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It's not the C–suite that’s the problem, they’re just doing the bidding of the “shareholder activists” and stock market geniuses who are so brutally focused on

by epc 3y ago

It's not the C–suite that’s the problem, they’re just doing the bidding of the “shareholder activists” and stock market geniuses who are so brutally focused on extracting every last cent of value from enterprises that sacrificing anything longer term than the next quarter is perfectly acceptable.

WalterBright 3y ago
The theory that enterprises are all sacrificing the long term for the next quarter's success doesn't explain why companies do better year after year.
- DougEiffel 3y ago
  Companies usually do better year after year until they reach market saturation or until the competition kills them. Once one of those things happens, they start to squeeze blood from the stone. The quality of the product drops, the prices are inflated, jobs are outsourced or eliminated, they pivot into providing other goods and services (which will also get worse later), etc. None of these things are mutually exclusive with that "next quarter" mindset. I actually blame the stock market for a lot of this. Private companies can, in theory, settle for just making a nice profit year after year. As long as they come out profitable they don't need to expand. Once you're publicly traded though, you have no choice but constant expansion. The boom and bust cycle has been happening for a long time now.
  - DrScientist 3y ago
    > The boom and bust cycle has been happening for a long time now. Is part of the problem, that people making the decisions have asymmetric incentives - the gain from the boom is greater than the penalty from the bust?
  - WalterBright 3y ago
    Stockholders are owners. If they suspect the company is sacrificing the long term for the next quarter, they are going to dump the stock as soon as they get a whiff of that. The value of a stock is base on its long term value, not its short term value. Sabotaging the future of the company to drive short term results is something you'd have to keep secret.
Qwertious 3y ago
"Shareholder activists" are just following their own incentives, though, just like the C-suite. At a certain point, you have to either blame the people doing the things or blame it on capitalism in general.
DrScientist 3y ago
The CEO can really make a huge difference. I've worked in a major company ( global - 10s of thousand of employees ) where the chairman and CEO were changed and it was like night and day. The company changed from one that was driven too much by short term pressure from money men investors, to one that took a much longer term view and invested in R&D and inhouse skills. Note the change in management was instigated by some of the larger, longer term investors ( pension funds etc ) - ie not all capital is short term. The new CEO put together that long term vision - said investment now ( and so lower EPS now ) will result in substantial longer term bottom line growth - had to persuade the markets etc. They were successful, and it's sort of self-fulling - the short term capital leaves and you get more longer term investors that matches that longer term vision ( obviously the spiral can go the other way ). However - that's the easy bit - delivering growth - at some point it's not possible to sustain that level of growth - then selling the idea you need to invest to standstill is much harder. The CEO - also have to fight-off opportunists - where the problem is the maths is often in favour of buying a company, stripping/milking the assets and sacking the people. Note sometimes it's only capital efficient because the capital doesn't need to pay the full social costs of the company destruction - it's governments job to make sure they do.

by epc 3y ago

WalterBright 3y ago

The theory that enterprises are all sacrificing the long term for the next quarter's success doesn't explain why companies do better year after year.

DougEiffel 3y ago
Companies usually do better year after year until they reach market saturation or until the competition kills them. Once one of those things happens, they start to squeeze blood from the stone. The quality of the product drops, the prices are inflated, jobs are outsourced or eliminated, they pivot into providing other goods and services (which will also get worse later), etc. None of these things are mutually exclusive with that "next quarter" mindset. I actually blame the stock market for a lot of this. Private companies can, in theory, settle for just making a nice profit year after year. As long as they come out profitable they don't need to expand. Once you're publicly traded though, you have no choice but constant expansion. The boom and bust cycle has been happening for a long time now.
- DrScientist 3y ago
  > The boom and bust cycle has been happening for a long time now. Is part of the problem, that people making the decisions have asymmetric incentives - the gain from the boom is greater than the penalty from the bust?
- WalterBright 3y ago
  Stockholders are owners. If they suspect the company is sacrificing the long term for the next quarter, they are going to dump the stock as soon as they get a whiff of that. The value of a stock is base on its long term value, not its short term value. Sabotaging the future of the company to drive short term results is something you'd have to keep secret.

Qwertious 3y ago

"Shareholder activists" are just following their own incentives, though, just like the C-suite. At a certain point, you have to either blame the people doing the things or blame it on capitalism in general.

DrScientist 3y ago

The CEO can really make a huge difference. I've worked in a major company ( global - 10s of thousand of employees ) where the chairman and CEO were changed and it was like night and day. The company changed from one that was driven too much by short term pressure from money men investors, to one that took a much longer term view and invested in R&D and inhouse skills. Note the change in management was instigated by some of the larger, longer term investors ( pension funds etc ) - ie not all capital is short term. The new CEO put together that long term vision - said investment now ( and so lower EPS now ) will result in substantial longer term bottom line growth - had to persuade the markets etc. They were successful, and it's sort of self-fulling - the short term capital leaves and you get more longer term investors that matches that longer term vision ( obviously the spiral can go the other way ). However - that's the easy bit - delivering growth - at some point it's not possible to sustain that level of growth - then selling the idea you need to invest to standstill is much harder. The CEO - also have to fight-off opportunists - where the problem is the maths is often in favour of buying a company, stripping/milking the assets and sacking the people. Note sometimes it's only capital efficient because the capital doesn't need to pay the full social costs of the company destruction - it's governments job to make sure they do.