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(Washington Post)   How the mantra of "maximizing shareholder value" is destroying American business   (washingtonpost.com) divider line 80
    More: Obvious, Americans, shareholder value, fiduciary duties, public purpose, time horizon, shareholders, corporate governance  
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3107 clicks; posted to Business » on 09 Sep 2013 at 4:52 PM (49 weeks ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-09-09 03:36:18 PM
You mean looting and raping everything in sight is actually bad for your economy?! Wow...I mean who knew right? Lesso learned there guys....right on!
 
vpb [TotalFark]
2013-09-09 04:30:01 PM
Well, it's pretty obvious.  If the people who run a business are more concerned with short term price spikes than building a successful company long term then you get the corporate culture that we have now.
 
2013-09-09 04:36:17 PM
The other day I was talking to a broker friend of mine. I wondered aloud something like "If you made $1B this quarter, why is it life-or-death to make $2B next quarter? Why is making $1B per quarter not good enough? You have a farking BILLION in profits, and assuming costs aren't spiking elsewhere, I'd call that a solid business, not 'opportunity for improvement'." He looked at me like I'd just advocated the wholesale killing of newborns by drowning them in mom's breastmilk.

I mean, I get that businesses "need" to grow to survive, but doesn't that apply more to smaller-scale operations and not, e.g., Chipotle?

// cut costs where you can, but is it verboten to say there's really no more fat to trim, or that diminishing returns means we're spending 6+ figures per year to root out an essentially equivalent sum and THAT's wasteful?
 
2013-09-09 04:41:31 PM
Now that that's out in the open, things will change!  The free market will respond to the benefit of mankind!
 
2013-09-09 05:01:07 PM
Derpy article is derpy.

Of course businesses are in it for the money and the maximization of the value to owners. That applies now, it applied 30 years ago, it applied during the industrial revolution, it applies to all for profit business everywhere forever.

This idea that business owe something back to society over and above the employment, taxes, and product they provide is an unrealistic fantasy put forth by naive idiots.
 
2013-09-09 05:05:20 PM

Dr Dreidel: The other day I was talking to a broker friend of mine. I wondered aloud something like "If you made $1B this quarter, why is it life-or-death to make $2B next quarter? Why is making $1B per quarter not good enough? You have a farking BILLION in profits, and assuming costs aren't spiking elsewhere, I'd call that a solid business, not 'opportunity for improvement'." He looked at me like I'd just advocated the wholesale killing of newborns by drowning them in mom's breastmilk.

I mean, I get that businesses "need" to grow to survive, but doesn't that apply more to smaller-scale operations and not, e.g., Chipotle?

// cut costs where you can, but is it verboten to say there's really no more fat to trim, or that diminishing returns means we're spending 6+ figures per year to root out an essentially equivalent sum and THAT's wasteful?


He looked at you like that because its a silly question.

A business is valued based upon its expected future profitability. If investors see a company making $1b per quarter, and expect earnings to improve by 15% per year, they will value it much higher than if they didt expect earnings to grow.

$1b is just a meaningless number you threw out there. You don't know how many owners there are. Your proportionate share in the company in your 401k or whatever might be 1/ten millionth of that, or $100. Would you rather have $100 every quarter or would you prefer that the managers try to improve that number over time?
 
2013-09-09 05:08:40 PM

Debeo Summa Credo: Derpy article is derpy.

Of course businesses are in it for the money and the maximization of the value to owners. That applies now, it applied 30 years ago, it applied during the industrial revolution, it applies to all for profit business everywhere forever.

This idea that business owe something back to society over and above the employment, taxes, and product they provide is an unrealistic fantasy put forth by naive idiots.


Exactly! Morality and ethics have no place in business! It's not like human beings...you know.. matter. Not in the next quarter, anyway.

/fark you
 
2013-09-09 05:12:30 PM

I_Am_Weasel: Now that that's out in the open, things will change!  The free market will respond to the benefit of mankind!


The free market "will" respond?

Not only did it respond it already benefitted some mankind.
And it only benefitted the right people.
It is just that damn efficient.

//It knows all and it sees all
 
2013-09-09 05:12:52 PM
Greed is good.
 
2013-09-09 05:14:04 PM

I_Am_Weasel: Now that that's out in the open, things will change!  The free market will respond to the benefit of mankind!


That was my reaction.
 
2013-09-09 05:16:23 PM

Debeo Summa Credo: Derpy article is derpy.

Of course businesses are in it for the money and the maximization of the value to owners. That applies now, it applied 30 years ago, it applied during the industrial revolution, it applies to all for profit business everywhere forever.

This idea that business owe something back to society over and above the employment, taxes, and product they provide is an unrealistic fantasy put forth by naive idiots.


Part time minimum wage employment, tax dodges, and cheap, fall apart crap.

Yeah, that's about what we deserve.

For letting them exist.
 
2013-09-09 05:18:37 PM
"A recent study by the consultants at McKinsey & Co. and Canada's public pension board found alarming levels of short-termism in the corporate executive suite. "

That's some funny stuff right there, coming from McKinsey.
 
2013-09-09 05:18:56 PM

Debeo Summa Credo: Dr Dreidel: The other day I was talking to a broker friend of mine. I wondered aloud something like "If you made $1B this quarter, why is it life-or-death to make $2B next quarter? Why is making $1B per quarter not good enough? You have a farking BILLION in profits, and assuming costs aren't spiking elsewhere, I'd call that a solid business, not 'opportunity for improvement'." He looked at me like I'd just advocated the wholesale killing of newborns by drowning them in mom's breastmilk.

I mean, I get that businesses "need" to grow to survive, but doesn't that apply more to smaller-scale operations and not, e.g., Chipotle?

// cut costs where you can, but is it verboten to say there's really no more fat to trim, or that diminishing returns means we're spending 6+ figures per year to root out an essentially equivalent sum and THAT's wasteful?

He looked at you like that because its a silly question.

A business is valued based upon its expected future profitability. If investors see a company making $1b per quarter, and expect earnings to improve by 15% per year, they will value it much higher than if they didt expect earnings to grow.

$1b is just a meaningless number you threw out there. You don't know how many owners there are. Your proportionate share in the company in your 401k or whatever might be 1/ten millionth of that, or $100. Would you rather have $100 every quarter or would you prefer that the managers try to improve that number over time?


When did our economy fully transition from companies providing goods and services to people betting on those companies?

From capitalism to casino?

Why is stock price worth more than all else any more?
 
2013-09-09 05:24:39 PM
Maximizing shareholder value is probably one of the most important aspects in a business...but only over the long term.  Maximizing short term shareholder value is farking stupid, because frequently to do so you have to do things that hurt the company over the long term.
 
2013-09-09 05:28:24 PM

Geotpf: Maximizing shareholder value is probably one of the most important aspects in a business...but only over the long term.  Maximizing short term shareholder value is farking stupid, because frequently to do so you have to do things that hurt the company over the long term.


Been there, seen that. 20 years of working for Fortune 500 companies.
 
2013-09-09 05:41:15 PM

simplicimus: Geotpf: Maximizing shareholder value is probably one of the most important aspects in a business...but only over the long term.  Maximizing short term shareholder value is farking stupid, because frequently to do so you have to do things that hurt the company over the long term.

Been there, seen that. 20 years of working for Fortune 500 companies.


Good thing bonuses are tied to short term gains! No worries! The "top talent" can still get paid, and just leave in a couple of years to run another company.

Because isn't paying them what really matters?
 
2013-09-09 05:46:28 PM

Debeo Summa Credo: Derpy article is derpy.

Of course businesses are in it for the money and the maximization of the value to owners. That applies now, it applied 30 years ago, it applied during the industrial revolution, it applies to all for profit business everywhere forever.

This idea that business owe something back to society over and above the employment, taxes, and product they provide is an unrealistic fantasy put forth by naive idiots.


Yeah.  Naive idiots like Adam Smith.

Good one.
 
2013-09-09 05:53:45 PM

sendtodave: simplicimus: Geotpf: Maximizing shareholder value is probably one of the most important aspects in a business...but only over the long term.  Maximizing short term shareholder value is farking stupid, because frequently to do so you have to do things that hurt the company over the long term.

Been there, seen that. 20 years of working for Fortune 500 companies.

Good thing bonuses are tied to short term gains! No worries! The "top talent" can still get paid, and just leave in a couple of years to run another company.

Because isn't paying them what really matters?


Yep. Next business report in the news, Hay Group says Executive salaries are too high.
By the way, whose label do you want on your next Foxconn computer?
 
2013-09-09 05:54:02 PM
The, "We can't just let it be" approach.  Profit only up 10%, meaning 6% with inflation?  NOT GOOD ENOUGH! CHANGE THE BUSINESS STRATEGY!!! REDO EVERYTHING!  PAY CUTS!
 
2013-09-09 06:11:29 PM

Kuroshin: Debeo Summa Credo: Derpy article is derpy.

Of course businesses are in it for the money and the maximization of the value to owners. That applies now, it applied 30 years ago, it applied during the industrial revolution, it applies to all for profit business everywhere forever.

This idea that business owe something back to society over and above the employment, taxes, and product they provide is an unrealistic fantasy put forth by naive idiots.

Yeah.  Naive idiots like Adam Smith.

Good one.



He's also arguing with Jack Welch and Paul Drucker.
 
2013-09-09 06:11:31 PM
Corporations used to be family affairs, passed down from generation to generation.  Joe Ford had an incentive not to burn the company down, he expected his kids to run the place.  These days nobody has any personal stakes other than their compensation.  Even doing a bad job doesn't hurt you, you are now "experienced".
 
2013-09-09 06:19:42 PM

Incontinent_dog_and_monkey_rodeo: Corporations used to be family affairs, passed down from generation to generation.  Joe Ford had an incentive not to burn the company down, he expected his kids to run the place.  These days nobody has any personal stakes other than their compensation.  Even doing a bad job doesn't hurt you, you are now "experienced".


Now you'd expect the kids to burn down the place.
 
2013-09-09 06:21:10 PM
Any compensation that is not taxed at straight up "Income" levels should have a 5 year (minimum) horizon.  It's farking bullshiat to give someone options they can exercise in 6 months on short term movements AND THEN get taxed at 15% because it's capital gains.  You want to play that game you should be paying 30%+ like everyone else.
 
2013-09-09 06:40:17 PM

seniorgato: The, "We can't just let it be" approach.  Profit only up 10%, meaning 6% with inflation?  NOT GOOD ENOUGH! CHANGE THE BUSINESS STRATEGY!!! REDO EVERYTHING!  PAY CUTS!


Well, if you're someone investing your money in a company, that's not much more than sticking it in a safe long-term saving bond.

But the author's point is more important: pursuing profit doesn't really work. It's pursuing customers, making sure they're happy, come back for more, tell their friends how good you are that does. And as long as you've got a margin in the dealing with that customer, you make money.

I always try to make sure my customers are happy. I'd rather cut half my margin on one job to make sure the customer is happy, than think "shiat, how do I exploit this to make the other half back". Because I'd much rather make sure the customer feels he got a good deal, so he comes back again.
 
2013-09-09 06:58:01 PM
Devils advocate: All long term retirement assets are in the equities market. No retirement scheme (public,private, defined benefit, defined contribution) requires a 6-9% return to be fully funded.

What happens when the returns driving the growth in equity values stalls?
 
2013-09-09 07:11:28 PM

b2theory: Devils advocate: All long term retirement assets are in the equities market. No retirement scheme (public,private, defined benefit, defined contribution) requires a 6-9% return to be fully funded.

What happens when the returns driving the growth in equity values stalls?


Not true. Property and commodities are also available through ETF funds, not to mention the massive bond market. And in bonds you have 4 levels of government bonds (federal, state, city, and county - in the USA anyway), corporate bonds, and asset backed bonds like those for mortgages, credit cards, car loans, etc. And probably some others that I am forgetting.
 
2013-09-09 07:15:03 PM

dsmith42: b2theory: Devils advocate: All long term retirement assets are in the equities market. No retirement scheme (public,private, defined benefit, defined contribution) requires a 6-9% return to be fully funded.

What happens when the returns driving the growth in equity values stalls?

Not true. Property and commodities are also available through ETF funds, not to mention the massive bond market. And in bonds you have 4 levels of government bonds (federal, state, city, and county - in the USA anyway), corporate bonds, and asset backed bonds like those for mortgages, credit cards, car loans, etc. And probably some others that I am forgetting.


You're right that "not all assets are in equities" but retirement funds represent the vast majority of share holders.

That correction noted: my statement stands.
 
2013-09-09 07:22:55 PM

dsmith42: b2theory: Devils advocate: All long term retirement assets are in the equities market. No retirement scheme (public,private, defined benefit, defined contribution) requires a 6-9% return to be fully funded.

What happens when the returns driving the growth in equity values stalls?

Not true. Property and commodities are also available through ETF funds, not to mention the massive bond market. And in bonds you have 4 levels of government bonds (federal, state, city, and county - in the USA anyway), corporate bonds, and asset backed bonds like those for mortgages, credit cards, car loans, etc. And probably some others that I am forgetting.


I went looking. The only examples I found indicate that a typical pension will have ~40% exposure to equities. It represents one of the largest if not the largest asset class for pensions (I am sure there is a wide spread).
 
2013-09-09 07:36:39 PM

b2theory: dsmith42: b2theory: Devils advocate: All long term retirement assets are in the equities market. No retirement scheme (public,private, defined benefit, defined contribution) requires a 6-9% return to be fully funded.

What happens when the returns driving the growth in equity values stalls?

Not true. Property and commodities are also available through ETF funds, not to mention the massive bond market. And in bonds you have 4 levels of government bonds (federal, state, city, and county - in the USA anyway), corporate bonds, and asset backed bonds like those for mortgages, credit cards, car loans, etc. And probably some others that I am forgetting.

I went looking. The only examples I found indicate that a typical pension will have ~40% exposure to equities. It represents one of the largest if not the largest asset class for pensions (I am sure there is a wide spread).


I went looking too because you sparked my interest. It does look like equities generally have ~10 - 15% edge on bonds, generally. I found a 40 page pdf report on global pension, if you are interested.

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=r ja &ved=0CCoQFjAA&url=http%3A%2F%2Fwww.towerswatson.com%2FDownloadMedia.a spx%3Fmedia%3D%257B5AC4BED2-A4F9-4C9E-AB9D-5087579BF96D%257D&ei=OlsuUt OWJtO24APzgYGwBw&usg=AFQjCNEMRZiMCt5f62Iyq-x_bm8GkCz27g&sig2=bmGgurRcp 2VMcxmW2hNF6w
 
2013-09-09 07:36:51 PM

Cubicle Jockey: Kuroshin: Debeo Summa Credo: Derpy article is derpy.

Of course businesses are in it for the money and the maximization of the value to owners. That applies now, it applied 30 years ago, it applied during the industrial revolution, it applies to all for profit business everywhere forever.

This idea that business owe something back to society over and above the employment, taxes, and product they provide is an unrealistic fantasy put forth by naive idiots.

Yeah.  Naive idiots like Adam Smith.

Good one.


He's also arguing with Jack Welch and Paul Drucker.


Let's not forget John Rockefeller.  Not exactly a paragon of virtue, but even he would be appalled at what qualifies as a "Capitalist" these days.

Oh, and Henry Ford.
 
2013-09-09 07:40:31 PM

sendtodave: Debeo Summa Credo: Dr Dreidel: The other day I was talking to a broker friend of mine. I wondered aloud something like "If you made $1B this quarter, why is it life-or-death to make $2B next quarter? Why is making $1B per quarter not good enough? You have a farking BILLION in profits, and assuming costs aren't spiking elsewhere, I'd call that a solid business, not 'opportunity for improvement'." He looked at me like I'd just advocated the wholesale killing of newborns by drowning them in mom's breastmilk.

I mean, I get that businesses "need" to grow to survive, but doesn't that apply more to smaller-scale operations and not, e.g., Chipotle?

// cut costs where you can, but is it verboten to say there's really no more fat to trim, or that diminishing returns means we're spending 6+ figures per year to root out an essentially equivalent sum and THAT's wasteful?

He looked at you like that because its a silly question.

A business is valued based upon its expected future profitability. If investors see a company making $1b per quarter, and expect earnings to improve by 15% per year, they will value it much higher than if they didt expect earnings to grow.

$1b is just a meaningless number you threw out there. You don't know how many owners there are. Your proportionate share in the company in your 401k or whatever might be 1/ten millionth of that, or $100. Would you rather have $100 every quarter or would you prefer that the managers try to improve that number over time?

When did our economy fully transition from companies providing goods and services to people betting on those companies?

From capitalism to casino?

Why is stock price worth more than all else any more?


It hasn't transitioned. Earnings have always mattered and stock price is a derivative of earnings. Short termism causes inefficiencies from time to time at individual companies, but its an overblown concern. Investors do want to see earnings increase, which leads to short term massaging of earnings, but they also want to see evidence that companies can sustain growth and profitability.
 
2013-09-09 07:43:43 PM

Cubicle Jockey: Kuroshin: Debeo Summa Credo: Derpy article is derpy.

Of course businesses are in it for the money and the maximization of the value to owners. That applies now, it applied 30 years ago, it applied during the industrial revolution, it applies to all for profit business everywhere forever.

This idea that business owe something back to society over and above the employment, taxes, and product they provide is an unrealistic fantasy put forth by naive idiots.

Yeah.  Naive idiots like Adam Smith.

Good one.


He's also arguing with Jack Welch and Paul Drucker.


Jack welch? The guy who massaged GEs earnings so there earnings increased for something like 40 consecutive quarters?

He is the poster child for earnings management.

Short term earnings management is not good, but it is a side issue. Management is absolutely concerned with long term growth prospects, which the author fails to understand r recognize in his zeal to blame corporations for some perceived problem.
 
2013-09-09 07:44:30 PM

Debeo Summa Credo: It hasn't transitioned. Earnings have always mattered and stock price is a derivative of earnings. Short termism causes inefficiencies from time to time at individual companies, but its an overblown concern. Investors do want to see earnings increase, which leads to short term massaging of earnings, but they also want to see evidence that companies can sustain growth and profitability.


I mostly agree, but there are have been some companies out there with insane P/E ratios whose stock was purchased.
 
2013-09-09 07:48:18 PM

simplicimus: Debeo Summa Credo: It hasn't transitioned. Earnings have always mattered and stock price is a derivative of earnings. Short termism causes inefficiencies from time to time at individual companies, but its an overblown concern. Investors do want to see earnings increase, which leads to short term massaging of earnings, but they also want to see evidence that companies can sustain growth and profitability.

I mostly agree, but there are have been some companies out there with insane P/E ratios whose stock was purchased.


You don't have to use past tense. Isn't Facebook trading at 100X earnings?
 
2013-09-09 08:02:20 PM

b2theory: simplicimus: Debeo Summa Credo: It hasn't transitioned. Earnings have always mattered and stock price is a derivative of earnings. Short termism causes inefficiencies from time to time at individual companies, but its an overblown concern. Investors do want to see earnings increase, which leads to short term massaging of earnings, but they also want to see evidence that companies can sustain growth and profitability.

I mostly agree, but there are have been some companies out there with insane P/E ratios whose stock was purchased.

You don't have to use past tense. Isn't Facebook trading at 100X earnings?


P/E ratio 200.1 for facebook, Google is only 27.2.
 
2013-09-09 08:09:14 PM

vpb: Well, it's pretty obvious.  If the people who run a business are more concerned with short term price spikes than building a successful company long term then you get the corporate culture that we have now.


And why would they be that way unless shareholders are making them? Like electing crooks, morons, and power-mad nutballs gets us the government we deserve, shareholders demanding short-term profits gets them the management they deserve. If you want different, put your money into companies that run things the way you think they should be run. Problem solved.
 
2013-09-09 08:25:52 PM

simplicimus: b2theory: simplicimus: Debeo Summa Credo: It hasn't transitioned. Earnings have always mattered and stock price is a derivative of earnings. Short termism causes inefficiencies from time to time at individual companies, but its an overblown concern. Investors do want to see earnings increase, which leads to short term massaging of earnings, but they also want to see evidence that companies can sustain growth and profitability.

I mostly agree, but there are have been some companies out there with insane P/E ratios whose stock was purchased.

You don't have to use past tense. Isn't Facebook trading at 100X earnings?

P/E ratio 200.1 for facebook, Google is only 27.2.


Yeah, sorry about that. I used both accounts to "Like" Facebook. Their popularity soared and the market saw that as confidence.

Tomorrow I may remove my "Like" status of IBM, so be ready to short.
 
2013-09-09 08:33:24 PM

Snarcoleptic_Hoosier: simplicimus: b2theory: simplicimus: Debeo Summa Credo: It hasn't transitioned. Earnings have always mattered and stock price is a derivative of earnings. Short termism causes inefficiencies from time to time at individual companies, but its an overblown concern. Investors do want to see earnings increase, which leads to short term massaging of earnings, but they also want to see evidence that companies can sustain growth and profitability.

I mostly agree, but there are have been some companies out there with insane P/E ratios whose stock was purchased.

You don't have to use past tense. Isn't Facebook trading at 100X earnings?

P/E ratio 200.1 for facebook, Google is only 27.2.

Yeah, sorry about that. I used both accounts to "Like" Facebook. Their popularity soared and the market saw that as confidence.

Tomorrow I may remove my "Like" status of IBM, so be ready to short.


Does this count as insider information?
 
2013-09-09 09:09:38 PM

simplicimus: Debeo Summa Credo: It hasn't transitioned. Earnings have always mattered and stock price is a derivative of earnings. Short termism causes inefficiencies from time to time at individual companies, but its an overblown concern. Investors do want to see earnings increase, which leads to short term massaging of earnings, but they also want to see evidence that companies can sustain growth and profitability.

I mostly agree, but there are have been some companies out there with insane P/E ratios whose stock was purchased.


Right. Stocks have high PE ratios because investors recognize that the company is going to grow and they expect earnings to grow in the future. Investors aren't looking only at quarterly earnings but long term growth potential.

Reinforces my point.
 
2013-09-09 09:10:27 PM

Debeo Summa Credo: Cubicle Jockey: Kuroshin: Yeah.  Naive idiots like Adam Smith.

Good one.


He's also arguing with Jack Welch and Paul Drucker.

Jack welch? The guy who massaged GEs earnings so there earnings increased for something like 40 consecutive quarters?

He is the poster child for earnings management.

Short term earnings management is not good, but it is a side issue. Management is absolutely concerned with long term growth prospects, which the author fails to understand r recognize in his zeal to blame corporations for some perceived problem.


Short-term management is exactly what many are doing today.  There is no doubt about this.  Long-term growth is simply projected based on short-term results, without regard to sustainability.  Look at what happened to AT&T, what is happening to Microsoft, what Apple does repeatedly, and what the likes of Activision and Electronic Arts get up to. (can you see a trend in my businesses?  yeah, I know...)  AT&T Wireless was run into the ground prior to their purchase by SBC, literally because of what you're denying.  SBC is on their way as well.

Quarters are all that matter.  If a quarter is down, lay off some employees or close a branch.  The answer is never to redouble efforts to expand the market share, and tough-out the hard times while doing your damndest to innovate.  Nope, it's always "we've not met sales projections, so time to cut costs by sending pink slips while simultaneously increasing executive compensation."

I wouldn't care about executive compensation one bit if it weren't coming at the expense of the company at-large.  But when big business lets loose 10,000 employees, that's 10,000 fewer customers they have.  When ten companies let loose 10,000 employees, that's 100,000 customers that none of them have any longer.  The mentality is always "that's somebody else's problem."  Part of business is cultivating your customer base, by not only employing people, but paying them wages capable of supporting them and simultaneously allowing them to afford purchasing your products.  Henry Ford taught this lesson very clearly.

Capitalism doesn't work when the elite strip-mine the economy.  That's where we're at now.  Our economy has been strip-mined, and now there's nothing left but a giant hole.  We have to wait for natural (read: Federal) forces fill that hole back in before it can be mined again.  Economies are ecosystems.  They have to be carefully maintained, and if you don't want massive regulation, the businesses have to maintain that ecosystem of their own volition.

You advocate strip-mining.  You are an enemy of Capitalism.  You and your ilk are directly responsible for where our economy sits today.
 
2013-09-09 09:18:26 PM
This may be a stupid question, but why are the stockholders so special and why does the company have to cater to them?

Just because somebody holds stock in a company does that mean he's an investor?  Buying stock in during an IPO is an investment for that company because they can use the proceeds from the sale to build the business, I get that.   But once that IPO is over, and I buy say 100 shares of Facebook, the money I put for the stock doesn't really get back to them to improve the business.  Sure, I have stake in their success, but I really didn't invest in them did I?

IMO, I'm not really investing or creating jobs or really doing anything for the company who's stock I own - so why are they so concerned with pleasing me rather than building the business?
 
2013-09-09 09:22:04 PM

kevinfra: This may be a stupid question, but why are the stockholders so special and why does the company have to cater to them?

Just because somebody holds stock in a company does that mean he's an investor?  Buying stock in during an IPO is an investment for that company because they can use the proceeds from the sale to build the business, I get that.   But once that IPO is over, and I buy say 100 shares of Facebook, the money I put for the stock doesn't really get back to them to improve the business.  Sure, I have stake in their success, but I really didn't invest in them did I?

IMO, I'm not really investing or creating jobs or really doing anything for the company who's stock I own - so why are they so concerned with pleasing me rather than building the business?


Short answer: the executives directly profit from stock prices. They aren't really concerned with you.
 
2013-09-09 09:33:52 PM

Debeo Summa Credo: sendtodave: Debeo Summa Credo: Dr Dreidel: The other day I was talking to a broker friend of mine. I wondered aloud something like "If you made $1B this quarter, why is it life-or-death to make $2B next quarter? Why is making $1B per quarter not good enough? You have a farking BILLION in profits, and assuming costs aren't spiking elsewhere, I'd call that a solid business, not 'opportunity for improvement'." He looked at me like I'd just advocated the wholesale killing of newborns by drowning them in mom's breastmilk.

I mean, I get that businesses "need" to grow to survive, but doesn't that apply more to smaller-scale operations and not, e.g., Chipotle?

// cut costs where you can, but is it verboten to say there's really no more fat to trim, or that diminishing returns means we're spending 6+ figures per year to root out an essentially equivalent sum and THAT's wasteful?

He looked at you like that because its a silly question.

A business is valued based upon its expected future profitability. If investors see a company making $1b per quarter, and expect earnings to improve by 15% per year, they will value it much higher than if they didt expect earnings to grow.

$1b is just a meaningless number you threw out there. You don't know how many owners there are. Your proportionate share in the company in your 401k or whatever might be 1/ten millionth of that, or $100. Would you rather have $100 every quarter or would you prefer that the managers try to improve that number over time?

When did our economy fully transition from companies providing goods and services to people betting on those companies?

From capitalism to casino?

Why is stock price worth more than all else any more?

It hasn't transitioned. Earnings have always mattered and stock price is a derivative of earnings. Short termism causes inefficiencies from time to time at individual companies, but its an overblown concern. Investors do want to see earnings increase, which leads to short term massaging of earnings, but they also want to see evidence that companies can sustain growth and profitability.


When I watched the educational video on why capitalism is better than communism (I think it was narrated by Reagan), I was told that its because the smiling grocer down the street can provide better goods and services for his community.

I couldn't find him listed on the stock exchange, unfortunately. In fact, I couldn't find him any more, either. Only a Walmart.

They're doing pretty well.

We've sucked the soul out of the system.
 
2013-09-09 10:23:56 PM

kevinfra: This may be a stupid question, but why are the stockholders so special and why does the company have to cater to them?


It's their "fiduciary duty" and stockholders can hold executives responsible in court for not bending to their wishes, as per Supreme Court decision.

Who would have guessed that stockholders investing money instead of soul into companies all around the country, likely never actually buying a product at all, many not even knowing what companies they even invest in, who want nothing but more money quarter over quarter would have repercussions of this nature and scale? In a sense, you can't blame executives since they are required by law to be subject to stockholders. It just gets pretty crazy when you realize that the executives don't actually care about the company and won't make a case to stockholders to take the company in the right direction, just one that will get them the most money by getting the stockholders the most money. It's just an automatic given now.
 
2013-09-09 10:25:23 PM

Kuroshin: Debeo Summa Credo: Cubicle Jockey: Kuroshin: Yeah.  Naive idiots like Adam Smith.

Good one.


He's also arguing with Jack Welch and Paul Drucker.

Jack welch? The guy who massaged GEs earnings so there earnings increased for something like 40 consecutive quarters?

He is the poster child for earnings management.

Short term earnings management is not good, but it is a side issue. Management is absolutely concerned with long term growth prospects, which the author fails to understand r recognize in his zeal to blame corporations for some perceived problem.

Short-term management is exactly what many are doing today.  There is no doubt about this.  Long-term growth is simply projected based on short-term results, without regard to sustainability.  Look at what happened to AT&T, what is happening to Microsoft, what Apple does repeatedly, and what the likes of Activision and Electronic Arts get up to. (can you see a trend in my businesses?  yeah, I know...)  AT&T Wireless was run into the ground prior to their purchase by SBC, literally because of what you're denying.  SBC is on their way as well.

Quarters are all that matter.  If a quarter is down, lay off some employees or close a branch.  The answer is never to redouble efforts to expand the market share, and tough-out the hard times while doing your damndest to innovate.  Nope, it's always "we've not met sales projections, so time to cut costs by sending pink slips while simultaneously increasing executive compensation."

I wouldn't care about executive compensation one bit if it weren't coming at the expense of the company at-large.  But when big business lets loose 10,000 employees, that's 10,000 fewer customers they have.  When ten companies let loose 10,000 employees, that's 100,000 customers that none of them have any longer.  The mentality is always "that's somebody else's problem."  Part of business is cultivating your customer base, by not only employing people, but paying them wages capable of supporting them and simultaneously allowing them to afford purchasing your products.  Henry Ford taught this lesson very clearly.

Capitalism doesn't work when the elite strip-mine the economy.  That's where we're at now.  Our economy has been strip-mined, and now there's nothing left but a giant hole.  We have to wait for natural (read: Federal) forces fill that hole back in before it can be mined again.  Economies are ecosystems.  They have to be carefully maintained, and if you don't want massive regulation, the businesses have to maintain that ecosystem of their own volition.

You advocate strip-mining.  You are an enemy of Capitalism.  You and your ilk are directly responsible for where our economy sits today.


Almost everything you wrote is wrong.

What apple does repeatedly? They are an extraordinarily successful company that puts out quality products that people are loyal to and for which customers will pay premium prices.

There are always efforts to expand. The desire to grow has to be tempered with pragmatism and recognizing limitations. Trust me, CEOs would rather expand and hire than retrench. Much better for their egos.

Executive comp is an absolute red herring. It is still an immaterial expense for large corporations relative to overall comp or revenues. It is focused on by envious people who have no actual knowledge of business.

Companies drop employees when the value of those employees to the organization are less than the cost of employing them.

Henry ford didn't pay high wages so his employees would buy his product. That would be a retarded way to run a business as demonstrated by the fact that very few companies decide to pay double the prevailing wage. He did it because he felt paying a premium wage would improve the quality and retention of his workforce in an industry that was growing rapidly.

In short, you have no idea what you are talking about and are just spewing misinformed liberal derp. Like the author of TFA.
 
2013-09-09 10:31:48 PM

kevinfra: This may be a stupid question, but why are the stockholders so special and why does the company have to cater to them?

Just because somebody holds stock in a company does that mean he's an investor?  Buying stock in during an IPO is an investment for that company because they can use the proceeds from the sale to build the business, I get that.   But once that IPO is over, and I buy say 100 shares of Facebook, the money I put for the stock doesn't really get back to them to improve the business.  Sure, I have stake in their success, but I really didn't invest in them did I?

IMO, I'm not really investing or creating jobs or really doing anything for the company who's stock I own - so why are they so concerned with pleasing me rather than building the business?


Simply, because you are the owner of the business and are therefore their boss. If corporate management disregarded the best interest of the stockholders, stockholders would realize they are throwing their money away by investing in stock, and businesses would lose that source of capital funding, with obvious detrimental effects to the economy.

Regarding your secondary purchase of stock, you still own that proportional interest in the company. And if corporate management didn't pay attention to secondary owners, nobody would buy on the secondary market. If nobody bought on the secondary market, it would make it much less attractive to invest on the primary market (IPOs), with detrimental effects (see first paragraph)
 
2013-09-09 10:36:43 PM

sendtodave: Debeo Summa Credo: sendtodave: Debeo Summa Credo: Dr Dreidel: The other day I was talking to a broker friend of mine. I wondered aloud something like "If you made $1B this quarter, why is it life-or-death to make $2B next quarter? Why is making $1B per quarter not good enough? You have a farking BILLION in profits, and assuming costs aren't spiking elsewhere, I'd call that a solid business, not 'opportunity for improvement'." He looked at me like I'd just advocated the wholesale killing of newborns by drowning them in mom's breastmilk.

I mean, I get that businesses "need" to grow to survive, but doesn't that apply more to smaller-scale operations and not, e.g., Chipotle?

// cut costs where you can, but is it verboten to say there's really no more fat to trim, or that diminishing returns means we're spending 6+ figures per year to root out an essentially equivalent sum and THAT's wasteful?

He looked at you like that because its a silly question.

A business is valued based upon its expected future profitability. If investors see a company making $1b per quarter, and expect earnings to improve by 15% per year, they will value it much higher than if they didt expect earnings to grow.

$1b is just a meaningless number you threw out there. You don't know how many owners there are. Your proportionate share in the company in your 401k or whatever might be 1/ten millionth of that, or $100. Would you rather have $100 every quarter or would you prefer that the managers try to improve that number over time?

When did our economy fully transition from companies providing goods and services to people betting on those companies?

From capitalism to casino?

Why is stock price worth more than all else any more?

It hasn't transitioned. Earnings have always mattered and stock price is a derivative of earnings. Short termism causes inefficiencies from time to time at individual companies, but its an overblown concern. Investors do want to see earnings increase, which leads to short term massaging of earnings, but they also want to see evidence that companies can sustain growth and profitability.

When I watched the educational video on why capitalism is better than communism (I think it was narrated by Reagan), I was told that its because the smiling grocer down the street can provide better goods and services for his community.

I couldn't find him listed on the stock exchange, unfortunately. In fact, I couldn't find him any more, either. Only a Walmart.

They're doing pretty well.

We've sucked the soul out of the system.


You had to watch a video to learn that capitalism is superior to communism? Seriously? Did you need an educational film strip to realize that it's better to put your pants on before your shoes?
 
2013-09-09 10:43:47 PM

Flargan: I_Am_Weasel: Now that that's out in the open, things will change!  The free market will respond to the benefit of mankind!

The free market "will" respond?

Not only did it respond it already benefitted some mankind.
And it only benefitted the right people.
It is just that damn efficient.

//It knows all and it sees all




Why hello there John. How have you been?
upload.wikimedia.org

/flawed system
 
2013-09-09 10:48:13 PM

Fizpez: Any compensation that is not taxed at straight up "Income" levels should have a 5 year (minimum) horizon.  It's farking bullshiat to give someone options they can exercise in 6 months on short term movements AND THEN get taxed at 15% because it's capital gains.  You want to play that game you should be paying 30%+ like everyone else.


Large corps will use that to bury small ones, since so much money would be locked up. Not enough flexibility for small corps.
 
2013-09-09 10:49:36 PM
Executive comp is an absolute red herring. It is still an immaterial expense for large corporations relative to overall comp or revenues. It is focused on by envious people who have no actual knowledge of business.

Caterpillar recently made record sales. The CEO gave himself an 80% raise and then froze the worker pay. If you were a worker, how hard would you try to make quality equipment and increase sales next quarter when you will get nothing out of it? As an investor, how likely are you to put your money into a company where the employees have no motivation to increase sales or even maintain product quality? While the total amount doesn't matter much, the difference between CEO pay and average employee pay does. Too bad most companies refuse to give investors this bit of information.
 
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