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It's the "wait for it" part that you're not paying attention to. A company's leadership is primarily tasked with maximizing the immediate value of their share p

It's the "wait for it" part that you're not paying attention to. A company's leadership is primarily tasked with maximizing the immediate value of their share price because that's the expectation in a capitalist system. Long-term growth is secondary to this goal.

_delirium 12y ago
I think that particular bit is more specific to the publicly traded corporation model of ownership. The structure of capitalism in general is to maximize return on capital, but it doesn't inherently focus on maximizing short-term market prices at any given instant. Other ownership models, like the old industrial trusts, or modern private equity, play a somewhat different game.
TheOtherHobbes 12y ago
The real problem is that there are huge incentives for company leadership to maximise their own earnings, even if - or especially if - it destroys the company. Beyond a certain social level failure no longer counts against you. But income certainly counts for you. So there's a small but unrealistically influential group who can hop from consultancy to executive job to consultancy. They're never held to account in the same way that employees of lower social status are. Shareholders have no incentive to support a company either. They can sell up at the first sniff of a difficult quarter and look for higher returns elsewhere. >Long-term growth is secondary to this goal. Not always, but CEOs need to inspire investors with confidence and charisma to keep them from selling up. Sometimes this works, but it's rarely related to the actual commercial value of a strategy. Basically it's all about perceived status and social signalling, not about objective ability. That disconnect is the big failure. It means the wrong things get rewarded for the wrong reasons, collective and strategic intelligence happens by exception, not by design, and the economy as a whole suffers badly.
- agumonkey 12y ago
  Capitalism really sounds like a bad fever.
  - TulliusCicero 12y ago
    It's the worst economic system, except for all the other ones we've tried.
    - agumonkey 12y ago
      Is it a reason to stop searching for better models ? Capitalism is a bad use of resources for an absurdly local increase. I guess it will last as long as it works and then something new will pop out of necessity.
  - hawkice 12y ago
    I think you're blaming capitalism for a bad incentive structure internal to companies. Yes, many decisions are made to further the interests of the stakeholders of the business, and many of these things damage the business itself. But without paying people in stock, this problem largely goes away (not that improving executive compensation is so near-perfect that one change makes it immune from agency problems or conflicts of interest -- clearly other things need to be done).
    - agumonkey 12y ago
      I blame capital based thinking, twisting existing system toward burning themselves until the point of being fruitless, then being camouflaged to sell the remaining parts and pieces. It's not far from addictive behavior.
adventured 12y ago
That's not true at all. There's nothing that says a company's leadership is tasked with maximizing short-term / immediate value. That is not the inherent expectation of the capitalist system. Your theory rests on the false notion that all shareholders are alike; they are not. A company can choose to be focused on creating long-term value, and many don't get punished for that either - see: Tesla, Amazon. The most successful examples are of long-term value creation, not short-term. The best returns to shareholders come from long-term value creation and focus.

_delirium 12y ago

I think that particular bit is more specific to the publicly traded corporation model of ownership. The structure of capitalism in general is to maximize return on capital, but it doesn't inherently focus on maximizing short-term market prices at any given instant. Other ownership models, like the old industrial trusts, or modern private equity, play a somewhat different game.

TheOtherHobbes 12y ago

The real problem is that there are huge incentives for company leadership to maximise their own earnings, even if - or especially if - it destroys the company. Beyond a certain social level failure no longer counts against you. But income certainly counts for you. So there's a small but unrealistically influential group who can hop from consultancy to executive job to consultancy. They're never held to account in the same way that employees of lower social status are. Shareholders have no incentive to support a company either. They can sell up at the first sniff of a difficult quarter and look for higher returns elsewhere. >Long-term growth is secondary to this goal. Not always, but CEOs need to inspire investors with confidence and charisma to keep them from selling up. Sometimes this works, but it's rarely related to the actual commercial value of a strategy. Basically it's all about perceived status and social signalling, not about objective ability. That disconnect is the big failure. It means the wrong things get rewarded for the wrong reasons, collective and strategic intelligence happens by exception, not by design, and the economy as a whole suffers badly.

agumonkey 12y ago
Capitalism really sounds like a bad fever.
- TulliusCicero 12y ago
  It's the worst economic system, except for all the other ones we've tried.
  - agumonkey 12y ago
    Is it a reason to stop searching for better models ? Capitalism is a bad use of resources for an absurdly local increase. I guess it will last as long as it works and then something new will pop out of necessity.
- hawkice 12y ago
  I think you're blaming capitalism for a bad incentive structure internal to companies. Yes, many decisions are made to further the interests of the stakeholders of the business, and many of these things damage the business itself. But without paying people in stock, this problem largely goes away (not that improving executive compensation is so near-perfect that one change makes it immune from agency problems or conflicts of interest -- clearly other things need to be done).
  - agumonkey 12y ago
    I blame capital based thinking, twisting existing system toward burning themselves until the point of being fruitless, then being camouflaged to sell the remaining parts and pieces. It's not far from addictive behavior.

adventured 12y ago

That's not true at all. There's nothing that says a company's leadership is tasked with maximizing short-term / immediate value. That is not the inherent expectation of the capitalist system. Your theory rests on the false notion that all shareholders are alike; they are not. A company can choose to be focused on creating long-term value, and many don't get punished for that either - see: Tesla, Amazon. The most successful examples are of long-term value creation, not short-term. The best returns to shareholders come from long-term value creation and focus.