How the cult of shareholder value wrecked American business

[CaliforniaMan]

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These efforts always seem absurd to me. All of this effort to make the company look just a bit better than normal operations would have shown. Why not just "take the hit" one time and use all of those "resources" to do something productive?

+1
What you say makes too much sense. If it were your own business this is of course what you would do. Maybe better for tax reasons too.

But I am guessing in their case, that the "resources" they could save are from those that put in the effort to do this juggling. If they really wanted to increase the efficiency of the operation they would lay themselves off, which seems a bit unlikely.

 

[clifp]

By nature of their business, high tech (don't mean megacorps acting more like Dow companies) companies are very short term focused. Stock options & short term incentives make management greedy, selfish, and very short-term focused. In 2006 - 2012, my megacorp's average tenure for VP position was just little over 12 months and they knew that. No one was making long term decisions. (One of my favorite Dilbert moment is when the entire company scurries to get a few customer orders recognized in the last days of quarter so that the ensuing quarterly earnings report can look 0.1% better. Employees are reminded to log their vacation hours before the quarter end. Purchase orders are moved to next quarter. It's like they forget there is one more quarter after the current one. )

Obviously startups have a different mentally which is far more focused on the short-term. I remember a friend of mine started a business, and he was like working out his sabbatical policy. I laughed at him and said, "I'm pretty sure the most important aspect of a sabbatical policy is to stay in business for a 5 or 7 years!." (He didn't)

End of quarter scrambling and shenanigans are very common, but I think they have been with us forever or at least 30 years. When it comes to earnings estimates beating by a $.01 is way way better than missing by $.01. But it is not corporate managers that should take the blame for this it us investor. We are the ones the punish a companies stock price for missing by a penny.

I'll point out completely missing in my list of long-term focused companies are any financial firms. Vanguard probably qualifies and Wells Fargo seem to avoid doing particular stupid actions, but the rest of the banking and investment firms were certainly guilty of awful short term thinking. The only good thing is that most of the worst offenders are now gone and absorbed by slightly better companies like Wells Fargo or JP Morgan.

Poorly designed annual bonus do cause managers to behave in particularly stupid fashion. But I think stock options which typical vest over 4 to 5 years tend reward longer term thinking. In many meeting at Intel someone I've heard hey we are all stockholders here lets trying and to the right think for the company, not our department." Friends at Google and Tesla have told me similar stories.

 

[robnplunder]

Both of my megacorps (acquired, and acquirer) are very short term focused. Going back to my example, many log OT to ship one more order out the the door before quarter end. Quarterly revenue far exceeds multi-billion $. The last minute scramble can add at mere millions to the quarter's revenue. I.e, it won't make a dent. What don't make this quarter will contribute to the next quarter's revenue - a zero sum game. It's a Dilbert moment no matter how I look at it.

I understand that start up company needs to do it as their next funding can depend on this quarter's result, a single customer order can make or break the quarter's revenue target, etc.. When multip-billion dollar company does it, it's almost comical.

 

[brewer12345]

I'll point out completely missing in my list of long-term focused companies are any financial firms. Vanguard probably qualifies and Wells Fargo seem to avoid doing particular stupid actions, but the rest of the banking and investment firms were certainly guilty of awful short term thinking. The only good thing is that most of the worst offenders are now gone and absorbed by slightly better companies like Wells Fargo or JP Morgan.

I think you need to cast your net a little wider. There are definitely some long term focused financial firms out there. Not that many in the banking industry, but I would throw out M&T as a stand-out there. Raymond James in the broker/dealer space (I remember Mr. James basically calling a sell side analyst an idiot on a conference call after he grew tired of explaining that RJ did not have all the toxic garbage that took down other firms). It is easier to find examples in the insurance industry. Axis Capital, Protective Life, the old Commerce Group before they sold out, and a slew of others, plus many mutuals.

 

[Alan]

A few years ago we went on a short history tour of the southern part of WV where the "coal mine wars" started. The working conditions were something that are considered "brutal third world" in the U.S. now, and probably not much different than get people aghast at China and North Korea now.

It was an enlightening and interesting history lesson. 12-year-old boys were considered expendable fodder for the mines. While there have since been excesses on the part of unions, there is left little doubt that they were needed in that time and place.

That photo could have been from England in 1939, with my Dad in the photo, but he was 14 years old when he started there. He worked at the same coal mine for 46 years and saw huge improvements over the years before he retired in 1985, with the mine closing down a few years later.

There was in no doubt in his mind that the improvements of terrible working conditions of the 40's and 50's were not done because the kind-hearted owners were feeling sorry for their workforce.

 

[samclem]

There is something magical that happens when employer and employees trust each other and realize that by working together they will all benefit.

I'd think that the smaller the company/team/group, the more likely it is that this type trust might develop. It's not the product of a megacorp "values statement" or official policy.
I pretty much soured on the idea of trust and loyalty to institutions (with a few exceptions), but I very much believe in loyalty to people and principles.

 

[CaliforniaMan]

I'd think that the smaller the company/team/group, the more likely it is that this type trust might develop. It's not the product of a megacorp "values statement" or official policy.
I pretty much soured on the idea of trust and loyalty to institutions (with a few exceptions), but I very much believe in loyalty to people and principles.

+1
This has been my experience too, mostly in small companies. And when those small companies were acquired the 'magic' disappeared. The one time it happened in my experience in a megacorp, it was in a small autonomous group. But after it appeared to be more successful than other groups in the mix, management began to take notice, and render it 'harmless'.

One interesting observation. When a big company acquires a smaller one, it is usually because they are impressed with the people and products. But it seems to me, never with the management that produced those people and products. It is more like, hey WE bought you. Now you have to do it our way, a way much different than what produced what they bought.

One time a group I was working with got bought out and I remember telling the engineering manager, 18 months and the originals will be gone. It turned out I was wrong, it was closer to 24 months.