y ago
  This has always been his magnum opus. Sounds neutral to the layman while legitimizing the "brushing under the rug" of all the sins possible without severe legal recourse. Then promptly followed by some hand waving that really puts the you-know-what in fiduciary, Mr. Potter.
  - deleted 3y ago
    [deleted]
  - rchaud 3y ago
    > "brushing under the rug" of all the sins possible without severe legal recourse. The invisible hand of the market seems to mostly be involved in sweeping problems under the rug.
- deleted 3y ago
  [deleted]

mempko 3y ago

What was the reason before 1960s, when this idea of shareholder value, for companies to exist?

Kerrick 3y ago
If I remember anything from my high school social studies class, the reason was the ability to spread investment risk across multiple investors while also shielding the investors and employees from some personal legal liability. I think I even remember that companies/corporations predate stock exchanges.
- Pet_Ant 3y ago
  > Remember that companies/corporations predate stock exchanges. While not definitive, ChatGPT says that: > The idea of organizing a group of people to work towards a common goal for profit or mutual benefit has evolved over centuries. The modern concept of a company, with legal structures and formalized business practices, has its roots in the emergence of capitalism during the Industrial Revolution in the 18th and 19th centuries. Whereas the first stock exchange is somewhere between 1300 and 1600: https://en.wikipedia.org/wiki/Stock_exchange#History https://en.wikipedia.org/wiki/Stock_exchange#History Wikipedia doesn't have a history section on it's page for company, but it says this: > By 1303, the word company referred to trade guilds. Usage of the term company to mean "business association" was first recorded in 1553, and the abbreviation "co." dates from 1769. You can tweak your definition by the means you'd like, but I think an honest assessment would be at this point to say they were concurrent. https://en.wikipedia.org/wiki/Company#Semantics_and_usage https://en.wikipedia.org/wiki/Company#Semantics_and_usage So your statement seems incorrect. I'm no expert, just curious.
sdsd 3y ago
A company isn't the same as a corporation. A corporation is a legal privilege granted by the government to give a company legal personhood. Thus the word "corporation", from latin "corpus", signifying that the state considers this specific company to be a single, legal body. Corporations aren't a free market concept, it's a way for the state to give special protections to certain companies that need it for some prosocial reason. A short history: https://newint.org/features/2002/07/05/history https://newint.org/features/2002/07/05/history Basically, the original idea is, a corporate charter is granted to create a corporation, which acts on behalf of its shareholders (who the government trusts, have some worthy interest in mind).

pjmorris 3y ago

Think about that the next time you flip a light switch or flush a toilet and consider whether returns should be the only reason.

rchaud 3y ago
the Juicero principle.

zaptheimpaler 3y ago

Yup companies exist to make money, people work jobs to make money, investors invest to make money, we all just really love to move $s around from one bank to another or trade pretty green bills. No other reason nah.

NotYourLawyer 3y ago
People exist for many reasons. Companies do not.
- the_gastropod 3y ago
  But also corporations are people, right? https://en.wikipedia.org/wiki/Corporate_personhood https://en.wikipedia.org/wiki/Corporate_personhood
  - paulddraper 3y ago
    In some contexts, yes. They can't vote, can't get married, etc.
    - jen20 3y ago
      They can do better than vote, in the US though.
      - dartos 3y ago
        Tbf if you, as a real person, had the same amount of money as a corp you could do the same.
- itishappy 3y ago
  Sure they do. https://en.wikipedia.org/wiki/Nonprofit_organization https://en.wikipedia.org/wiki/Nonprofit_organization

Waterluvian 3y ago

Doesn’t this fundamentally guarantee the enshittification of every company driven this way? If you must grow by x% every year, and infinite growth is impossible, you begin shoving more and more low quality ads into your search results, partake in more legally and ethically grey activities, and eventually rupture? Are there any examples of large corporations that have said, “we make billions in profit each year. We’re going to focus on maintaining that enormous success. We’re not going to focus on growth.” (I can already hear the spreadsheet squinting logic about how growth is necessary for some reason)

SoftTalker 3y ago
No, I don't see that it does. Basically the idea is that a company should operate in a way that is beneficial to its owners (shareholders). This is what any sole proprietorship or partership also does. Growth is not the only way to measure that. Many companies do focus on maintaining success and return value to the owners by paying dividends. Driving the company to failure by relentlessly cutting costs in the name of "growth" is not in the interests of the owners.
- HumblyTossed 3y ago
  > This is what any sole proprietorship or partership also does. Growth is not the only way to measure that. And yet, a bad quarterly earnings report will tank a stock... > Driving the company to failure by relentlessly cutting costs in the name of "growth" is not in the interests of the owners. Sure it is. They've maximized their personal revenue and now it's time to get out. The sooner the better.
lotsofpulp 3y ago
> We’re going to focus on maintaining that enormous success. We’re not going to focus on growth.” (I can already hear the spreadsheet squinting logic about how growth is necessary for some reason) Where is Xerox going to get the money to do R&D to not be obviated? Replace Xerox with any other business. All the businesses obviated by spreadsheets, mobile networks, smartphones, GPS? Maintaining success is continuing to make bets and moving forward, and bets require money. More money means bigger bets. Another example, you have two businesses, one with a 5% profit margin (because they feel like 5% is enough), one with a 10% profit margin. The one with 10% profit margin is going to be able to continue renovating the business, upgrading the facility, buying more land, hiring better employees with higher payrates. What will happen to the 5% profit margin business? Do you think customers will keep rewarding them (assuming the 10% profit margin business is worth the additional marginal cost)? You can insert restaurant, hotel, retail store, etc in here. Note that having a higher profit margin is not the only way to survive, having a lower profit margin to better compete on price and gain market share is another way too. Balancing the two and delivering the right product at the right price for your customers is the key skill, but it’s a moving target.

zzzbra 3y ago

I am reluctant to say I am glad a comment has been down voted, because I am wary of mob mentality, but in this case I am very glad this comment has been so thoroughly down voted.

paulddraper 3y ago
why?
- dartos 3y ago
  Why not?

tonyedgecombe 3y ago

But Xerox's returns to investors have been dismal.

Zetobal 3y ago

Xerox was a private company at first.

milesvp 3y ago

Nonsense! You lack imagination! There are numerous reasons for companies to exist. Off the top of my head I can think of a few. To provide goods to populations. To provide services for populations. To give the owner something to do. To perpetuate themselves. To provide something to do for employees. To do something an individual can’t. None of these require investors. There are countless businesses that can be started that don’t even require a significant outlay of capital. On top of that there are differing philosophies that might suggest investors should be last in line for benefits from a business. I could make a strong argument that society allows businesses to exist and as such society should benefit first and foremost. Businesses typically fail to exist without employees, so I could argue employees should come before investors. Please don’t perpetuate the naive notion that investors are somehow more important than anything else. I am a dyed in the wool capitalist and while I tend to highly value profitability, even I don’t believe shareholder value is some sacred edict.