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The Decline of the Baronial C.E.O (nytimes.com)
92 points by __derek__ 120 days ago | hide | past | web | 88 comments | favorite

I think this parallels the situation in the startup economy. Founder-CEOs are the norm today, as opposed to the older baronial CEO types who walked, talked and looked like old school VC firm partners.

It used to be that you needed a lot of capital to enter markets - you had to build a data center, hire people, build and sustain in the hope of a market. For that you needed money, and for old school VCs to feel comfortable, they wanted someone in their mold, and who they could trust. So founders became CTOs and VPs of Engineering, and picked someone the VCs could get behind to raise money.

But with the cost of starting a company plummeting, founders no longer have to show this deference. And as some of these companies succeed, their founder CROs are now the new rock stars. And a new breed of VCs asks looks for performance metrics and worries less about fitting a theoretical mold. If there is a mold, it's the founder-CEO in their minds, not the old school baronial CEO.

I think a similar dynamic operates in larger companies as well. The necessity of capital acted as an automatic restriction on competitors emerging. Companies could charge high prices, make higher profits and build private five-star hotels.

With the cost of building a business dropping however, markets are more competitive than ever, and it's much harder to charge the prices required to sustain profit growth expectations. And investors of course will have no patience for the lavish perks.

The times they are a changin'.

> It used to be that you needed a lot of capital to enter markets - you had to build a data center, hire people, build and sustain in the hope of a market.

I'd say that this is still the norm with some lucky exceptions in the Valley, but the Valley itself is a huge capital investment (public and private). If you look world-wide, nobody can compete with Facebook, Google or Apple, even with high investment in data centers, people, etc. Our economical system gives a lot of benefits to monopolies.

Perhaps more importantly nowadays with this gen of unicorns: Companies are willing to spend a looooot more on acquisition of users, beyond the actual value of the users. Mainly to try a monopolistic play.

Uber is the typical example of "turn money into market share", though you can see a lot of SV companies nowadays spending a huge amount in this space.

That's the dream. But there isn't much evidence that new firms are being founded at a higher rate than the historic average, and there is some evidence that incumbent firms now enjoy increased structural advantages.




Nothing about CEO salaries or compensation or wealth, though, which would seem to be the true measures of CEO status.

gwern! Are you the same from gwern.net?

I think this article made clear that Fortune 500 CEOs are getting paid a lot --- more than in the past. For example, "So while boards are still willing to dole out huge golden parachutes to C.E.O.’s, even if they fail, they’ve become much more generous with money than they are with additional time."

But just like any form of 'money,' it's not just dollars. Money is a form of status, but so is power, reputation, stocks, and more. It seems like 'staying power' would be a truer form of status than 'cash' alone.

Frank Underwood once said: "Money is the Mc-mansion in Sarasota that starts falling apart after 10 years. Power is the old stone building that stands for centuries." Not that he is real or anything, but it's a powerful quote.

(I am.)

CEOs may have shorter durations, but that may be illusory in that they can be engaged in a revolving door between companies or the public/private/academic sectors. I'm also not too impressed by the article's talk about opulent offices seeming old-fashioned - opulence is relative, and a personal Gulfstream, however spartan, that one is riding to one's mansion in Tahiti is far more opulent than some marble floors or dumbwaiters in Michigan. If Jeff Bezos has a table made of a door from Home Depot (cough) does that make him any less baronial? Compensation, however, and cases like Snap going public with 100% non-voting shares are far more indicative of the true power of CEOs than some office design or hamhandedly publicly bloviating & dabbling in politics (rather than donating behind the scenes).

Maybe one of the reasons why they have lost political power is that the most profitable companies today employ much less people than before, as mentioned in the article. Or at least they employ less people in their own country. A huge workforce is a lot of votes.

> Not only did Mr. Immelt have his own bathroom

Crazy that this is a big enough deal to be worth mentioning in the article.

Honestly, after several years of working from home, the whole bathroom situation has perhaps been the hardest part of corporate life to get used to.

From the article"

>"Google’s Class B shares have 10 times the voting power of normal shares, enabling the founders, Larry Page and Sergey Brin, to retain control of the holding company Alphabet without owning a majority stake."

This implies that these two are the only two posses shares with voting power, is this accurate?

The article also references FB and the consolidation of voting stock in one individual. My question is what is the protocol if something were to happen to person or persons who retain all these voting shares - death, or incapacitated etc?

It's not quite true - holders of Google Class A shares ("GOOGL") also have voting power. However, Page, Brin, and Schmidt together control more than 50% of the voting power of the company, which means that as long as those 3 are united, it doesn't matter how many GOOGL shares activist investors can control.

Where this might matter, hypothetically, is if you can separate one of the 3 from the other on an issue. If, for example, Larry did such a terrible job running the company that even Sergey believed he should be replaced, then an activist investor coalition together with Sergey's Class B shares could force a change in leadership. In such a situation, it's likely that GOOGL (class A, with voting privileges) would fetch a very hefty premium over GOOG (class C, no voting privileges), because an activist investor coalition would need to own nearly all the class A shares plus have the support of Sergey or Eric to effect change.

>" In such a situation, it's likely that GOOGL (class A, with voting privileges) would fetch a very hefty premium over GOOG (class C, no voting privileges), because an activist investor coalition would need to own nearly all the class A shares plus have the support of Sergey or Eric to effect change."

Can voting shares be sold on the open market the same as the non-voting shares? Wouldn't a company that opted for a two tier structure restrict the sale of voting shares as part of their corporate charter? I'm not sure of charter is the correct term here so please correct me if that's wrong.

Sorta. The class-B supervoting shares that Larry/Sergey/Eric own convert to class-A voting shares when they're sold on the open market (I think; it may be class-C nonvoting shares now). The class-A shares retain their voting rights, and trade under a different ticker symbol (GOOGL vs. GOOG).

I see, thanks!

these two are the only (ones) with voting power

Yes. They have voting control of Google.

My question is what is the protocol if something were to happen to person or persons who retain all these voting shares - death, or incapacitated etc?

That's a real question. Google's proxy statement mentions management succession [1, p. 29] but doesn't say anything useful. It's not at all clear how Alphabet and Facebook will handle succession.

Ford Motor Company has a two-tier stock scheme, and has for over a century. The control stock is restricted so that it can't be sold outside the family. That's been in place for a century, and they're on the fourth generation of Fords owning Ford Motor. For most of the company's history, a Ford was the CEO of Ford Motor - Henry Ford I, Henry Ford II and William Clay Ford Jr ran the company. Currently, a non-family member is CEO, although a family member is head of global marketing.

[1] https://www.sec.gov/Archives/edgar/data/1652044/000130817917...

Which can be redefined in simpler terms, as "they just have ten times as many fucking shares."

Fine print is just deception wearing a tuxedo.

If Alphabet paid a dividend, it would make a big difference. 10x voting rights per share, but 1x dividend.[1] In 2000, Ford Motor paid a $10 billion special dividend, and most of that went to regular shareholders.

[1] http://www.latimes.com/opinion/editorials/la-ed-de-incarcera...

The link in your source is about the cost of incarceration in California. Am I missing something?

I don't understand you comment in voting shares being a "big difference." Everyone gets that dividend if its paid out regardless of whether its a class A holder or class B holder no?

Oops, wrong link. Correct link: [1] The point is that the insider Alphabet shares have 10x the voting power per share as regular shares, but get the same dividend per share as other shares. The shares issued to ordinary employees with stock options (class C) have no voting power at all, which is quite unusual. This prevents dilution of control.

[1] https://www.sec.gov/Archives/edgar/data/1652044/000130817917...

Thanks! Shows how much I know about trading stocks...

Or acquisition, which is also paid out per share.

Iirc Schmidt Page Brin combine to control the majority of votes. This tight control will lapse when the Schmidt estate goes through a generational estate transfer event and liquidates shares to conver taxes (since he is the oldest of the three).

In anticipation of that, though, the three could form a new share structure that consolidates power in Brin and Page.

Thanks for the responses. I guess an additional question I have is - if a small minority or in FB's case an individual control the voting stock do they automatically control who sits on the board?

I guess if that's the case, why have a board at all? Is it just for optics?

It's not just CEOs, all white collar workers are changing from a somewhat hallowed position to just another job. As blue collar jobs disappear competition increases for the positions left and many white collar office positions seem more like factory workers than knowledge workers. It used to be that a college degree would guarantee you a job, now it guarantees you an internship at best.

Only ones it seems left with privilege are those who have a lot of capital. Everyone else has been reigned in to serve them and their needs and interests. Which I guess is how meritocracy works.

"A meritocracy is a system in which the people who are the luckiest in their health and genetic endowment; luckiest in terms of family support, encouragement, and, probably, income; luckiest in their educational and career opportunities; and luckiest in so many other ways difficult to enumerate — these are the folks who reap the largest rewards. The only way for even a putative meritocracy to hope to pass ethical muster, to be considered fair, is if those who are the luckiest in all of those respects also have the greatest responsibility to work hard, to contribute to the betterment of the world, and to share their luck with others."

-- Ben Bernanke, Princeton University Commencement 2013

Well when has this ever not been the case? The way most of our economic systems are set up, the disparity of wealth between nations, between races, etc. They are all about this luck. In fact the difference between human beings and animal is exactly that as well. The concept taken to its conclusion is absurd. The point that he's trying to make is one for a more social system. But gasp that's socialism, isn't it? Capital drives the system. Those who hold capital want more capital. So obviously they are going to do everything in their power to do just that. To ask them to appeal to lower common denominators, well that's sort of like asking a General to hire less competent soldiers; how then do you expect them to win a war?

This speech was given to Princeton undergraduates -- 1150 of the most fortunate and well supported people in the world. He's urging them to be self aware of their immense good fortune, and to be generous and grateful rather than selfish and envious.

Princeton is the epitome of a capitalistic school. Very few students will become socialists. Having more Rockefellers and Carnegies (who have both given to the university) is not a bad thing for this world.

Weren't they also both robber barons who used philanthropy to retroactively clear their names after they've made their billions (similar to the later Bill Gates, but even less scrupulous)?

Actually, they arguably weren't. In his Rockefeller biography Titan, Ron Chernow notes that Rockefeller gave to charity from his earliest days of income, well before it was clear that he would become exceptionally wealthy.

>Princeton is the epitome of a capitalistic school.

Please explain this. I know little about Princeton.

>Well when has this ever not been the case? The way most of our economic systems are set up, the disparity of wealth between nations, between races, etc. They are all about this luck. In fact the difference between human beings and animal is exactly that as well. The concept taken to its conclusion is absurd.

More need to come to this realization and abandon the idea of absolute meritocracy altogether instead of paying lip service with talk of "equality of opportunity".

>It is important in disputes that law treat us equally because it is necessary for the preservation of suppressing violence by forcing all competition into voluntary exchange. Otherwise the institution cannot provide the incentive to suppress our instincts and redirect our efforts.

>But the western illusion that those values necessary to create incentives for us as an individual economic unit can insulate us from our family, and clan, and the necessary operation of our reproductive evolutionary system is a postmodernist, socialist fiction that assumes economic and legal equality can be extended to genetic equality – contrary to all evidence and reason.

>The rawlsian veil of ignorance is a complex rhetorical device for the neurolinguistic programming of the masses precisely to confuse them into the illusion of biological equality and to divorce the individual from his ancestry so that his loyalties are to the state and rather than to his familial genetic heritage.

>The blank slate, likewise is a device for the same purpose. So are diversity and open immigration.


Nah, folks with capital think that they're being screwed too. It's very hard to find investments with positive inflation-adjusted returns, and when you do, the perception is that they're often overvalued and hence quite risky. Public-company shareholders who thought they had a steady dividend-paying income source are finding that even the steadiest dividend-paying income sources are going out of business or getting bought in transactions that shareholders have little leverage on.

What's really happening, I suspect, is that we're living in a time of great change where all existing institutions are steadily decaying and eventually collapsing. And so if you can identify a group as a class and write about them in a news article, chances are they're getting screwed. Plenty of individuals are not getting screwed and are profiting massively off this, but they belong to groups that didn't have labels a decade ago, like "tech startup founder" or "import/export business owner" or "Chinese contract manufacturer" or even "data scientist". These individuals have a very strong incentive not to crow about their success, because when everybody else is getting screwed and you say "Oh, actually I'm doing better than I ever expected", you paint a big target on your head.

>It's very hard to find investments with positive inflation-adjusted returns

While I understand that you're perhaps not asserting this personally, and are restating the words of others it's important to say that this part is absolutely untrue. In fact, if somebody with wealth actually believes this, and isn't just using it as propaganda in class warfare, that person is a poor steward of capital and it would be best if it were in more capable hands. Trivial investment choices, like total-market stock index funds, have solid returns that easily beat inflation, and little to no risk on 10 year time scales, which is where investment should take place. If they can't stomach any temporary negative dips, TIPS will give them that. In any case there is an abundance of easy, inflation-positive investments out there just lying around. Even the middle-class that have saved small amounts can get first-class investment in index funds.

Totally agree, this drives the point home: https://www.fool.com/investing/2017/02/26/warren-buffett-jus...

> What's really happening, I suspect, is that we're living in a time of great change where all existing institutions are steadily decaying and eventually collapsing.

I'll add to that that finally the law of compound interest seems to have reached its limits, the same as Moore's law. Capitalism has been riding on its tails for the last 200 years or so, but IMHO we're in new territory right now where the good and steady returns are no-where to be found anymore.

Good and steady returns are easier than ever to find! Where does this idea come from?

And if one doesn't consider the returns good, what would be good, and was it actually better in the past?

The 10-year treasuries have stood at bellow 3% for 6 years now while the 10-year German bonds have stood at bellow 2% for 5 years. There's a reason for all that. I'd personally consider a "good return" as somth trying to approach double-digits.

That's not meritocracy. It's just flat out rent-seeking.

Well I define meritocracy not as ability, but appearance. Because in a corporation it is often very difficult to gauge ability but much easier to gauge appearance. So everyone should appear as if they are being squeezed and kept in line. And they are doing just that.

That's one way to make America a meritocracy, just redefine meritocracy to loosely reflect inheritance based feudalism.

The divine right of meritocrats!

That's not a reasonable definition of meritocracy. "I guess thats how meritocracy works" sounds like you're saying "meritocracy is a good thing, but look at how bad the outcomes are, or at least how bad the outcomes appear", but by how you claim to define meritocracy, it wouldn't be a good thing in almost anyone's book.

Well what is the purpose of this piece. The purpose of this piece is to play down how much more compensation CEOs get. It's basically a P/R piece to tell all the working classes that everything is fine, and the CEOs are being reigned in. So obviously some sarcasm is in order. But the picture is complicated, that on one hand CEOs are made to appear a certain way, as if they don't have privilege and are working harder than everyone else to deserve all that extra compensation. At the same time they do have much more privilege than any time in history, in terms of their compensation.

Another way of looking at it is that this is exactly how the shareholders want the situation to appear, in that CEOs are working hard for them, their bosses, and they don't mind paying for that hard work with extra compensation, which I guess is the exact dynamics of the situation.

Thank you for pointing this out and I agree. This is very much propaganda. Reigning in the total square footage of the executive wing at GE and replacing walnut with glass is just tokenism. No changes have been made to the outsized pay packages where a CEO will make 70 to 300 times what the average worker makes.

I will certainly trade a walnut-lined suite for a $85m pay package.

Boards have moved from investing (expecting a CEO to work for a decade or two improving the company) to speculating (betting that a new hotshot is going to bring big fast returns). The pay increases are an acknowledgement of that change, almost like hazard pay.

Agreed. Outwardly the definition of meritocracy sounds positive:

"an elite group of people whose progress is based on ability and talent rather than on class privilege or wealth."[1]

However defining what constitutes "merit" has some issues:

The term "meritocracy" was originally intended as a negative concept.One of the primary concerns with meritocracy is the unclear definition of "merit" What is considered as meritorious can differ with opinions as on which qualities are considered the most worthy, raising the question of which "merit" is the highest—or, in other words, which standard is the "best" standard. As the supposed effectiveness of a meritocracy is based on the supposed competence of its officials, this standard of merit cannot be arbitrary and has to also reflect the competencies required for their roles.[2]

[1] http://www.dictionary.com/browse/meritocracy

[2] https://en.wikipedia.org/wiki/Meritocracy

Plus military power. We always forget that but if we talk super rich, we also talk Sheik/President/King level. And as said in other subthreads: They are also not feeling save anymore.

Like it or not, the CEO is working class. It's a job, like yours, with a boss. And they, like the rest of the working class, had more power in the mid-recent past than they do today. Today, 40% of wealth is owned by 1% of the population. And the 1% are not CEOs. This capital concentration has greatly reduced the influence of a CEO.

It depends on what you mean by "the CEO." If we're talking about S&P 500 CEOs (which is itself an overly broad proxy for the "corporate giants" that are the subject of this article), they're definitely members of the 1%.[1]

[1]: http://www.equilar.com/reports/48-associated-press-ceo-pay-s...

I full heartedly disagree. Maybe the number "one" is wrong, maybe it's 0.1%, but the industrial emperor is not the same kind of people as today's typcial CEO. Today's CEOs have to be hard working, good looking, result oriented people, just like you and me fearing to get wacked at any mistake or delay. It's just that they live on a higher level than we, but still the same kind of life.

The "Baronical CEO" is the kind of guy who grows a belly in his fourties, and spends just as much time in the club with the other guys drinking and pretty girls as in the office. This is not today's typical CEO.

However, if you want to imply that even the richest of the richest are sh*tting their pants because they also don't know how everything will continue, then I would agree as well. It's likely that fewer and fewer people have a relaxed life, and those who have mostly live that way due to lack of oversight.

> Today's CEOs have to be hard working, good looking, result oriented people, just like you and me fearing to get wacked at any mistake or delay.

And their failure case is a golden parachute, not penury. Little bit different.

I would agree with that point if it would result in CEOs being less hard working people.

What all people want is a stable, save, maybe a little boring, position that shows other people they are respectable and that pays the monthly bills. But not even the highest level of employee has that safety any more. And while they get more money even when they get fired, a fired CEO is still considered a loser, just as you and me, and they fear being considered a loser just as much as you and me. And maybe what increases their pressure back to the sam level as ours is that their failure is way more public than ours. If you lose your job and you get a new one, you can pretend everything is just as it was before. They can not. Everybody has seen the articles in the news paper and know some (true or not) reasons for why they failed.

A fired CEO of a company in the orbit we're talking about (I mean, I'm the "CEO" of a company, but I obviously am not pulling in a hojillion dollars a year in revenue, so, different thing) doesn't need to ever work again. A CEO might be "labor", sure, but they are compensated sufficiently to de facto buy into capital in a way even people not too many percentiles down never, ever can. This is a difference of kind.

The question here isn't "do you work hard," it's "are you labor or have you capital", and the difference when the latter is true is overwhelmingly transformative compared to when only the former is true.

There's some survivorship bias due the "orbit we're talking about".

The reason the new CEO is coming into place is that the old one didn't work out as intended, and the board has set its sight on someone they think would do a better job. Such desirable person is usually not living off unemployment benefits, is comfortable financially already, therefore has little motivation to jump ship unless he gets a substantial increase in pay.

The board could potentially hire via an ad in the paper or a temp agency advertising a salary at 50c above minimum, saving stockholders (themselves included) massive amounts of money, but yet even the most financially stingy and cost-hawking shareholders - private equity folks and activist shareholders - usually don't resort to that.


If they're under consideration for such a job, what I said more often than not holds true, too. We're fundamentally not talking about "labor" in the sense that erikb was using it, we're talking about labor-with-capital-access and that's just a straight-up different story.

I'd go farther to say at most large-ish companies, even one level down (sometimes two) from the CEO means you'll never have to work again in your life. I think people forget just how much these senior executives make.

Hm, you are right. It's more nuanced than I first considered.

> Today's CEOs have to be hard working, good looking, result oriented people, just like you and me fearing to get wacked at any mistake or delay.

Yea, because they'll be struggling to put food on the table.

What an out of touch comment.

No one likes to fail or get fired. But most working class aren't afraid of getting fired because of failure-but because they need food/place to stay/healthcare/have to care for a family. Most CEOs in that level are far beyond that.

You're not wrong about the power shift, but I think you're over-stating the anxiety. The pattern that we've seen has been increasing pay as boards and executives have adopted a speculative mindset. In effect, both have acknowledged that execs are now mercenaries rather than tenured employees.

I guess what he is trying to say is that sure they are wealthy, bu probably not powerful.

They aren't "working class" by any reasonable definition. They're often not "old money".

That doesn't mean "not rich".

As others have said, taking such a superficial shift as indicative of power dynamics is ludicrous.

I wonder, how much can culture and fashion, rather than technology or globalization or something else directly effecting the market, change this? Could it simply be that mad men shmoozing is out, "data driven" workaholism is in?

As the article alludes, economic growth makes things easy for idiots. Once stagnation sets in, competition rises and the focus is on productivity growth and efficiency which means tech and cost cutting. Technology sector would not be doing nearly as well as it is if we had 6% GDP growth.

There are lots of issues that this article doesn't touch on. I believe that large companies have become exponentially more complex as IT has come to underpin business processes. Competition has intensified both for markets, people and capital.

The CEO's job has become, in my perception, undoable. Compensation has risen because the incumbents are trying to defenestrate themselves on a daily basis, and yes, yes there is a queue of eager applicants for the hot seat, but almost all of them are dribbling lunatics. The sensible, committed super sharp of suite c start shouting and screaming and fighting as soon as it's mentioned that they might be given the CEO role in the future - they know that it's a nightmare.

The problem that boards have got is that the complexity has created an ecosystem of corporate types, it's become rich enough to support niching and evolution, and what we see is The Red Queen. Peacock tails of fashion, pose and fucking powerpoint decks dominate. Not only in the corporate itself but amongst the swirling flock of carrion feeders that surround it.

I've been witness to/unable to hide from three "blue skys" exercises in corporate structure and strategy from "managing consultants" "auditors" and "boutique consultants". All of which were announced as opportunities, all of which were simply shakedowns and all of which are conducted in the medium of powerpoint slides.

Until a powerpoint slide is not interpreted as a signifier of understanding corporates and corporate life will decline.

My only hope at this point is the punchline of the red queen story. Peacocks are great, right up until they meet a fox.

TL;DR: CEOs need experience, wisdom, energy, political acumen and relentlessly resourceful critical-thinking skills.

I think you're quite right. CEOs need to balance being institutional-continuity leaders and forward-leaning renegades. Status quo isn't good for one set of reasons, neither is arbitrary change. I don't think there's much room for Steve Jobs' types unless they're well-beyond perfect, even so, the culture may suffer enormously for most stakeholders. The worst kind of CEO these days is the generic "steady-rock" Mike Pence-type who's thoughtful and generally does all the right business-theater handshakes, but doesn't either doesn't understand the market, how to hold business units accountable or doesn't have any timely ideas that will grow/adapt the business to ensure its dominance. Fortune 1000 CEOs need to manage massive organizational complexity and anticipate the future like a startup founder/investor to be effective.

> like a startup founder/investor to be effective.

Startups are not huge corporations with multiple silo'd organizations within. They're small and focused. Everyone is aware of the main goal.

As opposed to a major fortune 500 with tons of silo'd organizations and internal politics. It's just too difficult to manage. There's too many products, too many competing services, too many people who want their slice of the pie.

I think that says more about there being too many big companies than not enough talented leaders.

IT was a revolution for reducing transaction costs, but broke a lot of companies by bringing decisionmaking too high up in the organization. Decisions made by clerks in 1980 are being made by people two hops down from the CXO today.

> IT was a revolution for reducing transaction costs

Ronald Coase's Nobel-prize winning theory of the firm [1] posits that "people begin to organise their production in firms when the transaction cost of coordinating production through the market exchange, given imperfect information, is greater than within the firm." One could debate whether Wordpress, AWS and Google have made it easier to start a business than Gmail, Pipedrive and SAP have made it to run a big business.

[1] https://en.m.wikipedia.org/wiki/Theory_of_the_firm

Great point!

Totally unrelated, but do you have writing shared anywhere (e.g., essays, etc.)? Your cadence and tone is wonderful.

That is a sweet thing to say, thank you. But sorry - no cache.

> eager applicants for the hot seat, [...] almost all of them are dribbling lunatics. [...] The sensible, committed super sharp of suite c start shouting and screaming and fighting as soon as it's mentioned that they might be given the CEO role in the future - they know that it's a nightmare.

This parallels U.S. presidental campaigns.

I posit all the time that large corporations are going away, in a long slide towards voluntary federations of sub-human corporations. (Fewer than one full time employee)

Maybe the effect you describe is the writing on the wall. The biggest corporations are becoming unrunnable in any sustainable way. No forward motion, just death throws as previously booked resources are used up.

Over time, this affliction will come to smaller and smaller corporations until just human persons and AIs remain.

"Large corporations" will remain only to the extent CEOs can turn them into voluntary federations. Zuck buying companies and letting them run independently isn't really a corporation in the traditional sense. It has the whiff of a voluntary federation.

> All of which were announced as opportunities, all of which were simply shakedowns

Shakedowns by the consulting firms? Can you expand bc isn't it the CEO or other exec who hire these guys in the first place

At least in the UK, publicly traded companies must have their accounts independently audited. But they're also allowed to hire those independent auditors to provide consulting services.

This presents a pretty big conflict of interests - a company making £££ in consulting fees isn't going to want to sour the business relationship by being a hardass during the audit.

Essentially every time there's a major fraud or accounting scandal, it'll turn out the auditors were also retained as consultants.

So the consulting firms are the ones being shaken down? Or what? I don't see how that's a "shakedown" for the company as if they are in compliance there's no need for them to pay for the "consulting shakedown" for better treatment. Unless you are talking at a systemic level where, in order to compete, companies HAVE to operate out-of-compliance and use these consulting arrangements in order to prevent being exposed.

I think op just meant that they do bad work for exorbitant prices. And gp showed some of the pressures that can drive firms to buy optional services from consulting firms: desire to maintain a "good relationship" or possibly just discounting and bundling.

Also, the big consulting firms are generally known for aggressive upselling. It's often a core part of their business model. Once you've got em on the hook...

So, TLDR: Not shakedown as in extortion, shakedown as in bad service for a bad price.

Yes - this.

Is being "in compliance" a guarantee of a clean audit? If so, is the suggestion that apparently corrupt audit firms are only corrupt in one direction? That seems unlikely.

So why is this allowed? Why hasn't there been a law passed barring this sort of incestuous relationship?

This used to happen in the US as well. Remember Arthur Andersen? They provided auditing as well as consultancy - and the scandals (not sure if it was Enron) broke them. Memory fails me at the moment to recollect if a law was passed to keep those functions separate.

Sarbanes Oxley (the post-Enron law) put a lot of restrictions on what non-auditing services an auditor can provide a client.

Ask HN: Isn't this what Arthur Andersen was doing?

Yup, these exercises come about because of pressure from internal politics (as a way to settle a battle between execs) or investor pressure.

The consultants are selling machines, the long term outcome of their advice is not relevant. They seek to create evidence of interest and adoption of the latest trend. A great example would be organizational health vs rigorous performance management cultures. The outcomes of both are contestable and contested, they are polar opposites in terms of philosophy and culture, and yet both are touted and sold by the same people.

For the consultant what matters is the booking now, the political reception preparing the way for next time in this company, and the reference and referral opportunities to generate more business. The value of what they sell and the impact of it on business success just doesn't matter - they're out here!

"My only hope at this point is the punchline of the red queen story. Peacocks are great, right up until they meet a fox."

Your entire post reeks of the unintelligible consultants that you deride.

I'm tempted to read into it some kind of triple-entendre at their expense ? Or something ?

I have disliked the “Online Forums” approval requirement in Whole Foods Business Code of Conduct for a while now.

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