If you don't think employees matter, that is an issue.
It is overly reductionist to say that a company exists solely for the benefit of the shareholders. Such a model is a rather incomplete description of reality.
>It is overly reductionist to say that a company exists solely for the benefit of the shareholders.
It's not reductionist at all; that's exactly how it is in a purely capitalist system, and how it is in America. It's different in other countries, like European ones and Japan, where companies really do have a responsibility to employees and society at large, but in America they don't have any such responsibility, no matter how much you would like it to be otherwise.
It's reductionist because it assumes management has no choice in how to run their business and US corporations are basically all the same.
This is clearly, obviously not the case. There are many ways to make money and the management of a company has a lot of freedom to choose how to go about it. Different companies have quite different strategies and cultures. Some treat their employees much better than others. Pretending they're all the same is sort of like saying it doesn't matter who wins in an election.
What we can say is that when new management takes over, sometimes things change quite drastically. But this isn't deterministic and so you can't conclude all that much just from knowing the theory of shareholder value.
>Different companies have quite different strategies and cultures. Some treat their employees much better than others.
Yes, but you can find clear trends when you look at different groups, such as American corporations vs. European ones, and if you do that, you can see that employees, on average, are treated much worse at American companies. While there are some success stories in America, such as Costco (which is pretty famous for paying and treating employees very well, considering the jobs there are generally low-skill and don't require college degrees), the American system rewards companies that don't treat employees well and they tend to do better when competing with companies that do.
This is roughly my understanding as well, but when we start talking about averages and trends across many industries and countries, I think personal observations might not count for much. Very few people have that wide range of experience.
That’s right, the truth hurts. Here in America (especially in California) employment is at-will, and companies act in their shareholders’ interests. It is MUCH more difficult to fire employees in Scandinavia and in Asia where employees have much more rights, and there are legal protections in place. I see that you downvoted this 100% factual parent post because it goes against your rosy moral picture about how you feel America should work.
That may be, but it is important? What's most important is executive compensation. From everything I've read, executives at American corporations get far more compensation and big golden parachutes than their European counterparts. So obviously, the American system is working much better for the people who really matter.
What is your point here? Obviously shareholder value is one of many things that matter. I vehemently disagree that executives are the ones who truly matter.
Executives may often have excessive power and influence, sure. And there is much room for improving how the system affects all individuals. Is this what you are trying to imply?
No, shareholders don't matter at all, only executives and their compensation and golden parachutes. If this weren't the case, companies wouldn't be rewarding these executives so richly while allowing them to do things which harm shareholder value in the long term.
You can disagree all you want, but executives actually run the corporations, and their boards of directors (stacked with other executives who are buddies of theirs) don't care what you think, and will continue to run these companies for the benefit of the executives rather than the shareholders.
Yeah. My last company got bought by them and was told that in spite of their rep for shuttering and turning companies into shells this was absolutely not the case. Cue a few months later almost 10 percent of staff let go, hiring freeze for everyone except the sales department, and closing of the Chicago office to make money. They won't hire new devs even when they quit. If a company gets bought by them and you work there, cash any immediate bonuses and start looking for a new job.
Because it's not just turning into shells. It's also getting rid of X and replacing them with Y. Replacing workers with workers in other geos or just replacing them with someone else, so the headcount stays steady or even grows but it's a different head.
Most public companies offer employee stock benefits. That matters for short-term stock price, as much as possible. But ultimately the employees are only minority shareholders, so don't have enough to actually increase value. (The main shareholders are institutional investors, who have a lot of clout.) For private companies, of course, it's a different story and the founders/board/investors often have more clout. Private companies are also less likely to grant (non-liquid) equity, but rather offer it as options, which is more like a lotto ticket.
Marx had a lot of ideas; some of them were probably good. Involving workers in the ownership of companies seems like a good idea even if Marx supported it.
Marxism as practiced in places like, eg, Russia fell down because they disrupted the ability of the market to send and receive accurate price signals and over time that led to catastrophically misallocated resources. Many of the people who want socialism seem to support disabling said price signals, because they are unfair, which is why socialism is so dangerous - those price signals are very important. However, as long as they face the same risk of bankruptcy as everyone else, workers co-ops with the ability for outsiders to invest are probably a superior model of ownership.
> Russia fell down because they disrupted the ability of the market to send and receive accurate price signals and over time that led to catastrophically misallocated resources.
This is extremely ahistorical. The fall of the USSR was due to Gorbachev's decision to introduce "western" markets into Russia and Yeltsin's opportunism. Growth and stability weren't flagging in the Soviet Union until they attempted to privatize.
And if the US had been the one to capitulate to communism we'd be quoting stats about the lack of income growth of their workers in contrast to the wealthy.
Viewing the health of a nation on the growth of their income isn't necessarily telling the story. Soviet inflation was almost unheard of save for hyperinflation shortly after the revolution, and hyper inflation after the collapse. Also as investment wasn't as much of a driving force since the economy wasn't private, so infinite growth isn't necessarily a good indicator of the state of things.
Infinite growth isn't necessarily the best way to measure success unless you're an investor. When we frame the world in that way a lot of "good" economies are harsh to live under, and "decaying" economies aren't bad from a quality of life standpoint.
The Soviet-era economies were generally horrible to live under from everything I've read and heard, even from people who actually lived under them. Did you? There's a reason they wouldn't let people leave East Germany, and actually shot them if they tried, and why those people risked their lives regardless to get out, and also why almost no one from the West ever tried to "escape" to Soviet-bloc countries.
Decaying economies are bad if they don't maintain their equipment and live off what previous generations created. You could see that in East Germany. They created a lot of stuff in the 50s and 60s and then they kept using that equipment until it fell apart. Same for buildings.You can do that for a while but eventually things will fall apart. You could argue that public infrastructure in the US is following the same path to some degree.
As implemented in the current US economy, those price signals are also suppressed through collusion, cronyism, and near monopolies so it's not an exclusive issue of socialism implementations.
Many markets are stagnant and do not offer healthy competition. There's a fair share of markets that still offer healthy competition, but from my perspective, it seems like the end goal of market optimization almost inevitably leads to monopolization which always leads to stagnation.
True competition and an informed/economically conscious consumer market are key requirements to this signaling process. We don't have a lot of either in many markets.
One of the great things about capitalism is that it has some redundancy and resiliency. Competition may also lead to new features (markets), etc. On the other hand, this is duplicative and wasteful. Contrast the duplication (redundancy) of the capitalist system to the one producer model of communism. Less duplication but less resiliency and less ability to find new features (market). I think when a market is young and returns are high that it makes sense for many producers. However as a market matures, we can shed some of the duplication and allocate it to other new markets. If the monopolist restricts quantity sold? Easy, it increases the tears for a new entrant. The system manages itself in this way (in reality no system at all, it's decentralized coordination).
The problem with this idea of "duplication" is that, in reality, it's never been shown that monopolies are actually highly efficient. Humans just aren't very good at being efficient when they aren't forced to, and competition does that. The places where we do have monopolies that work out OK are where there's heavy government regulation, and even there the results are never as good as an industry where there's highly competitive private industry; it's just that, for some things, having a regulated monopoly is better than the alternative: we see this for utilities, subways, etc. where competition doesn't really make any sense or just isn't feasible (you can't really have 5 different subway lines going between the same 2 points in a dense city).
In reality, humans are frequently lazy, corrupt, incompetent, etc., and so in a market where there's healthy competition, the presence of competition provides a check against these problems, giving consumers an alternative when one player screws up too much. With a monopoly, there is no alternative, and no incentive to do better, unless it's being heavily controlled by the government which has to respond to voters.
>Marx had a lot of ideas; some of them were probably good. Involving workers in the ownership of companies seems like a good idea even if Marx supported it.
I'm not saying otherwise. In fact, a lot of Marx ideas were good. He also famously said "I'm not a marxist".
Any company where the CEO makes over 25 times the average worker is mismanaged. Are they honestly suggesting that the CEO gets 200 times more work in, or has 200 times the experience, or maybe 200 times the connections? Or some combination? Which is it?
What the CEO really has is 200x the affect on the company. A 15m bonus for a CEO may sound ridiculous but if picking that CEO led the company to 50m increase in revenue over an average CEO than it was well worth it to hire them.
Or at least, that's how CEOs sell themselves. I think that idea makes sense, but only if the company does well. If it doesn't the execs still have the power to grant themselves massive bonuses before the shareholders can react.
It's kind of like the classic 2% fee investment manager, they'll say they are the best at what they do, when of course they almost never beat the market. Still, regardless of how they do, they make bank. I think what really needs to happen is people need to learn to stop trusting people just because they talk smooth and make an optimistic pitch, and start focusing executive salaries on being entirely results based, with only a modest base salary.
If I've learned anything in my life, it's that confidence trumps competence when it comes to most people making judgement evaluations. People love confidence and falsely correlate it with competence (maybe it's an old survival trait we humans inherited before manipulative language came about).
If you're competent, you likely hesitate because most cases are truly not clear cut when viewed through a lens of knowledge with a conscious.
It's easy to come off as confident when you're ignorant or know that simply appearing confident has a positive effect. The real key is to be competent and hide your hesitations/in decisions with confidence. The real problem is discerning which a person is: ignorant, manipulative, or a great leader--so confidence isn't a good measure for me. The only good measure is a historical record of good decisions or clear communication from leadership.
I really like this thoughtful reply. One thing to add: it's unlikely that the CEO's performance will change that much after a certain payout. S/he will likely put in the same effort beyond some compensation figure, if only because most want to succeed first and foremost for their pride.
A CEO who acts like a true owner would know this and reallocate salaries as needed to keep employees happy and motivated.
I agree, the best CEO would slash their salary when the going got rough. However, there's no system to keep them accountable to this, so it doesn't happen except in places like Japan, where there's a culture around it.
Creative destruction in practice. Older firms like Oracle / SAP reducing headcount, while newer firms are adding headcount with a net increase in high quality jobs.
I think the only thing these workers have in common are area code 650 phones. A consultant for SAP, a cloud architect at Oracle, a fraud analyst at Paypal and a Whole Foods shopper at Instacart have essentially zero overlap in their day to day activities.
When you drive down to San Jose you'll see several companies with a SAP logo who have been bought in the last 10 years in the HR space, e.g. SuccessFactors (2011).
It always amazes how bad enterprise systems can be. My company uses SuccessFactors and also a thing called Windchill. After seeing how convoluted Windchill is you will think that SuccessFactors is actually quite decent. Kronos is also a great case study in terrible design.
Working at a startup that does b2b software it's pretty clear. "Tail wags the dog" development and placing the highest priority on C-level personal relationships
- Enterprise software CEOs are more likely to come from Sales than their consumer counterparts.
- Enterprise software has more lock-in. Ones the market is saturated, their best financial move frequently is to milk the existing base rather than improve things. (This is why one should avoid long term contracts like the plague)
For Oracle this is a tiny change : <200 laid off of a work force of 140,000 globally. Instacart seems to be a much bigger proportional change, due to the termination of its relationship with Whole Foods.
Mismanaged incentives - employees don't matter, just shareholders.