7 ms·

Jack Welch style management and shareholder capitalism are some of the most destructive forces in the US economy.

refurb 3y ago
Meh... it's trendy to blame Jack Welch, but it's not like companies have always chased money and always will. Many will cut corners, and it often works out just fine, others crater their business.
skyyler 3y ago
What can reasonably be done to combat it? Leadership at all the biggest firms is on board with shareholder capitalism. To them, Welch style management just means line goes up...
- moose_man 3y ago
  It's going to take a long time, but first is to destroy the myth that corporations have one purpose they need to fulfill: Generate revenue and ensure things are profitable for shareholders. This myth artificially took root in the 1970s. Business schools have to stop teaching this.
  - ameister14 3y ago
    It took root in 1919, so I don't think that's actually the issue. The problem is short-term thinking based on financial markets and the ability of corporations to reinvest their capital freely. Regulating stock buybacks and the ability of corporations to invest in markets will cut down on corporate fissure.
    - kazen44 3y ago
      why 1919 specifically? in my opinion, it seeems to have been enormously on the rise since the end of world war 2 and especially after the end of the cold war.
      - dinero_rojo 3y ago
        Fairly certain he’s referring to Dodge v. Ford Motor Company, where it was established that a company needs to operate in the best interests of shareholders above all else. https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.?wprov=sfti1# https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.?wprov=...
        euroderf 3y ago
        Also IIRC there was a case before the Supreme Court where the dispute was whether shareholder value was the sole & supreme goal, or there could be other factors involved from other stakeholders (such as workers, the community, ...). The Supremes ruled for shareholder value. However I forget details of ths case. If anyone here happens to know what case I am referring to, please chime in.
        dragonwriter 3y ago
        You are probably thinking of the case described in GP, which is the decision of the Michigan Supreme Court on this issue.
        euroderf 3y ago
        I should have added, this was a case back in the 1980s.
        ameister14 3y ago
        I don't know of a case where the Court affirmed shareholder primacy - as far as I am aware it's a state by state thing though since Delaware has it in their code it impacts a massive number of corporations.
  - jgeada 3y ago
    That will only happen if we change laws to make boards and executives criminally liable for these types of problems. We need to pierce the corporate veil and directly go after the responsible individuals when they, either directly or by deliberate ignorance, cause problems that lead to people dying etc. No shielding behind a corporation if your decisions to make lots more bucks led to avoidable deaths.
    - RandomLensman 3y ago
      That isn't the corporate veil unless you mean to go after the owners/shareholders. Considering changes to what limited liability corporations can and cannot do is a potential avenue.
  - digging 3y ago
    The problem with this assertion is that focusing on profit for the shareholders no longer has any downsides because the public is numb to it. So it's the winning play. We need regulations that sufficiently disincentive such behavior in order to approach equilibrium (that being a state where businesses exist to serve customers).
  - jamesdhutton 3y ago
    It's not a myth. It's a fact. The whole point of any for-profit company is to generate a return for the company's owners. Companies which fail to do so go out of business. It has always been thus. As for the notion that Boeing has prioritized shareholder value over safety: just look at their share price over the last few days. It tanked by 10% since this accident occurred. Clearly, making safe planes is a prerequisite for generating shareholder value. There is no conflict there.
    - Aeolun 3y ago
      It’ll tank for a few days, maybe even weeks before it resumes it’s upward trend.
  - ip26 3y ago
    Ok, suppose the myth is destroyed and companies change their ways. Then a small group of activist investors demands a return to "shareholder value", the company refuses, and the investors orchestrate a takeover with other people who have not yet learned the myth was dispelled. What next?
  - postingawayonhn 3y ago
    Working in the best interests of shareholders is fine. The problem is that because Boeing has a US monopoly and global duopoly on large jets neither the regulators or customers are willing to punish them when they under perform. Boeing has become too big to fail.
  - PontifexMinimus 3y ago
    Changing what is taught in business schools will make little difference. You have to change what incentives operate on people.
- RandomLensman 3y ago
  You need the owners to actually care.
  - kazen44 3y ago
    Also, we need the state to act in the best interest of the people it serves, instead of in being held hostage by a few with much economic weight. The state should wield power it derives from the mandate given to it by it's people, and it should defend the capability to influence the economy with that. This fact seems to have been forgotten since the end of the cold war, when neoliberal theory seems to have been the defacto "truth" in economics.
- drewcoo 3y ago
  > What can reasonably be done to combat it? It was enabled by deregulation, so regulation seems important. That was enabled by more overt bribery of politicians (PACs, super PACs, etc.). So stop the bribes. That happened simultaneously with changes in how business was depicted by media, whether news or entertainment. So . . . convince the heads of that small handful of companies to change their representations. And so far that's just the US. All of these things are global. My point is that just combating the existing problems is akin to whack-a-mole. A new pervasive philosophy will replace neoliberalism, though. Maybe put effort into pushing whichever of those seems best?
- MilStdJunkie 3y ago
  If leadership gets stock as part of their compensation, they don't get to sell it off until long after their tenure in leadership is ended. The time horizon of these jokers is too short. If they had a 10 or even a 5 year risk horizon, they would not make these short-sighted decisions. The Welchian approach isn't just value destruction, over a longer time horizon it's quantifiably unprofitable for the business as a whole. Forgive me a tangent here, particularly relevant with the 737, about how leaders regularly mistake economies of scope for economies of scale. Scale and Scope are fundamentally different things, but M&A specialists and related finbros often treat them as equivalent. This is unfortunate. Scalar efficiencies are largely functions of density - more people buying the same thing over a given space. Scope involves equivalence - more people buying things that are just similar enough. This is a trap. In order to evaluate equivalence, you need domain knowledge, but in order to consolidate operations, you've already jettisoned that same domain knowledge. Also known as "Why do I need fuselage experts in three different places? It's just a tube! Let's just hire one outsourced Fuselage Expert". Economy of Scope takes a truly heroic amount of domain knowledge among the M&A team to make it work, but if you're already convinced that finance contains the secrets of the universe, you're probably going to be dismissing domain knowledge as a basic concept. Again - not for the first time - I marvel at the structural similarities of end-stage Soviet industry and our own late-stage financier capitalism.
  - drowntoge 3y ago
    > Again - not for the first time - I marvel at the structural similarities of end-stage Soviet industry and our own late-stage financier capitalism. Concerning.
- o11c 3y ago
  We can't ignore the fact that everybody's retirement is now stockmarket-based ...
- astrange 3y ago
  Except for when they say they aren't. https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans https://www.businessroundtable.org/business-roundtable-redef...
- refurb 3y ago
  Nothing. As long as human run companies, you'll always have people cutting corners for short-term gain. Hell, people will commit financial crimes that result in significant prison terms and they still do it. Change humans and maybe you can solve the problem.
jewayne 3y ago
Wow, a whole lot of people in this thread don't know about Jack Welch and his outsized influence on the current state of US business. No, US businesses did not always focus exclusively on current quarter's earnings, nor did they lay people off every year to juice the share price. In fact, before Jack Welch, many US corporations openly said that their mission was to "build/provide X", and that dividends to shareholders were just another bill to pay on their way to providing X. Although he wasn't the only one, Jack Welch was probably the biggest figurehead of the "shareholder value" movement, and was given deity status by the business press back in the 80s. The revelation that his amazing numbers at GE were based upon deceptive accounting practices, hasn't seemed to dampen his influence one bit.
- themadturk 3y ago
  And look where G.E. is now...
- shiroiuma 3y ago
  I wonder what things would be like now if someone went back in time and assassinated Jack Welch as a child....
  - shiroiuma 3y ago
    I wonder why I'm being down-voted for this. Obviously I'm not advocating murder unless you really believe in time travel; it's a thought experiment about how the present would be different if this individual had not gotten to the position he did in the corporate world, similar to the questions about the effects of murdering Hitler before he joined the Nazis. My thought is that taking out baby Jack Welch probably wouldn't have that much effect, and someone very similar would have come along not much later. I think a big part of the reason many big American companies were able to function the way they did (basically not worrying so much about profits) was because America got rich by being the one untouched industrial power at the end of WWII, and this gave them the luxury of building these companies into powerhouses that didn't have much competition to worry about and that could be idealistic and also wasteful. But this advantage eroded after several decades so it eventually became more important to maximize profitability and this required (or facilitated) someone like Welch.

Meh... it's trendy to blame Jack Welch, but it's not like companies have always chased money and always will. Many will cut corners, and it often works out just fine, others crater their business.

skyyler 3y ago

What can reasonably be done to combat it? Leadership at all the biggest firms is on board with shareholder capitalism. To them, Welch style management just means line goes up...

moose_man 3y ago
It's going to take a long time, but first is to destroy the myth that corporations have one purpose they need to fulfill: Generate revenue and ensure things are profitable for shareholders. This myth artificially took root in the 1970s. Business schools have to stop teaching this.
- ameister14 3y ago
  It took root in 1919, so I don't think that's actually the issue. The problem is short-term thinking based on financial markets and the ability of corporations to reinvest their capital freely. Regulating stock buybacks and the ability of corporations to invest in markets will cut down on corporate fissure.
  - kazen44 3y ago
    why 1919 specifically? in my opinion, it seeems to have been enormously on the rise since the end of world war 2 and especially after the end of the cold war.
    - dinero_rojo 3y ago
      Fairly certain he’s referring to Dodge v. Ford Motor Company, where it was established that a company needs to operate in the best interests of shareholders above all else. https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.?wprov=sfti1# https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.?wprov=...
      - euroderf 3y ago
        Also IIRC there was a case before the Supreme Court where the dispute was whether shareholder value was the sole & supreme goal, or there could be other factors involved from other stakeholders (such as workers, the community, ...). The Supremes ruled for shareholder value. However I forget details of ths case. If anyone here happens to know what case I am referring to, please chime in.
        dragonwriter 3y ago
        You are probably thinking of the case described in GP, which is the decision of the Michigan Supreme Court on this issue.
        euroderf 3y ago
        I should have added, this was a case back in the 1980s.
        ameister14 3y ago
        I don't know of a case where the Court affirmed shareholder primacy - as far as I am aware it's a state by state thing though since Delaware has it in their code it impacts a massive number of corporations.
- jgeada 3y ago
  That will only happen if we change laws to make boards and executives criminally liable for these types of problems. We need to pierce the corporate veil and directly go after the responsible individuals when they, either directly or by deliberate ignorance, cause problems that lead to people dying etc. No shielding behind a corporation if your decisions to make lots more bucks led to avoidable deaths.
  - RandomLensman 3y ago
    That isn't the corporate veil unless you mean to go after the owners/shareholders. Considering changes to what limited liability corporations can and cannot do is a potential avenue.
- digging 3y ago
  The problem with this assertion is that focusing on profit for the shareholders no longer has any downsides because the public is numb to it. So it's the winning play. We need regulations that sufficiently disincentive such behavior in order to approach equilibrium (that being a state where businesses exist to serve customers).
- jamesdhutton 3y ago
  It's not a myth. It's a fact. The whole point of any for-profit company is to generate a return for the company's owners. Companies which fail to do so go out of business. It has always been thus. As for the notion that Boeing has prioritized shareholder value over safety: just look at their share price over the last few days. It tanked by 10% since this accident occurred. Clearly, making safe planes is a prerequisite for generating shareholder value. There is no conflict there.
  - Aeolun 3y ago
    It’ll tank for a few days, maybe even weeks before it resumes it’s upward trend.
- ip26 3y ago
  Ok, suppose the myth is destroyed and companies change their ways. Then a small group of activist investors demands a return to "shareholder value", the company refuses, and the investors orchestrate a takeover with other people who have not yet learned the myth was dispelled. What next?
- postingawayonhn 3y ago
  Working in the best interests of shareholders is fine. The problem is that because Boeing has a US monopoly and global duopoly on large jets neither the regulators or customers are willing to punish them when they under perform. Boeing has become too big to fail.
- PontifexMinimus 3y ago
  Changing what is taught in business schools will make little difference. You have to change what incentives operate on people.
RandomLensman 3y ago
You need the owners to actually care.
- kazen44 3y ago
  Also, we need the state to act in the best interest of the people it serves, instead of in being held hostage by a few with much economic weight. The state should wield power it derives from the mandate given to it by it's people, and it should defend the capability to influence the economy with that. This fact seems to have been forgotten since the end of the cold war, when neoliberal theory seems to have been the defacto "truth" in economics.
drewcoo 3y ago
> What can reasonably be done to combat it? It was enabled by deregulation, so regulation seems important. That was enabled by more overt bribery of politicians (PACs, super PACs, etc.). So stop the bribes. That happened simultaneously with changes in how business was depicted by media, whether news or entertainment. So . . . convince the heads of that small handful of companies to change their representations. And so far that's just the US. All of these things are global. My point is that just combating the existing problems is akin to whack-a-mole. A new pervasive philosophy will replace neoliberalism, though. Maybe put effort into pushing whichever of those seems best?
MilStdJunkie 3y ago
If leadership gets stock as part of their compensation, they don't get to sell it off until long after their tenure in leadership is ended. The time horizon of these jokers is too short. If they had a 10 or even a 5 year risk horizon, they would not make these short-sighted decisions. The Welchian approach isn't just value destruction, over a longer time horizon it's quantifiably unprofitable for the business as a whole. Forgive me a tangent here, particularly relevant with the 737, about how leaders regularly mistake economies of scope for economies of scale. Scale and Scope are fundamentally different things, but M&A specialists and related finbros often treat them as equivalent. This is unfortunate. Scalar efficiencies are largely functions of density - more people buying the same thing over a given space. Scope involves equivalence - more people buying things that are just similar enough. This is a trap. In order to evaluate equivalence, you need domain knowledge, but in order to consolidate operations, you've already jettisoned that same domain knowledge. Also known as "Why do I need fuselage experts in three different places? It's just a tube! Let's just hire one outsourced Fuselage Expert". Economy of Scope takes a truly heroic amount of domain knowledge among the M&A team to make it work, but if you're already convinced that finance contains the secrets of the universe, you're probably going to be dismissing domain knowledge as a basic concept. Again - not for the first time - I marvel at the structural similarities of end-stage Soviet industry and our own late-stage financier capitalism.
- drowntoge 3y ago
  > Again - not for the first time - I marvel at the structural similarities of end-stage Soviet industry and our own late-stage financier capitalism. Concerning.
o11c 3y ago
We can't ignore the fact that everybody's retirement is now stockmarket-based ...
astrange 3y ago
Except for when they say they aren't. https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans https://www.businessroundtable.org/business-roundtable-redef...
refurb 3y ago
Nothing. As long as human run companies, you'll always have people cutting corners for short-term gain. Hell, people will commit financial crimes that result in significant prison terms and they still do it. Change humans and maybe you can solve the problem.

jewayne 3y ago

Wow, a whole lot of people in this thread don't know about Jack Welch and his outsized influence on the current state of US business. No, US businesses did not always focus exclusively on current quarter's earnings, nor did they lay people off every year to juice the share price. In fact, before Jack Welch, many US corporations openly said that their mission was to "build/provide X", and that dividends to shareholders were just another bill to pay on their way to providing X. Although he wasn't the only one, Jack Welch was probably the biggest figurehead of the "shareholder value" movement, and was given deity status by the business press back in the 80s. The revelation that his amazing numbers at GE were based upon deceptive accounting practices, hasn't seemed to dampen his influence one bit.

themadturk 3y ago
And look where G.E. is now...
shiroiuma 3y ago
I wonder what things would be like now if someone went back in time and assassinated Jack Welch as a child....
- shiroiuma 3y ago
  I wonder why I'm being down-voted for this. Obviously I'm not advocating murder unless you really believe in time travel; it's a thought experiment about how the present would be different if this individual had not gotten to the position he did in the corporate world, similar to the questions about the effects of murdering Hitler before he joined the Nazis. My thought is that taking out baby Jack Welch probably wouldn't have that much effect, and someone very similar would have come along not much later. I think a big part of the reason many big American companies were able to function the way they did (basically not worrying so much about profits) was because America got rich by being the one untouched industrial power at the end of WWII, and this gave them the luxury of building these companies into powerhouses that didn't have much competition to worry about and that could be idealistic and also wasteful. But this advantage eroded after several decades so it eventually became more important to maximize profitability and this required (or facilitated) someone like Welch.