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> The whole meme that companies exist to maximize shareholder value is just that: a meme, and a recent one at that. Boeing is the natural outcome of believing i

> The whole meme that companies exist to maximize shareholder value is just that: a meme, and a recent one at that. Boeing is the natural outcome of believing it like a zealot. Admittedly I've only been in the workforce for a couple decades, but isn't this precisely what large, or at a minimum publicly traded, companies operate on? I've worked for multiple public companies and this is a universal theme among any I've worked with or for. Legally they're even required to do what is best for shareholders, nothing more.

galangalalgol 3y ago
I'm too old to think market forces can solve everything, but I don't understand why shareholders are ok with such things. I don't want my Boeing stock to go up for one quarter or one year so I can sell it and repeat with the next stupid company, I want my great grandchild to get good income on a stock I purchase today. I can see why leadership gets shortsighted, but not shareholders in general. If we take the scotus' view of a corporation as a person, these corporate persons need to figure out how to incentivise their cells not to go cancerous and shorten their lives.
- decafninja 3y ago
  Everyone’s time window is different. Someone might be in the cusp of retirement and looking to cash in. Someone might not have any children so passing on an inheritance could be moot. At least in this specific company’s case though, if I were a Boeing shareholder, I’d want them to make good planes because I plain and simple fly a lot, and don’t want to end up a casualty.
  - throw0101b 3y ago
    > Someone might be in the cusp of retirement and looking to cash in. If you're on the cusp of retirement (e.g. 65) you probably have another couple of decades to live, so you want companies to keep running things 'properly' for the long(ish)-term. It's not like you retire and you convert your portfolio into a pile of cash: you still need some kind of returns if you want to not run out of money: * https://en.wikipedia.org/wiki/William_Bengen#The_Four_Percent_Drawdown_rule https://en.wikipedia.org/wiki/William_Bengen#The_Four_Percen...
    - deleted 3y ago
      [deleted]
- _heimdall 3y ago
  I actually can understand why some shareholders see it this way. The stock market today is very much a Ponzi scheme in all but the very specific legal sense. There are more shares owned than actually offered by a company, and investors are taught to treat shares more as a commodity than as an investment of a company, value-based investment, or really anything beyond a gamble that prices go up.
JKCalhoun 3y ago
> Legally they're even required to do what is best for shareholders Been googling and it looks like that is not true. At the very least, it should be obvious that "best for shareholders" can mean almost anything. Boeing's latest problems, Volkswagen's lying on emissions ... long term these have been decidedly bad for shareholders but probably some bean-counter though they would maximize profits at the time.
- _heimdall 3y ago
  "Fiduciary duty" is the term you'll be looking for. Its a legal requirement for the fiduciary (an executive in this case) to act in the best interest of the beneficiary (the shareholder in this case). If I'm not mistaken, case law covers the basics like acting in good faith, trust, candor, etc but one of the biggest requirements is acting in the best financial interest of shareholders.
  - rawgabbit 3y ago
    >The long-running debate over whether the purpose of the corporation is to maximize short-term profits for shareholders or, alternatively, to operate in the interest of all stakeholders to promote long-term value, dates back to the 1932 law review exchange between Merrick Dodd (here) and Adolf Berle (here). Milton Friedman’s 1970 essay, The Social Responsibility Of Business Is to Increase Its Profits, epitomizes the former view, known as shareholder primacy, which posits that the sole role of the corporation is to maximize shareholder profits. In Friedman’s words, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” We have long advocated for a broader view of corporate purpose than Friedman’s and the shareholder primacy theory: first, as described in 1979 in Takeover Bids in the Target’s Boardroom, to empower boards to consider the interests of all stakeholders, including the communities in which corporations operate, in repudiating takeover bids by opportunistic raiders; and later, to encourage directors to resist short-term pressures and allow boards to exercise their business judgment to evaluate the variety of stakeholder interests that are essential to promoting sustainable success and growth in long-term corporate value. https://corpgov.law.harvard.edu/2022/11/29/understanding-the-role-of-esg-and-stakeholder-governance-within-the-framework-of-fiduciary-duties/ https://corpgov.law.harvard.edu/2022/11/29/understanding-the...
deleted 3y ago
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reissbaker 3y ago
Yes and no. If you take shareholder money, you are required to operate in the interests of the shareholders. However, what exactly that means can vary. For example, Amazon is famously "customer obsessed" — not shareholder obsessed — with the idea that focusing on creating customer value creates a better business (which in turn benefits the shareholder). Meanwhile Costco views employee culture as not only the most important thing, but "the only thing" [1] that creates a strong business, and has a strong track record of growing employees internally: the current CEO started out as a forklift operator at the company, and the previous CEO started as a warehouse manager. This culture of strong employee growth and retention, in Costco's theory, creates a better business and is thus justifiable (and desirable) for shareholders as well. 1: https://www.inc.com/justin-bariso/in-a-world-dominated-by-amazon-costco-is-thriving-they-do-it-by-focusing-on-2-simple-things.html https://www.inc.com/justin-bariso/in-a-world-dominated-by-am...
- danielscrubs 3y ago
  “Customer obsessed” must be lip service. Is there anything they made that is customer focused compared to their competitors? Seems very focused on margins instead.
  - lazystar 3y ago
    "Please allow 6 to 8 weeks for delivery." When was the last time you saw that phrase?
    - reissbaker 3y ago
      Not to mention that like half the Internet runs on AWS, and it's not because the cloud is cheap... It's convenient, and the core services work really well.
- _heimdall 3y ago
  There's definitely a lot of leeway in how any one leader will define "best interests," but in the long run I'd argue its always going to end up in the hands of someone chasing the money above all else.
istultus 3y ago
It is, like many an intellectual technological innovation, currently the Churchillian "worst, except for all the other options." Once a company is traded publicly, the market, over a long time horizon [1], usually gives a good value estimate to the company. In the short-run you have to contend with the different ways to juke the price, such as share buybacks just before the CEO is to get a bonus etc. Heck, even in Boeing's case, the market corrected for the stock price (especially if you consider inflation) once planes started falling out of the sky, and the company started to change. Now only doors are falling out of the sky! It's still a price we shouldn't be willing to pay for a market correction - and that's where efficient regulation comes into play, itself a very fraught tool to get right. All in all, we suck at forecasting, understanding, and learning from outlier events. Maybe it's an inherent problem. [1] with the usual caveat that the market can remain irrational longer than the plane can remain airborne
- _heimdall 3y ago
  Market valuations for tech companies have been irrational for years. At least in view, there are enough examples in the last couple decades of companies being consistently valued at such high multiples of profit and revenue that it can't really be waved off as short term market corrections.
  - Jensson 3y ago
    > Market valuations for tech companies have been irrational for years No they weren't, unless by "years" you men 2-3. Google, Facebook etc were expected to grow and they did grow to match those valuations, they weren't overvalued. When you know a market will grow then you price that in. Some companies don't grow as expected, but most do, the market is usually pretty good at estimating.
TuringNYC 3y ago
>> Admittedly I've only been in the workforce for a couple decades, but isn't this precisely what large, or at a minimum publicly traded, companies operate on? >> I've worked for multiple public companies and this is a universal theme among any I've worked with or for. Legally they're even required to do what is best for shareholders, nothing more. Yes, in the long term. Not in the short term. The problem becomes when corporate Managers go from being long term greedy to short term greedy. I'll share a, perhaps, controversial opinion. Google and Facebook and OpenAI share and give away enormous excess value. Their give-aways help grow these companies in the long term and the strategy has been super-successful. Google and Meta and OpenAI are examples of good long-term shareholder value creation. - Example look at the vast array of things Google gives away freely. Colab. Open source projects. Chrome. Transformer research. All of it eventually benefits Google but plenty is excess value given away and creates much downstream value. - Look at the vast amount of software and AI research Meta gives away. My entire startup was based on their software. If I had relied on Matlab, I would have been fleeced of all my operating cash. - Example, look at OpenAI giving away ChatGPT 3.5 for free. Yes, it is an act of long-term greed, but in the short term they are giving away huge value. Imagine how Oracle would have done this -- you would have started the login screen with a credit card entry. The problem happens when you get short-term finalcial-engineering focused managers running a company. They try to juice remaining value, load up with debt, press on customers, squeeze workers, and eventually kill the company.
- _heimdall 3y ago
  I'd argue that eventually the short-term focused people will always take over and ruin the company. When times get tough long-term goals are hard to stick to. Investors, ownership, etc get spooked and look for a way to try to solve problems now, losing sight of why the company was moving on a path that only pays off in the long term. In the case of tech companies, I fully expect to see them shift heavily towards the short-term whenever the tides turn. VCs did it last year, as soon as money dried up and economic concerns rose VCs shifted from investing with a goal of say 1 in 20 companies succeeding to only investing money in companies that appeared to be a sure bet.

galangalalgol 3y ago

I'm too old to think market forces can solve everything, but I don't understand why shareholders are ok with such things. I don't want my Boeing stock to go up for one quarter or one year so I can sell it and repeat with the next stupid company, I want my great grandchild to get good income on a stock I purchase today. I can see why leadership gets shortsighted, but not shareholders in general. If we take the scotus' view of a corporation as a person, these corporate persons need to figure out how to incentivise their cells not to go cancerous and shorten their lives.

decafninja 3y ago
Everyone’s time window is different. Someone might be in the cusp of retirement and looking to cash in. Someone might not have any children so passing on an inheritance could be moot. At least in this specific company’s case though, if I were a Boeing shareholder, I’d want them to make good planes because I plain and simple fly a lot, and don’t want to end up a casualty.
- throw0101b 3y ago
  > Someone might be in the cusp of retirement and looking to cash in. If you're on the cusp of retirement (e.g. 65) you probably have another couple of decades to live, so you want companies to keep running things 'properly' for the long(ish)-term. It's not like you retire and you convert your portfolio into a pile of cash: you still need some kind of returns if you want to not run out of money: * https://en.wikipedia.org/wiki/William_Bengen#The_Four_Percent_Drawdown_rule https://en.wikipedia.org/wiki/William_Bengen#The_Four_Percen...
  - deleted 3y ago
    [deleted]
_heimdall 3y ago
I actually can understand why some shareholders see it this way. The stock market today is very much a Ponzi scheme in all but the very specific legal sense. There are more shares owned than actually offered by a company, and investors are taught to treat shares more as a commodity than as an investment of a company, value-based investment, or really anything beyond a gamble that prices go up.

JKCalhoun 3y ago

> Legally they're even required to do what is best for shareholders Been googling and it looks like that is not true. At the very least, it should be obvious that "best for shareholders" can mean almost anything. Boeing's latest problems, Volkswagen's lying on emissions ... long term these have been decidedly bad for shareholders but probably some bean-counter though they would maximize profits at the time.

_heimdall 3y ago
"Fiduciary duty" is the term you'll be looking for. Its a legal requirement for the fiduciary (an executive in this case) to act in the best interest of the beneficiary (the shareholder in this case). If I'm not mistaken, case law covers the basics like acting in good faith, trust, candor, etc but one of the biggest requirements is acting in the best financial interest of shareholders.
- rawgabbit 3y ago
  >The long-running debate over whether the purpose of the corporation is to maximize short-term profits for shareholders or, alternatively, to operate in the interest of all stakeholders to promote long-term value, dates back to the 1932 law review exchange between Merrick Dodd (here) and Adolf Berle (here). Milton Friedman’s 1970 essay, The Social Responsibility Of Business Is to Increase Its Profits, epitomizes the former view, known as shareholder primacy, which posits that the sole role of the corporation is to maximize shareholder profits. In Friedman’s words, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” We have long advocated for a broader view of corporate purpose than Friedman’s and the shareholder primacy theory: first, as described in 1979 in Takeover Bids in the Target’s Boardroom, to empower boards to consider the interests of all stakeholders, including the communities in which corporations operate, in repudiating takeover bids by opportunistic raiders; and later, to encourage directors to resist short-term pressures and allow boards to exercise their business judgment to evaluate the variety of stakeholder interests that are essential to promoting sustainable success and growth in long-term corporate value. https://corpgov.law.harvard.edu/2022/11/29/understanding-the-role-of-esg-and-stakeholder-governance-within-the-framework-of-fiduciary-duties/ https://corpgov.law.harvard.edu/2022/11/29/understanding-the...

deleted 3y ago

[deleted]

reissbaker 3y ago

Yes and no. If you take shareholder money, you are required to operate in the interests of the shareholders. However, what exactly that means can vary. For example, Amazon is famously "customer obsessed" — not shareholder obsessed — with the idea that focusing on creating customer value creates a better business (which in turn benefits the shareholder). Meanwhile Costco views employee culture as not only the most important thing, but "the only thing" [1] that creates a strong business, and has a strong track record of growing employees internally: the current CEO started out as a forklift operator at the company, and the previous CEO started as a warehouse manager. This culture of strong employee growth and retention, in Costco's theory, creates a better business and is thus justifiable (and desirable) for shareholders as well. 1: https://www.inc.com/justin-bariso/in-a-world-dominated-by-amazon-costco-is-thriving-they-do-it-by-focusing-on-2-simple-things.html https://www.inc.com/justin-bariso/in-a-world-dominated-by-am...

danielscrubs 3y ago
“Customer obsessed” must be lip service. Is there anything they made that is customer focused compared to their competitors? Seems very focused on margins instead.
- lazystar 3y ago
  "Please allow 6 to 8 weeks for delivery." When was the last time you saw that phrase?
  - reissbaker 3y ago
    Not to mention that like half the Internet runs on AWS, and it's not because the cloud is cheap... It's convenient, and the core services work really well.
_heimdall 3y ago
There's definitely a lot of leeway in how any one leader will define "best interests," but in the long run I'd argue its always going to end up in the hands of someone chasing the money above all else.

istultus 3y ago

It is, like many an intellectual technological innovation, currently the Churchillian "worst, except for all the other options." Once a company is traded publicly, the market, over a long time horizon [1], usually gives a good value estimate to the company. In the short-run you have to contend with the different ways to juke the price, such as share buybacks just before the CEO is to get a bonus etc. Heck, even in Boeing's case, the market corrected for the stock price (especially if you consider inflation) once planes started falling out of the sky, and the company started to change. Now only doors are falling out of the sky! It's still a price we shouldn't be willing to pay for a market correction - and that's where efficient regulation comes into play, itself a very fraught tool to get right. All in all, we suck at forecasting, understanding, and learning from outlier events. Maybe it's an inherent problem. [1] with the usual caveat that the market can remain irrational longer than the plane can remain airborne

_heimdall 3y ago
Market valuations for tech companies have been irrational for years. At least in view, there are enough examples in the last couple decades of companies being consistently valued at such high multiples of profit and revenue that it can't really be waved off as short term market corrections.
- Jensson 3y ago
  > Market valuations for tech companies have been irrational for years No they weren't, unless by "years" you men 2-3. Google, Facebook etc were expected to grow and they did grow to match those valuations, they weren't overvalued. When you know a market will grow then you price that in. Some companies don't grow as expected, but most do, the market is usually pretty good at estimating.

TuringNYC 3y ago

>> Admittedly I've only been in the workforce for a couple decades, but isn't this precisely what large, or at a minimum publicly traded, companies operate on? >> I've worked for multiple public companies and this is a universal theme among any I've worked with or for. Legally they're even required to do what is best for shareholders, nothing more. Yes, in the long term. Not in the short term. The problem becomes when corporate Managers go from being long term greedy to short term greedy. I'll share a, perhaps, controversial opinion. Google and Facebook and OpenAI share and give away enormous excess value. Their give-aways help grow these companies in the long term and the strategy has been super-successful. Google and Meta and OpenAI are examples of good long-term shareholder value creation. - Example look at the vast array of things Google gives away freely. Colab. Open source projects. Chrome. Transformer research. All of it eventually benefits Google but plenty is excess value given away and creates much downstream value. - Look at the vast amount of software and AI research Meta gives away. My entire startup was based on their software. If I had relied on Matlab, I would have been fleeced of all my operating cash. - Example, look at OpenAI giving away ChatGPT 3.5 for free. Yes, it is an act of long-term greed, but in the short term they are giving away huge value. Imagine how Oracle would have done this -- you would have started the login screen with a credit card entry. The problem happens when you get short-term finalcial-engineering focused managers running a company. They try to juice remaining value, load up with debt, press on customers, squeeze workers, and eventually kill the company.

_heimdall 3y ago
I'd argue that eventually the short-term focused people will always take over and ruin the company. When times get tough long-term goals are hard to stick to. Investors, ownership, etc get spooked and look for a way to try to solve problems now, losing sight of why the company was moving on a path that only pays off in the long term. In the case of tech companies, I fully expect to see them shift heavily towards the short-term whenever the tides turn. VCs did it last year, as soon as money dried up and economic concerns rose VCs shifted from investing with a goal of say 1 in 20 companies succeeding to only investing money in companies that appeared to be a sure bet.