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Comment by sinatra | Hacker News Reader

If you had your savings in this company as a shareholder, and if you knew that the company could survive and maybe prosper (unlikely in case of LS) by reducing its cost of customer service by outsourcing it, then would you not support this move?

This is not very different from when you decided to buy a decent quality product made in China when you could have bought a slightly better quality product made in USA for 2X or 3X the price. I'm obviously guessing here to be more dramatic, but the point is true in general.

Cost has always been a major factor in many decisions we make as individuals or organizations. And for a company (which has fiduciary duty to its shareholders), cost is definitely a more important factor than being able to hire Americans.

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There's no legal concept of that oft-asserted “fiduciary duty to maximize shareholder profits” and for a very good reason: it's almost never clear what the correct decision is until afterwards.

In this case, what are the odds that an overseas call center would cost more than anticipated (often the case), lower the quality of service and thus the company's reputation, or actually be enough to stop the downwards spiral rather than just signaling that you're in a low value-add commodity business?

> what are the odds that an overseas call center would cost more than anticipated (often the case), lower the quality of service and thus the company's reputation, or actually be enough to stop the downwards spiral rather than just signaling that you're in a low value-add commodity business?

I would imagine that a company as large as LS would have used some analysis and external/internal data to estimate the overall costs of such a move (which would include the cost of lower quality of service etc). And they must have still found the move cost-effective.

It's slightly insulting to LS employees to think that they would know less about the cost-effectiveness of this move than us. Moreover, this move seems drastic. When you're making such drastic moves, you're likely doing so to be able to survive. In such cases, lower quality of customer service and poor signals etc take a back seat.

The argument isn't that LS management knows less but rather that they're trying to balance multiple demands. An investor's interests end when they cash out, so it's very common for CEOs to face pressure to make decisions which are likely to be profitable in the short-term, but unless they're planning to leave at the same time rhey have to consider the risks to long-term sustainability. Things like customer support and R&D are classic targets for that because they tend to involve many jobs which don't directly generate revenue, and the negative effects often aren't visible for years but the savings show up in the next quarterly report.

Sorry, this is not getting at the core of your assertion, but what do you mean by:

> There's no legal concept of the oft-asserted “fiduciary duty"

... I can assure you that "fiduciary duty" is very much a legal concept.

Sorry, yes, that could have been more precise. There's a common trope that executives have a fiduciary duty to maximize shareholder value, but that's not actually written into any sort of law for the reasons I mentioned — business is all about judgement calls trying to balance risks and trying to balance short and long-term prospects. I'll edit that to clarify.

That doesn't mean that cost shouldn't be considered, only that there's no support for the assertion that “cost is definitely a more important factor” because reasonable people can quite legitimately come to different conclusions. I might think the overseas call center is reasonable, you might think that you'll be able to offer a better customer experience by keeping it in-house or with staff who work for you rather than contractors, etc. and only time will tell how true those predictions are.

Err...I am guessing you have never been involved shareholder derivative lawsuit against the board then...happens all the time in M&A.

http://www.pennstatelawreview.org/116/3/116%20Penn%20St.%20L...

https://en.wikipedia.org/wiki/Revlon,_Inc._v._MacAndrews_%26....

That's a specialized edge-case and both of your links make the same point that I was making as the default rule for normal operations. There is usually considerable deference to business judgement but when a company is being sold you have an unusually simple situation where the timeframe is fixed and the value is precise. Notice how the situation is recognized as different from the normal operations we were talking about:

> Accordingly, the board's actions are evaluated in a different frame of reference. In such a context, that conduct can not be judicially reviewed pursuant to the traditional business judgment rule, but instead will be scrutinized for reasonableness in relation to this discrete obligation.

Best not to talk in absolutes then, Mr. "'There's no legal concept of that oft-asserted "fiduciary duty to maximize shareholder profits'"

lol at M&A is a "specialized edge-case".

If you have savings in this company as a shareholder, you're going to lose your savings. The only people who will make money at this point are the VCs, who by law can't have their "savings" invested in the company. If you're not a VC holding shares at the company you're going to be wiped out via dilution or multipliers in the event of an exit, and god forbid they raise MORE money, because the terms on that deal are going to be pretty rough.

Even if the company manages to turn itself around, older existing shares will probably be wiped out just due to dilution in retaining its executives and share-backed loans, or, again, if it has to raise more money, terms on new money.

Whether a shareholder will get any returns in Living Social is not what I'm talking about. As a company, their job is to do whatever they legally can to protect (and grow) a shareholder's investment. If hiring Americans goes against that, then they should not hire Americans.

I was just responding to the first part of your post, specifically around a shareholder had their savings invested in the company. Management has a legal responsibility to do what's best for the company, yes, but that often is at odds with an investor who got in before the company turned sour.

If hiring Americans goes against that, maybe they shouldn't be in business.

Thus causing even fewer Americans to have jobs. Perfect demonstration of why protectionism is such a terrible idea.

Or, allowing someone who is better at it to take their place, giving more Americans jobs.

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