How the cult of shareholder value wrecked American business

[samclem]

"Go back 200, 300 or 400 years and you find that most people did not work very long hours at all. In addition to relaxing during long holidays, the medieval peasant took his sweet time eating meals, and the day often included time for an afternoon snooze. “The tempo of life was slow, even leisurely; the pace of work relaxed,” notes Shor. “Our ancestors may not have been rich, but they had an abundance of leisure.” Fast-forward to the 21st century, and the U.S. is the only advanced country with no national vacation policy whatsoever. Many American workers must keep on working through public holidays, and vacation days often go unused."

How do they find places to publish this stuff?
First, modern Americans do get more leisure time than the typical person 400 years ago because they now generally live to be older than 40, and they'll get all those weekends, vacation days, and retirement days for the 30 or so extra years they are on the planet. We can thank our increased productivity and the specialization it allows (scientists, researchers, civil engineers, etc) for this.

Secondly, that guy 400 years ago (and a great many people in the world today) spent his (short) life in privation--malnourished, hungry, and with numerous unattended-to maladies. He "enjoyed" his leisure time in his dank shack wondering if the incessant pain in his jaw was his last tooth finally rotting out. It's the greater productivity of modern man that has made our lives much less clouded by these concerns.

Lastly, anyone in America who wants all the "leisure time" of his ancestors can have it. He can not go to work, do an odd job if the mood strikes him, live on the street, and depend on others for a warm meal and a place to stay at night. Today's "Urban Outdoorsman" actually has a much more comfortable existence than his medieval forebears. This option is open to everyone, but most people turn it down, instead deciding to trade their time for money and the things they can buy with it. I'm glad they have this choice, and I respect the wisdom shown by what people are choosing. If people 400 years ago had the same opportunity to trade time for the material goods and comfort we have today, I'm sure they would have made the same choice we do.

I think some people believe ancient life was like some never-ending Renaissance Pleasure Faire, every man with a turkey leg in his hand and every woman a damsel in finery.

And as for a lack of a "national vacation policy", I say "bravo"! Maybe there will be at least one thing that remains outside the government's realm of concern, one area where adults can make mutually beneficial agreements between themselves as they see fit . . . like adults.

 

[aja8888]

If you ever want to see how much leisure time we have as Americans, go visit a shopping mall during the Monday to Friday daytime working hours and see the crowds in it (after you get through the traffic jams to get there).

 

[CaliforniaMan]

...
I'd much prefer more free time over working for some corporation that had a manager like the guy in the latest Cadillac commercial -

Cadillac Made A Commercial About The American Dream, And It's A Nightmare

I remember seeing this commercial on TV. At first I thought it was a parody, like an SNL skit, thought the guy was going to get to his car and drop dead from a heart attack. Really. The last scene would be an ambulance taking him to the hospital, or a black limousine at his funeral. I found it hard to believe that anyone would have a positive feeling about buying a car after seeing this.

 

[daylatedollarshort]

How do they find places to publish this stuff?

This article is based on writings from people like Juliet Shor, author of the Overworked American and Overspent American.

Preindustrial workers worked fewer hours than today's

If you are looking for credentials:

Juliet Schor is Professor of Sociology at Boston College. Before joining Boston College, she taught at Harvard University for 17 years, in the Department of Economics and the Committee on Degrees in Women’s Studies. A graduate of Wesleyan University, Schor received her Ph.D. in economics at the University of Massachusetts.

Schor is a co-founder of the South End Press and the Center for Popular Economics. She is a former Trustee of Wesleyan University, an occasional faculty member at Schumacher College, and a former fellow of the Brookings Institution. Schor has lectured widely throughout the United States, Europe and Japan to a variety of civic, business, labor and academic groups. She appears frequently on national and international media, and profiles on her and her work have appeared in scores of magazines and newspapers, including The New York Times, Wall Street Journal, Newsweek, and People magazine. She has appeared on 60 Minutes, the Today Show, Good Morning America, The Early Show on CBS, numerous stories on network news, as well as many other national and local television news programs.

About Juliet | Juliet Schor

 

[Midpack]

Well, I have no data to back it up, but it seems reasonable that short term thinking (driven by the speed of the internet, CEOs getting short term rewards from their BOD friends, etc) has played a role. I'd say that globalization is just a factor in supply/demand.

I had P&L responsibility for the last half of my career, and I well remember first hand the pressure to turn in quarterly results, we couldn't even wait that long to get costs in line so we usually had 1-2 months to act. However, I was in a mature industry, where costs had been well wrung out already.

ERD said most of what I was going to say about the good old days not being as good as we might remember them..

I also disagree that big companies any more short term oriented now than there were 10,20, or 30 years ago. In fact I'd argue that the most successful companies have incredibly long term view more so than anytime in the past.

Now I think all firms probably practice earning tricks, but short term to me means sacrifice big long-term gains for small quarterly gains. Firing works doesn't count, scrimping on safety or environmental issues, canceling R&D, and not investing in new factories, maintenance. I don't think most big Oil (BP probably is/was the exception) companies are very short term oriented. They have tons of projects which will take 5,10 even 20 years to make money. Railroad companies invested record amounts this year in infrastructure and rolling stock.

Dow companies, like Disney, 3M, JNJ, GE, Walmart all have mutli-year R&D or new facilities scheduled who's pay off is until 5, 10 or even longer. Clearly if there were obsessed with quarterly return they would skimp on these projects, but I really don't see evidence that do considering their long term track record.
Obviously Warren Buffett is the classic long term investors, with his ideal holding period being forever.

But what really impresses me is the late 90s and 2000 era tech entrepreneurs. Amazon very seldom makes money, That is because Bezo is constantly investing all the money he makes selling books etc. into Warehouse, new product lines,and wacky ideas like drones for delivery of orders. The Google guys are upfront with their investors, telling them they are investing for the long term,and don't care about short term results. Looking at Google Labs it is pretty clear they have some long term projects. Facebook is maybe not so long term focused, but don't seem to be obsessed with hitting the numbers. There are some tech companies like Zynga which are very short term focus, but they seem to be dying.

Finally you have Elon Musk, who companies have really short term goals like, electrifying transportation in the world, and colonizing Mars..

I hope you're right, and I don't have a foundation to dispute your well reasoned POV. I know what the last 10-15 years have been like first hand (and through peers), but I did not have P&L responsibility 20-30 years ago. No matter how hard we try, we're probably all guilty of thick rose colored glasses when remembering the 'good old days' in all aspects of life.

 

[daylatedollarshort]

I remember seeing this commercial on TV. At first I thought it was a parody, like an SNL skit, thought the guy was going to get to his car and drop dead from a heart attack. Really. The last scene would be an ambulance taking him to the hospital, or a black limousine at his funeral. I found it hard to believe that anyone would have a positive feeling about buying a car after seeing this.

When I saw this commercial it almost seemed like a luxury auto maker was trying to counteract the message from forums like this - work more so you can afford to buy our luxury goods, instead of working less and using your money to buy free time. The whole thing was kind of weird.

I don't understand why a manufacturer competing in a global economy would want to identify their product with an unlikeable and xenophobic American.

 

[CaliforniaMan]

ERD said most of what I was going to say about the good old days not being as good as we might remember them..

I also disagree that big companies any more short term oriented now than there were 10,20, or 30 years ago. In fact I'd argue that the most successful companies have incredibly long term view more so than anytime in the past.
...

I think as we get older there is some selective processing of past memories. In our younger days we were much more likely to be able to put up with all the nonsense around us, or maybe not even recognize how much nonsense there really was.

I can't say for sure if I think there is more or less emphasis on the short term, or on how employees are treated, but the more I look back on my own experiences, I don't think this has changed at all.

People pay the least they can get for something, and want the most they can get for what they pay.

I remember even working for small tightly held companies where everyone knew everyone else, and the President and CFO still juggled things around every quarter to try to look good for the bank, and shareholders.

They still tried to pay their employees as little as possible and programmers still had to come to work on Saturdays to try to meet schedules that everyone knew were impossible. This was the 1980s.

I selectively remember how wonderful riding my bike down to the jetty and fishing all day was when I was young. But forget how utterly bored I was, dreaming of getting out of there to do something interesting.

Maybe the old adage is true, "The more things change, the more they stay the same."

Don't know, just thinking...

 

[Midpack]

I think as we get older there is some selective processing of past memories. In our younger days we were much more likely to be able to put up with all the nonsense around us, or maybe not even recognize how much nonsense there really was.

I can't say for sure if I think there is more or less emphasis on the short term, or on how employees are treated, but the more I look back on my own experiences, I don't think this has changed at all.

People pay the least they can get for something, and want the most they can get for what they pay.

I remember even working for small tightly held companies where everyone knew everyone else, and the President and CFO still juggled things around every quarter to try to look good for the bank, and shareholders.

They still tried to pay their employees as little as possible and programmers still had to come to work on Saturdays to try to meet schedules that everyone knew were impossible. This was the 1980s.

I selectively remember how wonderful riding my bike down to the jetty and fishing all day was when I was young. But forget how utterly bored I was, dreaming of getting out of there to do something interesting.

Maybe the old adage is true, "The more things change, the more they stay the same."

Don't know, just thinking...

Agreed. My 92 yo parents are convinced the world has gone completely to hell in a hand bucket compared to the 'good old days.'

 

[Bestwifeever]

Everyone knows it was the TPS reports.

 

[robnplunder]

I also disagree that big companies any more short term oriented now than there were 10,20, or 30 years ago. In fact I'd argue that the most successful companies have incredibly long term view more so than anytime in the past.

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. )

 

[ERD50]

ERD said most of what I was going to say about the good old days not being as good as we might remember them..

I also disagree that big companies any more short term oriented now than there were 10,20, or 30 years ago. In fact I'd argue that the most successful companies have incredibly long term view more so than anytime in the past. ....

Dow companies, like Disney, 3M, JNJ, GE, Walmart all have mutli-year R&D or new facilities scheduled who's pay off is until 5, 10 or even longer. Clearly if there were obsessed with quarterly return they would skimp on these projects, but I really don't see evidence that do considering their long term track record. ...

Interesting counter-point. Perhaps I let myself get drawn into the 'conventional wisdom' group-think?

Well, I put myself squarely into the 'yes, no, maybe' camp on this topic!

.... (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. ...

I can assure you from first-hand experience that is nothing new, and certainly predates 'Dilbert'.

I saw it in the 80's - they would keep the dock doors open until 12:00 midnight at the EOQ, with a finance guy standing by with his clip board to certify that the shipment made it out by midnight. The managers even joked in meetings that 'so-and-so would have run over his grandmother to get another pallet-load onto the truck at 11:59!'. And this was a corp known for long-term thinking, big investments that took many years to pay off (or not), and at the time still run by the founding family.

It probably happened before then, but I do not have first-hand experience.


-ERD50

 

[pb4uski]

....I saw it in the 80's - they would keep the dock doors open until 12:00 midnight at the EOQ, with a finance guy standing by with his clip board to certify that the shipment made it out by midnight. The managers even joked in meetings that 'so-and-so would have run over his grandmother to get another pallet-load onto the truck at 11:59!'. And this was a corp known for long-term thinking, big investments that took many years to pay off (or not), and at the time still run by the founding family....

+1 reminds me of an EOQ inventory observation I did at one of our Pennsylvania plants in the early 1980's. There was a bad snowstorm (but I made it there). As I was wrapping up I noticed a trailer parked way of in the corner of the yard. I asked the plant manager "What's in that trailer?" with an underlying tone that I was planning to trudge out there and inspect it. He conceded that it was a shipment that was ready to go but that the tractor had not made it to the plant to pick it up. We both knew he needed to add it back to the inventory and he did.

We had another plant that was under such pressure to make their numbers that it started out innocently as a shipment that was scheduled to be pickup up before the EOQ not being picked up but they put it through as a sale anyway. By the time we were called in to do a fraud audit there were units in the paint booth that were "sales". Some people were fired as a result but IMO the real culprit was unreasonable pressure from higher-ups for the plant to make their numbers.

FWIW, I think that today's CEOs and boards are way too fixated on day-to-day fluctuations in stock price rather than long term trends in their stock price. Wall Street is ridiculous as well, the way it can punish a company for missing earnings estimates by a couple pennies. I just don't get how a company can be worth 5% less than it was the day before when there is no news other than they missed earnings by a couple pennies.

 

[brewer12345]

This sees like a Boomer hairball, to put it politely. Maybe I had a different experience than everyone else, but buy the time I was in the labor force there was no "good old days." As long as I have been a worker bee, employees were an input into the production process just like electricity, raw materials, etc. As a result, I always had a mercenary attitude and treated each job as a consulting engagement, regardless of the representations of each employer. What is this employer loyalty you speak of?

I can only imagine what the Gen Yers think of all this stuff.

 

[daylatedollarshort]

At my last job my director used to refer to the people on my staff as FTEs (full time equivalent units). Upper management used to try to spread the work out based just on FTEs, like people were interchangeble Lego pieces, regardless of skill set. Like any old FTEs will do to work on this project that requires expert skills in artificial intelligence and Assembler language programming. (I'm not just saying that to be funny, that actually happened.)

 

[pb4uski]

At my last job my director used to refer to the people on my staff as FTEs (full time equivalent units). Upper management used to try to spread the work out based just on FTEs, like people were interchangeble Lego pieces, regardless of skill set. Like any old FTEs will do to work on this project that requires expert skills in artificial intelligence and Assembler language programming. (I'm not just saying that to be funny, that actually happened.)

The thing that used to bug the hell out of me was management believing that any problem could be solved by throwing people at it and not recognizing that they needed people with the requisite skills. I remember in a meeting once trying to explain it to some imbecile as while one woman can make a baby in 9 months that 9 women can't make a baby in a month. I "think" at that point he got it.

 

[HFWR]

At my last job my director used to refer to the people on my staff as FTEs (full time equivalent units). Upper management used to try to spread the work out based just on FTEs, like people were interchangeble Lego pieces, regardless of skill set. Like any old FTEs will do to work on this project that requires expert skills in artificial intelligence and Assembler language programming. (I'm not just saying that to be funny, that actually happened.)

Former megaconglomocorp raised this issue to our research group. They planned to re-assign the techs to different process modules, to enhance our "training". Excellent idea to take an expert at, say, lithography, and another "expert" at thinfilms, and swap them around, so that neither had any experience at their job. Luckily, that fell by the wayside...
But it was kind of insulting, because it implied that we were just interchangeable parts, and that ANYONE could do our jobs...

 

[Derslickmeister]

Perhaps, onset of on-line stock trading, internet (company quarterly report became easily accessible along with other info), 24x7 business news channels, ... , contributed? Then, the rest were left to people's greed and selfishness. IMHO.

I think you almost nailed it here. What I saw while working as a young engineer in the early 80s was more focus given to quarterly reports and the short term impact on the price of the company's stock right about the time the 401k became widely available for most employees. Suddenly more people than ever were invested in the market and watching their investments rise and fall, sometimes with sickening swiftness (think Black Monday). I remember every downsizing announcement being met with a predictable 10% pop in share price.... As a manager for the past 20 years or so I have seen the impact to the OpEx budget that labor rates have, labor is by far our biggest "expense" and is the naturally low hanging fruit that is reached for when money gets tight.

 

[CyclingInvestor]

I guess my work-life must have been completely charmed. I worked as a programmer from 1979 to 2006, aerospace then finance. I do not think I ever worked any unpaid overtime or had any job stress. The work I was assigned was generally easily do-able more quickly than my deadlines. I got to dress casually, have my own office, and park my bike in it (for the most part). I did have a few toxic managers I quickly got away from, but that was it. I always felt I could always get another programming job quickly (and did the three times I needed to), so did not stress out when layoffs happened.

Maybe I was treated as an interchangeable programming unit, but I benefited from it too, with very low stress jobs and regular inflation+ raises in the long run.

 

[photoguy]

I just don't get how a company can be worth 5% less than it was the day before when there is no news other than they missed earnings by a couple pennies.

I always thought it was because if you missed earnings despite the plethora of methods for earnings management, things must be worse than they thought.

 

[jerome len]

I think both employers and employees have fault in the lack of loyalty and high turn over of cut backs during the past years. Years, ago, retirment plans kept employees with the same company; today, employees take their 401k plans with them when they leave, most often cashing them in and then not having enough money to retire as they get older. In the "old days" small companies couldn't afford retirement programs, today, many small companies do have 401k programs....the employee wins. As a former employer I worked to build employee loyalty, had many 20+year employees.......but, many employees didn't share their loyalty to the company. On the other hand, I realize how mega corporations have sliced employees to improve profitability. We'll never go back to the past.......but there is still opportunities for employers and employees to work together for the common good......you see that in tech companies that pay well and have many applicants for every job opening. I'm just glad I'm out of the rat race.....as it was called years ago and, for many is still true today.

 

[brewer12345]

but there is still opportunities for employers and employees to work together for the common good......

Pull the other one, its got bells on.

The labor market is a market and in the US that means supply and demand rule with very little sentiment or anything else at play. That may not be how it was 25 years ago, but today any employee who does not adopt a mercenary attitude is losing out because their employers certainly will. This is not changing any time soon.

 

[CaliforniaMan]

I think both employers and employees have fault in the lack of loyalty and high turn over of cut backs during the past years.
...
but there is still opportunities for employers and employees to work together for the common good......you see that in tech companies that pay well and have many applicants for every job opening. ....

...
The labor market is a market and in the US that means supply and demand rule with very little sentiment or anything else at play. That may not be how it was 25 years ago, but today any employee who does not adopt a mercenary attitude is losing out because their employers certainly will. This is not changing any time soon.

There is something magical that happens when employer and employees trust each other and realize that by working together they will all benefit. It is rare, but it does happen, it produces great results. Loyalty can benefit businesses that realize its value and the employees. I have some experiences from my time in the field, maybe others have some too.

When I started my consulting career, one time working for a new client on a difficult project, about a couple of months into it he came up to me and said he wanted to pay me for the first milestone. I told him I didn't think it was finished. He said it was finished, probably realizing how difficult it was and how hard I was working, and wanted to pay me for it right away.

That was a brilliant move on his part, I don't know if he realized how much loyalty and hard work above and beyond it bought him after that. We worked together for years afterwards on many projects and he built up a successful company because he treated everyone who worked hard with that kind of respect.

Another client I worked with and had helped with a new approach to solve his problem that turned out to be successful. Subsequently he came to me for ideas to improve the product. I had one, it turned out to be a complete failure and it cost him a lot of money. I came into his office to tell him about it, and at the end of our discussion he said something like "so what do you think we should do next?" His trust in me and loyalty also bought him tremendous desire on my part to make him successful, and subsequently we were.

When his company was bought out by megacorp1 and then bought about megacorp2 to 3, things completely changed. People were treated as commodities, and innovation ended. The products were milked for a few years with the inevitable results.

Later when I had my own employee, which I needed to run manufacture and calibration. I always paid him a good bonus at the end of the year based on how well we had done. One year when we had done exceptionally well the bonus equaled an additional 1/3 of what I paid him for the year. On other years he would work just as hard and creatively, even when times were lean and no bonuses paid. He would work with even more commitment in those lean years because he knew if we did well so would he.

I didn't treat him well or give him bonuses out of the goodness of my heart, I did it because it was good business. He didn't work extra hard in those hard years when there were no bonuses because he was stupid, he did it because it was in his best interest.

Later, working for a megacorp, we were given a task which turned out to be more successful than they had expected. One time we were even given a significant unexpected bonus for doing what we were going to do anyway. The loyalty, commitment and devotion to the managers who treated their people that way was palpable, and very successful for both the company and the employees.

Soon, however top management changed, and deviousness and attempted trickery (I don't know how management somehow things workers are really that stupid) brought innovation and loyalty to an abrupt end. You could really feel the change in attitude, and the change from really caring to just going through the motions.

I suspect that the companies like Google and others that show real innovation do treat their workers with respect. Unfortunately there seems to be a trend that as companies grow and age, the individuals which work hardest at company politics seem to emerge at the top and kill it.

I for one don't believe anything has really changed over time. You don't get creative companies and sustained long term growth without people treating each other with respect.

Maybe others have had similar experiences.

 

[MRG]

At my last job my director used to refer to the people on my staff as FTEs (full time equivalent units). Upper management used to try to spread the work out based just on FTEs, like people were interchangeble Lego pieces, regardless of skill set. Like any old FTEs will do to work on this project that requires expert skills in artificial intelligence and Assembler language programming. (I'm not just saying that to be funny, that actually happened.)

Did we work together?
The last VP I transferred away from changed the FTE to 'resources'. Like they could be harvested, mined, or grew on trees.
Programmers that were excellent at desktop UI, suddenly became server programmers. Naturally they were excellent at the intricacies of thousands of concurrent transactions vs. a single user system. The converse was true, take a truly gifted server guy, one that could write efficient SQL in his sleep, now you're a UI expert.

After all they were a the same.
MRG

 

[pb4uski]

Maybe others have had similar experiences.

My experience was similar. I and many of my colleagues had a generally good relationship with the employers that I had over the years. Some better than others. Though at the end of my career there definitely seemed to be a more callous view of employees in the corporate employers that I had than in the beginning of my career.

My last employer was a personal service business and good employees were its lifeblood and it put a lot of effort into recruiting and keeping good employees.

 

[sengsational]

I'm in the "globalization/supply&demand" camp as to the overall question of the thread. I wouldn't go so far as to say "race to the bottom", but maybe "meet in the middle", meaning the US has more room to fall.

Whoever thought employees were an asset never saw the expense side of the P&L statement.

IMHO, P&L statements are wrong. They presume a value of zero when indeed it is just a number that is difficult to quantify. If you know where the bathroom is, that is worth something, and a brand new employee would take time to acquire that knowledge.

I always thought it was because if you missed earnings despite the plethora of methods for earnings management, things must be worse than they thought.

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?