There is only one valid definition of a business purpose:
to create a customer.
If the owners want to create lots of customers, they do that. If they would rather have a smaller number of highly profitable customers, they do that. If they want to create a nice side business so that they can surf in the summer and snowboard in the winter, they do that.
Scottish philosopher David Hume drew an essential distinction between factual matters—is—and moral matters—ought. Asking "What should a business do?" looks like a Humean ought, but it's actually a Humean is. A business is a vehicle for achieving the ends of its owners. How then can we make sense of the maxim "a business should maximize shareholder value"? In certain kinds of businesses—especialy those owned by a large number of shareholders—the interests of the owners may generally conflict, but they can usually agree on one thing: maximize the value of the company. This describes virtually all publicly traded companies and many family businesses as well. It doesn't describe, e.g., my present business (the Ruby on Rails Tutorial), which I created as a 4-Hour Work Week–style product company to let me relax for a while, travel the world in style, and have the financial freedom to develop longer-range plans for world domination. Its purpose is definitely not to maximize shareholder value; I'm the only shareholder, so it does whatever I damn well tell it to do.
Let the owners worry about what a company ought to do. Unless you're an owner, it's none of your business.
I think you're at risk of deriving an ought from an is yourself. You take capitalist ownership structures, which exist for the hopeful progress of society at large, but you infer an ought from them, that the only thing that is fair is that ownership is absolute in control over what it owns.
And the question as to what should a company do is very definitely an ethical one. Some people try to argue that ethics only apply to companies in so far as they apply to the people that form the company; but others do not. Because the question isn't "what can a company do within the constraints of law", the question is actually what ought a company do.
Companies help match supply and demand where the supply or demand or both are divided and scattered enough that they can't be efficiently matched through individual contracts. But in this formulation, just like free markets, they have no moral content. The mere fact that there is demand for something does not imply that it is good that the demand is satisfied with supply. Lynch mobs frequently have short bursts of popularity, and they demand someone be lynched; irrelevant of whether they are legal or not, it should be clear that the fact of the demand does not amount to an ethical justification.
So when we ask what ought a company do, it is not enough to look at ownership structures; nor is it enough that we look at the operations of the company in providing supply to market demands. Merely following the law is not enough either; many immoral things are permitted by the law (to the point that later, the law changes), and many moral acts are taxed or prohibited by the law, for various formulations of morality. But more importantly, the law is itself informed by the ethical question over what ought companies do.
For example, it may be the case that child labour is legal in country X, and company A employs children in country X to meet supply for products in country Y, where such child labour is illegal and everybody agrees that it is unethical. By your formulation, there is no way to argue that company A is violating ethical norms. At best, you would suggest that shareholders - e.g. people with pensions, ultimately - should be held ethically responsible. You'll forgive me for thinking that that sounds rather ridiculous.
The leadership structure is determined by the Chief Executive, who is appointed by the Board of Directors, who are elected by the shareholders, i.e., the owners. Q.E.D.
(Lest you accuse me again of naïveté, I'm aware that there remains a principal-agent problem (http://en.wikipedia.org/wiki/Principal-agent_problem); when an angel becomes available to serve as CEO, I suggest doing your level best to get him the job.)
By your formulation, there is no way to argue that company A is violating ethical norms.
The whole point of my formulation is that it is silent on ethical questions. If you find it unethical that Company A uses child labor, you can buy from their competitors, or organize a boycott, or lobby to make their practice illegal—and I might well join you. Supposing that Company A is a standard joint-stock company, your actions would serve to align their interests (maximize value) with yours (be ethical according to your criteria). There is no conflict between your actions of protest and the statement "The company owners determine its actions"; as categories, is and ought are orthogonal.
should be held ethically responsible
Note the passive voice in this statement: "be held responsible". By whom? When people say that corporations should "be held responsible", what they means is, "We want to hold corporations responsible [is] according to our system of ethics [ought]." In other words, stripped of all camouflage, it is a naked grab for power. It's a generally well-intentioned power grab, of course, and depending on your system of ethics you might consider their achieving power to be a good thing. But Robespierre had good intentions, too, and the road to hell, etc.
What if company A has a monopoly owing to being cheaper than any possible competition that does not use child labour? Would your argument for introducing a law against it not be an ethical argument governing the permissible actions of companies?
We want to hold corporations responsible [is] according to our system of ethics [ought]." In other words, stripped of all camouflage, it is a naked grab for power
Well yes, I do rather prefer government to anarchy. I'm sorry to say that if you see this as a "naked grab for power", I have little more to add, and am unwilling to continue a conversation with you. This is because, unless I'm mistaken, you are denying the very basis of democratic government ("we", the majority) in defense of something much more dangerous (the oligopoly of wealth and executive power). Someone who would do that is not someone I would trust; it is someone I'd rather shun.
Come now—you don't even believe this. The majority used to support legal chattel slavery. Did that make slavery right? Killing Native Americans and taking their land was pretty popular, too. And what about the overwhelming popular support for the Anschluss Österreichs that brought Austria under Nazi rule? Und so weiter.
You can believe in ethical government, or you can believe in the ethical principle of "majority rule", but you can't believe in both. Think about that the next time you slam someone for questioning "democracy".
If you shun me, it's not because I'm dangerous or untrustworthy, but rather because you are a Jedi and I am a Sith. (Suffice to say you've been exposed to a lot of anti-Sith propaganda.) Don't worry—I, too, was once a Jedi, and I don't take it personally. Luckily, it's never too late to come over to the Dark Side.
That said, I don't think collectivism and individuality are mutually exclusive. If a company can be individualistic in a way that benefits society, what's the problem? Clearly there need to be some limits to what company owners can get away with. That's why society has laws. But it's especially naive to think that companies can be structures that act solely for the good of society with no benefit to the people that have invested in and work for them. Clearly, there needs to be some level of individualism granted to the people who make a company work. Otherwise, you'll have companies that spend so much time focusing on the good of everyone that they end up delivering for no one.
In my view, capitalism is justified in so far as it motivates value creation and production that leaves everyone better off, in a just way, rather than as something which follows from underlying principles around ownership and control of capital. That is, capitalism is a means to an end, not an end in itself; and when this means turns out to be unjust, it should be changed and regulated, rather than treated as sacred.
The reason for that indignation was, as you pointed out, the obvious truth that without society's extension of limited legal liability, there would be no business in the first place - or, at least, not one with the scale and structure of a publicly traded company. And no, society does not grant this liability protection for free. Nor does it expect to get the short end of the deal. It has a stake in the outcome, and it expects that stake to be rewarded - no less than an investor expects a return on his capital.
mhartl's implication that "only shareholders have any legitimate interest" represents a trifecta of ignorance (of the law) ingratitude (for what it grants) and arrogance (in assuming that his counter-party is irrelevant). It is supremely egocentric and inevitably destructive.
You see the same warped sense of self expressed by people who go around saying "I'm a job creator" as though they were god-like individuals who combined - in a single person - holy trinity of supply, demand, and the ability to connect them that comprise any given job. In reality, jobs - like economic growth - are a product of several interactions that create a favorable situation for employment. No one person or organization controls all of them, or even (in most cases) a majority of them.
What these "job creators" can safely say is "I hire and fire." That's a much more honest description, and one that clearly implies the existence of factors outside their control about which they simply make judgements. Their role is good and necessary, but it is not creative in the sense of having invented, built, or authored a thing. More importantly, people who hire and fire well (aka "managers") are acutely aware of the broader milieu in which they operate, the extent to which they depend on it, and the degree to which their own well-being depends on the health of those around them.
Obliviousness to this vital interdependency remains deeply stupid. And unlike a temporary impairment (e.g. getting very drunk) or a moral impairment (e.g. a propensity to steal), the ethical blindness it represents is not something that the people who have it are usually aware of. Nor is it something about which they can easily be made aware. They simply lack the frame of reference needed to understand what they lack. Just consider colorblindness; a person who cannot see a limited part of the spectrum can still grasp the idea of color, and can make allowances for what they can't detect directly. But a person who has no sense of color whatsoever has no point of reference they can use to grasp even the idea of color.
When it comes to responsibility, people like mhartl fall into the latter camp. Their minds simply cannot process the idea of social reciprocity. That is to say, they have no real ethics. In extreme cases, this makes them properly sociopathic. If you find yourself working with a person like this, distance yourself as soon as possible. They are dangerous, entirely self-serving, and prolonged exposure will get you hurt.
Let's avoid the attacks and keep the conversation civil.
I did say his ethics are weak, and I stand by this. Assuming he believes what he says, his anti-social position on the obligations of the corporation speak for themselves. And I did note that, when carried to the extreme, blind spots like the one shared by mhartl do, in fact, produce the litany of wrong that I mentioned (a position I REALLY stand by, having worked for people I wish I hadn't).
I did not, however, say that mhartl himself represents these extremes. That's an important distinction. And if, as you say, he is an honest, well-intentioned, and generous man, then perhaps he arrived at his current position for some benign reason - a lack of careful thought, or maybe an insufficiency of experience. In any case, people who share his lack of concern have become responsible for some very major damage. This aspect of his thought is not incidental to the problem, it IS the problem. Or, rather, it is an essential component of the problem.
Just consider what the OP is arguing. The faults of shareholder capitalism are not minor. Indeed, they have demonstrated a destructive power that has decimated companies, portfolios, and - at this late stage in the experiment - entire economies. This is not "creative destruction". It's shoot-yourself-in-both-feet-then-wonder-why-you-can't-walk destruction. And while we can demonstrate how bad it is now, there was no need to learn by doing. Had we considered the ethical failures inherent in mhartl's arguments sooner and more seriously, the crash of 2007/8 may have never come to pass.
Again, we're talking about a line of thought that has produced deep and lasting harm in the lives of billions - but not without racking up billion dollar gains for a microscopic minority who have responded by using their inordinate power to capture and corrupt the government we all depend on. This is really bad stuff. Historically speaking, this trajectory reduces citizens to subjects, and the weakest to slaves. Whether he realizes it or not, thinking like martl's supported the wrong side of political situation that has made itself the dominant evil of the day.
It needs to end, and the generation that does end it will probably spend the remainder of their lives cleaning up the mess. The sooner people disabuse themselves of the notions that allowed shareholder capitalism to spin so wildly out of control in the first place, the better off everyone is going to be - mhartl included.
The ethical implications of limited liability laws (one ought not to take credit one has no expectation of repaying; one ought not to mislead investors) are a tangential issue; a list of things an owner ought not to do with their business (see also: sell crack to kids, sexually harass staff, murder competitors) can happily exist in the absence of some overriding objective business owners ought to follow.
The only time having self interest is wrong is if that self interest hurts society. What's wrong with furthering your own interest if society benefits in the process?
There is a certain amusement in seeing a lecture about what "society" surely thinks and expects from all of us followed up with accusations of arrogance and egocentricity.
Actually not at all. It just takes a certain type of society that wants to have and enforces such norms.
This is specious, not all shareholders are equal and most have no practical consequence from their shareholding because they hold too few.
Large shareholders are rarely, if ever, interested in being owners, they want short term tradeable instruments. Maximising shareholder value is pandering to the whims of these people whose goals are never in the interests of the underlying business.
The only valid definition of a business purpose - creating customers.
If they don't want customers (one, few or many), they shouldn't start a business.
Legally, there is no such a thing as a "business". A corporation or LLP exists to limit liability. That's it. "Business" is not well defined in the real world.
Is an HFT proprietary trading firm, trading its own money on an anonymous exchange, with no customers or clients, not a business?
The US Internal Revenue Service would probably disagree with you there. If I didn't file Schedule C ("Profit or Loss From Business") every year, I'd be in prison.
> Is an HFT proprietary trading firm, trading its own money on an anonymous exchange, with no customers or clients, not a business?
An HFT with no "customers" is simply an agent of its owners. The only sense in which you could call it a business is that it happens to have the form of an incorporated entity, which many businesses also happen to have the form of. A is part of B, C is part of B, does that mean all As are Cs?
You've latched on to one of the bizarre artifacts of the modern American legal system, not a fundamental principle of business.
I wasn't aware of that; In that case, there is at least one legal definition of business with a lot of merit behind it (gun wielding people will put you in prison if you fall under it but do not file schedule C). And whatever the IRS regulations for Schedule C define as a business, is a business.
> An HFT with no "customers" is simply an agent of its owners.
Aren't all businesses? Isn't the defining property of business is doing transactions? (of whatever kind). Can you summarize what the requirement for Schedule C filing is?
> You've latched on to one of the bizarre artifacts of the modern American legal system, not a fundamental principle of business.
Where are the fundamental principles detailed? I agree the vast majority of businesses have customers, but I don't think it's a defining property -- there are a lot of people with customers who do not consider themselves having a "business" (Although the IRS might think otherwise)
I would wonder what that would mean for string theory.
No. I'm saying that arguing about what a "business" is or isn't is futile, because something which is a business to one is not a business to the other. Had there been a legal definition, there would have been merit to such a discussion.
> I would wonder what that would mean for string theory.
I wonder too. So far, string theory has not been predictive, and as such is a very interesting intellectual experiment, but not a lot more. When it can actually predict something testable that disagrees with another theory, we'll be able to call it "science".
Move to an island where you can be all by your lonesome and run a business any way you want there.
The goals of the business should be the goals of the owner not the goals of some economist or capitalist pundit.
That isn't much of an argument you are presenting though -- you could argue against a person being allowed to do anything based on that. The reason I can't drive a car the way I want is that it represents a clear and present danger to the health of third-parties. On the other hand running my business the way I want doesn't present a clear harm to others, so I can't.
When you hear someone say something like "People should be free to choose their own destiny," do you come in guns-a-blazin' about how they shouldn't be free to choose a destiny where they kill people or beat children? Because that's usually not what people mean when they say that. I think mhartl and tomjen3 were just suggesting that this same principle applies even when the person is a business owner — that people don't suddenly have any one particular goal forced on them just because they happen to be running a business.
I beg to differ. How corporations are run harms so many others that it amazes me that you would even say that. What about all the "down-sized" workers whose pensions were gutted and benefits taken away - or the workers who lose their lives because companies care more about the bottom line than they do about safety?
See chc's post: http://news.ycombinator.com/item?id=3393472
Our society used to be based on concepts like honor.
Honor was something you had to earn and something you could lose. To maintain your honor you had to demonstrate certain qualities: truthfulness, earnestness, fairness, politeness, genuine service toward shared superordinate goals (e.g. the country, humanity, the community).
At some point, our society decided that lying is no longer dihonorable as long as you are doing it to maximize shareholder value or to sell your product. We no longer publically shame and dishonor those caught in bald-faced lies.
Inordinately selfish people always justify their behaviour using socially acceptable statements. What has changed is that our society now lets them get away with it.
ANY lies are now OK as long as they say "I was maximizing shareholder value." They will not be socially ostracized, will not be publicly shamed, and often will not even be criticized. People will, in fact, apologize for them.
People see Wall Street crash-creators testifying at Congress answering "I do not recall" to 100% of the questions. Instead of dishonoring those liars as the liars that they obviously are... our society just does nothing. It's okay that they lied. It's just business you know. We expect our business leaders to be dishonorable.
"It's not the CEOs fault that he knowingly polluted the entire river for 20 years. He was just maximizing shareholder value, discharging his fiduciary duty, we can't hold him personally responsible. It is wrong to shame him and his family, it is wrong to ostracize him from decent company, it is wrong to even criticize him publicly in the newspapers."
Either this mentality changes in a hurry, or the entire country is going to go the way of Detroit.
Nostalgia isn't what it used to be.
Society was never based on honor; it was always about worshiping those who succeeded, regardless of how bad they had been, as long as they did some good at some point. see, e.g. Rockefeller, Carnegie, Mellon & Gates in recent times, and basically all fondly remembered kings and barons in earlier times.
Society adapts, in part, by giving socially acceptable deeds a normative description and concept. The socially acceptable statements lag the deeds, not lead them.
> People see Wall Street crash-creators testifying at Congress answering "I do not recall" to 100% of the questions. Instead of dishonoring those liars
"These liars" applies equally well to congress as to those wall street execs (with whom the former are figuratively, "in bed", and have been for the last century or so)
Really, the only thing that has changed is ease of access to information. Human greed, actions and norms as reflected by social response, by and large, haven't.
Rockefeller and Carnegie were liars, sure, but they had to keep it quiet, they had to buy up newspapers and physically intimate people so their lies would not be exposed, or they would lose face.
Our entire legal system is based on the concept of honor. It's a real thing that existed and people took it seriously. Of course people still lied and some people worshipped the powerful, but at least back then people hid their skeletons in the closet. Now people just blatantly lie, openly engage in what would be called bribery at any other point in history, blatantly and proudly sell out the public good for personal profit, engage in the grossest type of war-profiteering, etc.
Remember how war profiteering used to be a bad thing? Now it's a fucking virtue. Halliburton is a war-profiteering company! War-profiteers used to be hanged for treason!
There was a time in America where if you committed fraud, no matter how "technically legal", you would be lynched. Until dead. And juries would acquit your murderer.
Your second sentence sounds like it's suggesting that Rockefeller and Carnegie knew what honor meant & that this is somehow a good thing. They probably had a concept of their image & perhaps even moral crisis later in life which made them turn philanthropic. Just because one has a concept of honor doesn't really do society any good because it doesn't mean they're actually honorable people. Keeping up the image of honor isn't the same thing as being honorable. It seems almost as though you're excusing them because they had to work hard to keep the image of being honorable going.
One would also think that if everyone acted "honorably" we wouldn't need a legal system in the first place, because no one would ever be dishonest or do dishonorable things. There are legal systems in the world which are far from honorable & are basically an invisible hand of the politicians or theocracy which rules the land.
Not all war-profiteers have been hung for treason. Heck the US even cooperated with Nazis after World War II or how about the persecution of Alan Turing? Good ol' days indeed.
I am not sure if I would say that lynching someone over fraud is the honorable thing to do.
I get your anger, but the annals of history are filled with "dishonorable actions", this isn't apologizing for those who have done misdeeds, it's just stating facts. Painting a rosy picture of the "good ol' days" does no one any favors.
- Woodrow T. Wilson
Aristocrats had to preserve their honor or face reprisals: They could be ostracized, humiliated, publicly shamed, lynched, challenged to a duel, convicted of crimes they did not commit, have their property taken by force and then have the police look the other way, etc.
Whether you like codes of honor is a separate question from whether it existed.
Codes of honor are all about vigilante justice and public humiliation.
Well, given that we're allowing the statement, "society was never based on honor," to stand, we can assume that we're restricting ourselves to Western or simply American values, since the Japanese provide an obvious counter-example. There aren't many Americans who have ever been into honor killings of family members.
Or more to the point - when exactly do you think think period was?
For example, in 1804 the sitting vice president (Burr) was accused (probably correctly) of corrupt dealings. He challenged his accuser to an (illegal) pistol duel and killed him. Burr was charged with murder, but the charges were dropped and Burr continued his political career "out west". This was hardly an isolated incident - US history is full of similar examples - not exactly the honourable behaviour you seem to believe was the norm.
Now, I realize you were responding to the statement about lynching, but it's worth noting that challenging someone to a duel is what you do when your honor has been questioned. In fact, the Wikipedia page on "Honour" includes an illustration of the Burr-Hamilton duel, with the caption, "Alexander Hamilton defends his honour by accepting Aaron Burr's challenge."
It also describes honour as deriving from "perceived virtuous conduct and personal integrity."
It would seem that honour really was a more important thing two hundred years ago than it is today.
Maybe honor did used to be more important, but it's not the same concept, only the same word.
The point is not that people were more virtuous in the past. It's that virtue, or at least the perception of virtue, was considered important in the past, much more so than today.
What's interesting about the duel isn't that Burr killed Hamilton, it's that he took the risk of getting killed himself. The duel could easily have turned out the other way. Who would risk his life to protect his reputation today? Certainly not Dick Cheney.
The point is that even under primitive social codes like the honour system, public officials faced more accountability than they do now.
There is no accountability left whatsoever in ANY social leaders: not business leaders, not industry leaders, not political leaders, not military leaders, not scientific leaders, not legal leaders.
ZERO personal accountability. They can be as corrupt as they want, they can fuck it up as bad as they like, but there are absolutely no consequences to them.
This is what has changed. At least in the 1800s you could be challenged to a duel when you engaged in corruption. At least in the 1800s robber barons had to protect themselves from vigilante justice.
Person B murders his accuser and goes on with life.
How exactly is B more accountability? As far as I know, Dick Cheney hasn't murdered any of his accusers.
How many people in America right now would be willing to have a duel with Cheney? Hundreds if not thousands. That says something meaningful about his role.
Unfortunately the internet is an intellectual ghetto and so there are no good links that describe honour. But cmon you ignorant computer scientists, read a fucking history book. Honor was the most important code of conduct for American aristocrats and lasted until the mid-20th century. If they were publicly dishonoured they could lose everything they cared about.
This is why people fought duels to defend their honour. People were willing to die to maintain their honour.
I don't think we lost honor, I don't think we had it, but I do think we have lost nearly all sense of caring.
If you stopped putting words in my mouth, we might actually have a two sided discussion. I did not say "everyone is a liar" or anything that could remotely be interpreted to mean the same.
> Our entire legal system is based on the concept of honor.
What country is that? Is that the US system that a hundred years ago decided that corporations are people? Can you demonstrate what you mean by "based on the concept of honor".
> but at least back then people hid their skeletons in the closet.
People still try, by and large. They stay there for shorter, due to easier dissemination of information, but that doesn't change dynamics much.
> Now people just blatantly lie, openly engage in what would be called bribery at any other point in history, blatantly and proudly sell out the public good for personal profit, engage in the grossest type of war-profiteering, etc.
They always did, but these things were not as easy to track, as they are now. Can you point to a resource like opensecrets.org-like resource in 1900?
> Remember how war profiteering used to be a bad thing?
No. Do you? I mean, I think it's a bad thing, but I am not aware of any point in the US history where it was socially unacceptable. On the contrary - thanks to the "right to bear arms", weapons manufacturers were always "men of honor", and no one is more of a war profiteer than these guys.
> War-profiteers used to be hanged for treason!
Are we living on the same planet? Earth, 3rd rock from the sun? They would only be hanged by other war profiteers when falling out of favor with the politicians, who were often war profiteers themselves. And they still are, for a modern definition of "hanged". E.g. Rupert Morduch has recently been thrown under the bus after going a bit too far. And it wouldn't have been different at any other time in history.
> There was a time in America where if you committed fraud, no matter how "technically legal", you would be lynched. Until dead. And juries would acquit your murderer.
Do you have examples? Charles Ponzi, for example, was still admired when he went to jail, and wasn't lynched.
On the other hand, in the south they would acquit you for real undisputed murder, as long as the killer was white and the victim was black -- to the point that nowadays mentioning "jury nullification" in court would get you thrown in jail for contempt of court, because of how it was misused 100 years ago.
I'm not sure that how mobs treated people 100 years ago is how what you want to look up to.
forensic, you are incredibly naive, I think. You have an ideal of history, and you somehow assume it is an indisputable, to the point of being enraged that people disagree. Calm down, look around. The world is not dogmatic, and never was.
"the optimists don't make it out of vietnam" http://en.wikipedia.org/wiki/James_Stockdale
It's pacisfists who are the optimists. Pacifists who say we should just let Cheney and Blankfein off the hook. I say we should tar and feather them, precisely because I understand that if we don't, things will get worse. This is not an optimistic viewpoint.
2. No social system is perfect and the honor system of course was not either. However, if an American aristocrat in, say, 1830, was openly and publicly caught in a lie that was obviously selling out the nation, he would likely be convicted of something, or he would be publicly shamed, or he would receive vigilante reprisals.
It wasn't a perfect system - honor systems by definition are not - but the reprisals demonstrate that there was a code of honor that went beyond the law. Honor by definition is a code of conduct with social reprisals that goes beyond the law.
American social conduct was heavily policed by codes of honor. Maybe you think codes are stupid but nevertheless they had a tremendous influence on social behavior, as they do in any society where a code is implemented.
Not everyone follows the code of honor, but those who blatently break the code are usually dishonored, shamed, ostracized, and face physical and finanical vigilante justice. The existence of this "street justice" worked as a deterrent so that the Dick Cheneys and Lloyd Blankfeins of the time had to work really hard to keep their skeletons in their closet.
Trial by jury is only one step removed from mob justice. Individuals should be tried by the court of public opinion and punished by that court. If public opinion widely sees Blankfein as a treasonous fraudster, it is right that he be lynched. And if the courts are too corrupt to charge him then the duty falls to the general public.
It's not naive to recognize that brutal and swift vigilante street justice keeps outrageous criminal activity in check. You want to paint me as some kind of utopian but I'm actually saying society needs more bloodshed, more violence, more vigilantism, more lynching, more mob rule. Mob rule and the judgment of the mob is the basis of democracy. Legal technicalities are not.
"Even personal shame and humiliation was preferable to a tarnished honor or the hint of corruption. When Treasury Secretary Alexander Hamilton was accused of corruption for making secret payments to a man named James Reynolds, Hamilton revealed he had been set up and was paying blackmail to Reynolds following an affair with Mrs. Reynolds. Duels over honor were common in the era--Hamilton was killed in one, as was Hamilton's son."
“Nobody can acquire honor by doing what is wrong”
- Thomas Jefferson
"Some men who are not real men love other things about themselves, but the real man believes that his honor is dearer than his life; and a nation is merely all of us put together, and the nation's honor is dearer than the nation's comfort and the nation's peace and the nation's life itself."
- Woodrow Wilson
“No person was ever honored for what he received. Honor has been the reward for what he gave.”
- Calvin Coolidge
"All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy,
- Winston Churchill
"There are three classes of men; lovers of wisdom, lovers of honor, and lovers of gain. "
"Who sows virtue reaps honor."
- Leonardo da Vinci
"I love the name of honor, more than I fear death. "
- Julius Caesar
"Leadership to me means duty, honor, country. It means character, and it means listening from time to time."
- George W. Bush
"The difference between a moral man and a man of honor is that the latter regrets a discreditable act, even when it has worked and he has not been caught. "
- H. L. Mencken
"You will never do anything in this world without courage. It is the greatest quality of the mind next to honor."
"Life every man holds dear; but the dear man holds honor far more precious dear than life."
- William Shakespeare
But I find it hard to take you seriously. Quotes from political speeches, from the likes of George Bush and the conservapedia? Are those supposed to be reliable?
If these are the sources you base your view on then we really do live in different planets.
If you trust quotes - Bush said "No new taxes" (and there were), Obama said he'll close guantanamo as soon as he goes into office -- he even signed such an order in his first month -- but guantanamo is still operating.
Quotes are PR. Actions speak louder than words. And the actions had always been to worship the successful, as in the examples I gave, the Cheney example you gave, and the Burr/Hamilton I wasn't even aware of.
You seem to have your pet way of interpreting history. I'm not arguing that honor and other values were some kind of omnipotent force for good I'm just saying they existed.
When you assume that I'm a complete idiot you're failing to "assume good faith" which is one of the conduct requirements to maintain your honor. In a court of law, a lawyer who fails to assume good faith is dishonored and his arguments are automatically invalid. Honor is still used in our justice system.
When was the last time you observed real court proceedings and saw a laywer dishonored? Many of them act in bad faith every day.
You ignore historical examples dismissing them with excuses, your references are (essentially) PR speeches and the conservapedia (this thread http://www.halflife2.net/forums/showthread.php?121000-Conser...! might enlighten other readers, but it is irrelevant to reality in your own planet).
If courts worked as you believe, the SCO/Novell fiasco would not have dragged for the years it has (it's still not dead!).
Yes, honor exists. But you have failed to demonstrate that the course of american society was significantly influenced by the concept of honor.
This is extremely true! Probably the best example of this is Cecil John Roads (http://en.wikipedia.org/wiki/Cecil_Rhodes) who was a ruthless businessman who owned countries, started wars and engaged in unsavory business practices.
Yet he is fondly remembered for the Rhodes Scholarship and his donations to the University of Oxford.
I remember reading one of his lectures where he was telling the class that now their duty, as wealthy and cultured modernists, was to serve the uncivilized and poor of the world and to bring the luxury and comfort that aristocrats knew to everyone. Rhodes taught altruism and service to the unfortunate and his legacy is many powerful people who worked to better the world, inspired by Rhodes.
Rhodes was not an Empire Builder. He was a company builder. His company was the British South African Company (http://en.wikipedia.org/wiki/British_South_Africa_Company).
> but his prime motivation was to modernize the world. Rhodesian policy led to the end of the empire, in fact.
His motivation was to make money. You know that he tried to start a war?
Which led to two other wars
The "British South African Company" that fought in these wars was a paramilitary unit that belonged to his company.
> Rhodes taught altruism and service to the unfortunate and his legacy is many powerful people who worked to better the world, inspired by Rhodes.
Maybe he tried some veneer after he became rich - but he was still a bastard.
(Even his Rhodes scholarship is designed to Anglicise. It is impossible for a person to obtain the Rhodes scholarship unless he studied in English).
Who is teaching you this bullshit history?
Demonizing historical figures instead of studying them in the context of their time is really pathetic.
Maybe you misunderstood me. You say that he was a selfless Empire Builder - i.e. he had some zeal to build the English Empire for the good of the queen and England. Yet his true aim was making money (through the British South African Company).
> Who is teaching you this bullshit history?
> Demonizing historical figures instead of studying them in the context of their time is really pathetic.
Trying to whitewash history and historical figures is quite sad. Admittedly I learnt history from a different perspective than you (i.e. from the side of the oppressed and not the opressee).
Yet even in western countries, colonialism is now seen as a bad thing by the majority of people (a few nationalists and apologists notwithstanding).
No wonder. Regardless of the inspiration, reality with its liberal bias favors the successful rather than the honorable. These concepts are not inherently incompatible, but way more often than not are, and always were.
Yes, the king himself committed adultery and murder. After this, David was rebuked by the prophet Nathan with the word of Jehovah (2 Samuel 12:1-14). You see, God immediately condemned what David did. Then He spoke a judgment on David and on his house (Israel): "Now therefore the sword will not depart from your house forever because you have despised Me and have taken the wife of Uriah the Hittite to be your wife." (v. 10) The sword, that is, war, has not left the nation of Israel. They are constantly fighting for their survival. David was even personally disciplined by his son dying and his wives being treated as he had treated Uriah's wife (vv. 11-14).
After being rebuked, David mourned. At this time, he wrote Psalm 51. In it he repents and confesses his sins to God, saying, "blot out my transgressions", "wash me thoroughly from my iniquity", "from my sin cleanse me", and "purge my sin". Eventually, David's repentance and confession joined God's forgiveness and the result was Solomon, through whom the temple was built and Christ was produced.
Cherry picked or not, every concrete example brought up in this thread (Burr/Hamilton, Cheney, and those I gave) is supporting my point of view. The opposing point of view (which I infer you support from your post) has not brought up a single supporting example, even though it starts at the inferior position (if you claim things were different, the onus is on you to demonstrate the direction, character and rate of change!).
Yet you dismiss those examples as being "outliers" and cherry picks given without diligence. Oh well. I am wrong in trying to arguing with people who care not about the facts. But I have a little time to kill, so it's ok.
I feel sorry for approximately half of the human race, and I sometimes have trouble determining which half that is.
The choice that managers of public companies are facing is the well known "Consume vs. Invest". Or, in the terms of an evolutionary fitness landscape, "Exploit vs. explore".
If a manager wants to maximize his next quarter's earnings, he could stop new product development, shut down customer service and equipment maintenance departments and sell, sell, sell. He could have a short short-term spike in profitability, but in the long term the company won't survive. He has exploited his current position but has failed to explore, to look to the new opportunities and threats, and to provide for the future.
(Note: the manager could also buy a portfolio of high-yielding/high risk securities hoping that the crash will not happen before his next bonus is due. This is the same thing -- maximising short-term gains at the expense of the long-term prospects of the company).
The manager could also overexplore, that is to overinvest in customer and product development, purchase the newest equipment and end up with a croud of excited customers and an exciting new technology/product, but no liquidity left in the bank to live to see it taking over the market.
"Maximizing shareholders value" idea got a bad press, because it has become associated with the 'exploit' approach. Managers endanger the long-term prospects of the company because they can be paid well for achiving relatively short-term goals.
But the working definition should be "Maximizing shareholders value in the long term"
Let's make the law that the managers' options can only be excersized after 10 years. That'll do the trick.
And sometimes exploitation is better than exploration.
Microsoft is a great example of this. Currently MS dumps billions into Bing, a form of exploration. If the shareholders were given a choice, do you think the would choose this? Most likely not - if they wanted to explore search, they would probably dump billions into GOOG. Microsoft shareholders would probably be better off if MS stopped exploring, exploited current revenue streams, and allowed shareholders to invest in businesses with a brighter future.
The working definition should be "maximizing shareholder's time and risk discounted value". After all, $100 now is better than $100 over 10 years (maybe, if we are lucky). When a company focuses on creating long term value, they are gambling with shareholder wealth. They should only do this when the odds are good.
Many companies already do this - a lot of CEO/executive comp is restricted shares.
That's your judgment. I have to honestly say I'm thankful you're not in charge of Microsoft, because someone trying to compete with Google in the search space is a great thing. (And with Google doing a lot to make Microsoft's core markets vanish, getting into search could save Microsoft's existence in a 10-year timeframe.)
Own MS now. $10 investment yields $20 in profits, all invested in Bing. Net result, in 10 years, you have 20 shares of Bing.
Own MS now. $10 investment yields $20 cash in your hands. You buy google. Net result, in 10 years, you own 20 shares of Google.
Unless you think Bing is a better investment than Google, you are better off taking the cash and reinvesting in Google.
And as an investor, I don't care if MS exists in 10 years. I care whether my portfolio is up or down in 10 years. And I care about liquidity - all else held equal, I'd rather have $1 cash in my hands than $1 cash in MS's hands with me owning shares. If I can invest $10 into MS, take $20 cash out, and have the company die, that's not a bad thing.
Hmm...where have I seen those numbers before. Oh right! He's measuring his control period from the bottom of the great depression. Sounds legitimate to me!
This is so hacky it makes me laugh. You can argue that a focus on short-term shareholder value is bad for various reasons, but a focus on long-term shareholder value is incontrovertibly good for shareholders, long-term. In practice, it is also basically equivalent to the author's other view of focusing on "customers", whatever the hell that means. Or focusing on "real performance" metrics like profit, as though you can do one without doing the other.
If CEO pay is tied to long-term stock performance, the problem of gaming the short term earning expectations goes away. Full stop.
My new years resolution is to not click on link-bait anymore.
One choice portion of the show was when the interviewer (who was lapping it up) asked what would be a good alternative to the stock market. He proposed bonds. He even went so far as to say that bonds would reduce the amount of volatility we see in the economy by reducing the impact of the "expectations market".
Yes. Replacing equity financing with debt sounds like a reasonable solution to reducing volatility.
What an absolute fraud.
In the one talk I've seen Jack Welch give he said himself the only form of job security is customers. The article's author is attacking a straw man. He slams Welch's management of the GE as short sighted, but the only facts in support are the deterioration under Immelt's management.
Ultimately, in the long term customers and shareholders have aligned interests in most all cases.
Maybe the real genius of Steve Jobs was to actually spend his time running Apple, creating real products and services instead of playing the expectations game with investors and shareholders.
Maybe the shareholders aren't so easily fooled.
Failing to understand this, and focusing exclusively - or even disproportionally - on the bottom line, is likely to improve it in the short run, diminish it in the medium run, and destroy it in the long run.
I really do not buy into the popular idea that shareholders are only interested in short term results. If that were true, then marginally smarter investors would regularly make themselves huge fortunes by buying undervalued stocks.
I just wanted to make it clear for people reading around here. I don't think they should regard strategies that involve cutting costs necessarily evil.
I work with middle managers who let contractors go and sit on projects months at a time in order to get cost cutting bonuses. It is just working the same numbers on a smaller scale.
That said, Roger is correct (incidentally or not) in my book to criticize the short-term casino nature of the public equity market buyers and sellers. Too often they forget that as shareholders of a stock they are part-owners in the enterprise; rather they only desire to see the price tag on their stock certificate go up in the next minute so they can sell for a profit. That kind of thinking can poison a company.
The lesson I draw from this is that it matters who your investors are. Once you've sold part of the company, you must take into account the desires of your new partners, even if they are a teeming mass of the investing public. After all, you make the choice of whom you sell to. Some corporate leaders attempt to 'manage' their way out of this by massaging earnings the way Jack Welch did. I personally think the best way to handle this is by open education. Warren Buffett writes an elegant and informative letter each year and answers questions alongside Charlie Munger for four or five hours straight at the Berkshire meeting. If your business is too volatile, too secretive, or too sensitive to be explained to the public, you probably shouldn't be doing an IPO in the first place.
It occurs to me that Roger's best hope is to change the minds of RIM shareholders declaring open season on the board. It is naive of Roger Martin to think that his book and Denning's sensationalist hawking of it will do anything to soften the ire of RIM's shareholders. By the same token, it was naive of RIM's leaders not to take into account the fact that once they sold shares to the public, it became the public's company.
The actions flowed from the company credo which is engraved in granite
at the entry to company headquarters, which makes crystal clear that
customers are first, then employees, and shareholders absolutely last.
Companies should instead encourage employees to think about decisions from a wide range of perspectives including customer satisfaction, employee morale and business profitability. Creating a new procedure or rule that employees must adhere to could greatly please customers. However it may create extra menial and unappealing work for employees, lowering morale to harmful levels. It could cost the company a lot of resources that would be better spent elsewhere.
In sports, for the most part, the only fact that matters is a win. with the exception of rare subjective ranking systems (such as coaches polls in college football), the quality of a win doesn't matter. Of course if a coach is playing in these systems, and not doing enough to meet the expectations of the fan base, there will definitely be repercussions.
In the business world, a profit of $0.01 is very different from a profit of $1.00. Of course there are numerous valuation models, but the amount of profit/revenue/etc almost always matters, as opposed to sports which use a binary valuation system (win or loss).
I appreciate the overall message, and believe that the market is willing to embrace this sort of logic. Jeff Bezos is a great example of a leader focusing on long term performance and being rewarded for it.
Shareholders in the public market right now are focused on "value stocks" in the Buffet and Ben Graham sense and if you don't match value stock heuristics with a dividend and growing net income, you will be punished even if you're 100% focused on creating new customers.
Sure J&J did a great job with the Tylenol poisoning case. However, they've lost over $1B in revenue in the last year or so because they consistently failed to produce drugs that meet federal guidelines. Not to mention the "unofficial recall" where they paid people to go into stores and buy up all the J&J products so that they wouldn't have to conduct an official recall.
J&J is probably the most messed up company right now.
If shareholders (ie owners) want short term leadership, that's what they get. No one is forcing you to sell your shares every time the stock price moves. Buy and hold.
The Enron problem is ... the predictable result of too strong of a share-centered view of the public corporation... Corporate law demands that managers simultaneously be selfless servants and selfish masters. On the one hand, it directs managers to be faithful agents, setting aside their own interests entirely in order to act only on behalf of their principals, the shares. On the other hand, in the service of this extreme altruism, they must ruthlessly exploit everyone around them, projecting on to the shares an extreme selfishness that takes no account of any interests but the shares themselves. Having maximally exploited their fellow human corporate participants, managers are then expected to selflessly hand over their gains...
Altruism and rationally self-interested exploitation are extreme and radically opposed positions, psychologically and politically. ... For managers, one easy resolution of these tensions is a simple, cynical selfishness in which managers see themselves as entitled, and perhaps even required, to exploit shareholders as ruthlessly as they understand the law to require them to exploit everyone else. ...
Internally, the share-centered paradigm is just as self-destructive. Corporations succeed because they are not markets and do not follow market norms of behavior. Rather, they operate under fiduciary norms as a matter of law and team norms as a matter of sociology. However, the share-centered paradigm of corporate law teaches managers to treat employees as outsiders and tools to corporate ends with no intrinsic value. Just as managers are unlikely to learn simultaneously to be selfish maximizers and selfless altruists, they are unlikely to be simultaneously cooperative team players and self-interested defectors. Thus, the share-centered view undermines the prerequisite to operating the firm in the interests of shareholders. ...
Managers constructing the firm as a tool to the end of share value maximization treat the people with whom they work as means, not ends. ...they learn as part of their ordinary life to break ordinary social solidarity. Learning to exploit ruthlessly is surprisingly difficult. ... But cynicism can be learned, and managers subjected to the powerful incentives of the share value maximization principle do eventually learn it. ... This training, however, surely creates cynics, not faithful agents. ... A manager whose lived experience is a pretense of selflessness (with respect to employees, customers and business partners) covering real disinterested exploitation (on behalf of shares) is unlikely to suddenly see himself as “in a position in which thought of self was to be renounced, however hard the abnegation” and voluntarily hand over these hard-won gains of competitive practice to his principal. If you can properly lie to your subordinates, why not lie to your superior as well? ... In the end, the cynicism of the share value maximization view must eat itself alive.
Read "The Intelligent Investor" or "Common Stocks and Uncommon Profits", which give examples of things companies did 50 and 30 years ago.
A return to a rational market would realign incentives, and stock-based compensation would work, but that's a lot to ask...
If you believe the public markets are not efficient, how long will it be before you are rich?
Like all great obvious, radical ideas, in the first instance it will be rejected. Then it will be ridiculed. Finally it will be self-evident and no one will be able to remember why anyone ever thought otherwise.
I highly recommend they all watch the Canadian Documentary 'The Corporation' which clearly illustrates why corporations ARE like psychopaths - and generally run by people who also meet the definition. The movie is available free online.
Corporations as they currently exist are inherently unethical and unsustainable because by focusing on short term gain and stock values they are destroying the real value they once had.
Either social responsibility and long term goals must be injected back into corporations or they need to be boycotted by everyone with a conscience or ideally have their corporate charters revoked.