This is right on the money, which Milton Friedman took to another level of economic stupidity. Michael Hammer then drove another nail into the economic coffin with his Re-engineering work. We need to move away from a profit-centric economy and establish a value-based initiative from which everyone benefits.
Great read and a timely reminder of the contingency of much of the entrenched beliefs in our current political economy. The lack of historical context that surrounds the current economic status quo really feeds these narratives too.
I suspect you would enjoy reading Roger Martin's *FIXING THE GAME*. In order to fix the agency problem you mention, the solution embarked upon was to have the executive be granted shares in the company. Their interests would then align with the shareholders, because the were shareholders. This has turned out to be precisely the wrong thing to do. Instead of making the executives care more about the long term interests of the firm, it taught the shareholders to care less, because they could make short term profits, too. review here: https://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/
This is a topic I've been thinking so much about recently! I don't know if companies can change as much as they need to to become sustainable (i.e. not destroying value for the economy, society, and environment) while they are owned by short-term investors.
The Long-Term Stock Exchange founded by Eric Ries is an interesting middle ground between the mainstream stock market and private companies. The idea is to bring together companies and investors with a long-term perspective and make them comply with 5 principles like aligning compensation with long-term performance, and investing for the long term.
hi Anna! I had no idea there was a Long-Term Stock Exchange, I'll look into it, thanks for the info! I'm intrigued about those 5 principles and how they're actually enforcing them...
Yeah I've forgotten a lot about how it works. Eric Ries briefly wrote about it at the end of his book "The Lean Startup" which sent me down a rabbit hole back when I first read it. But I think it's essentially companies taking a pledge to uphold these principles and they might also need to pass some certification to continue to be listed on the LTSE. Maybe it works a bit similar to b-corps, but I'm not sure.
Definitely curious to hear what you think when you look into it!
I dunno, it speaks directly to financialization. If the objective is to create a brand so as to cash out in an IPO and then have the brand dismembered to extract the maximum profit before it is destroyed by negative market feedback...seems precisely what this thesis is speaking towards.
“Value” is vague, subjective, and depends on the general perspective of the user. That makes it useless for advancing the discussion. Most of Wealth of Nations has nothing to do with who owns/manages capital, though Smith did note what we now call the principle/agent problem: “other people’s money”. He concluded that corporations could not survive (without a legal monopoly). He was wrong.
Any discussion must recognize that, for good or ill, corporations have been enormously successful in growing the economy. Beware of changing what you do not understand.
This was interesting (thanks for posting) but I don't find it very convincing. Sure, public shares are easier to trade than actual businesses, and I'm more likely to also be an employee in a smaller business, but the ownership incentives seem the same to me: I want the value of my share or business to go up as much as possible before I sell it.
This also reminds me of other things I've read about the possibility that index funds negatively impact the market. I find it plausible that companies behave very differently if most of the ownership also owns competitors and cares more about general industry growth than beating the competition.
This is right on the money, which Milton Friedman took to another level of economic stupidity. Michael Hammer then drove another nail into the economic coffin with his Re-engineering work. We need to move away from a profit-centric economy and establish a value-based initiative from which everyone benefits.
Great read and a timely reminder of the contingency of much of the entrenched beliefs in our current political economy. The lack of historical context that surrounds the current economic status quo really feeds these narratives too.
I suspect you would enjoy reading Roger Martin's *FIXING THE GAME*. In order to fix the agency problem you mention, the solution embarked upon was to have the executive be granted shares in the company. Their interests would then align with the shareholders, because the were shareholders. This has turned out to be precisely the wrong thing to do. Instead of making the executives care more about the long term interests of the firm, it taught the shareholders to care less, because they could make short term profits, too. review here: https://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/
100% ! Thanks for sharing the article !
It’s interesting that Warren Buffet with his long-term approach to investing has out-performed all of the short-term money managers.
Thanks for bringing this to our attention
This is a topic I've been thinking so much about recently! I don't know if companies can change as much as they need to to become sustainable (i.e. not destroying value for the economy, society, and environment) while they are owned by short-term investors.
The Long-Term Stock Exchange founded by Eric Ries is an interesting middle ground between the mainstream stock market and private companies. The idea is to bring together companies and investors with a long-term perspective and make them comply with 5 principles like aligning compensation with long-term performance, and investing for the long term.
hi Anna! I had no idea there was a Long-Term Stock Exchange, I'll look into it, thanks for the info! I'm intrigued about those 5 principles and how they're actually enforcing them...
Yeah I've forgotten a lot about how it works. Eric Ries briefly wrote about it at the end of his book "The Lean Startup" which sent me down a rabbit hole back when I first read it. But I think it's essentially companies taking a pledge to uphold these principles and they might also need to pass some certification to continue to be listed on the LTSE. Maybe it works a bit similar to b-corps, but I'm not sure.
Definitely curious to hear what you think when you look into it!
You’re wasting everyone’s time with this. Pick up a copy of Taleb’s “Skin In The Game” and disabuse yourself of this nonsense.
I dunno, it speaks directly to financialization. If the objective is to create a brand so as to cash out in an IPO and then have the brand dismembered to extract the maximum profit before it is destroyed by negative market feedback...seems precisely what this thesis is speaking towards.
“Value” is vague, subjective, and depends on the general perspective of the user. That makes it useless for advancing the discussion. Most of Wealth of Nations has nothing to do with who owns/manages capital, though Smith did note what we now call the principle/agent problem: “other people’s money”. He concluded that corporations could not survive (without a legal monopoly). He was wrong.
Any discussion must recognize that, for good or ill, corporations have been enormously successful in growing the economy. Beware of changing what you do not understand.
This was interesting (thanks for posting) but I don't find it very convincing. Sure, public shares are easier to trade than actual businesses, and I'm more likely to also be an employee in a smaller business, but the ownership incentives seem the same to me: I want the value of my share or business to go up as much as possible before I sell it.
This also reminds me of other things I've read about the possibility that index funds negatively impact the market. I find it plausible that companies behave very differently if most of the ownership also owns competitors and cares more about general industry growth than beating the competition.