Why U.S. Corporate Boards Don’t Include Workers
bloomberg.com
bloomberg.com
— Peter Thiel
More board members may increase intransigence, decrease oversight (cover over who is really making the decisions and who is not), and turn US corps more bureaucratic.
Many totally rational worker ideals (keep comfy job) are often very opposed to a company's ideals (upgrade technology, take new risks, automate) that may disrupt current workers in favor of fewer workers or different workers. Boards beholden to current workers may sacrifice a lot of progress to keep things comfy, at the expense of future workers and jobs.
I get why, as this article describes, it happens in Germany and is suggested for the US. But on the face of it that mandating board composition is probably not the best way to help workers in companies. There is probably some better way that throws less sand into gears, that involves fewer attempts to mortgage the future of a company for its present workers, etc. Obviously it "works" in germany, for some amount of "works," but it should need no explanation that US companies as a whole are able to move faster, and in high tech, often with higher wages(!!) than in Germany.
Sorry that my perspective is dragging this in a tech centric, but everyone should ask themselves: Why are tech workers wages so low in Germany compared to the USA, if they have workers on the board? It seems unaddressed in this discussion so far, which I think is a great discussion to have. But lots of people so far are acting like its obvious that the German model will lead to higher worker salaries but its... not true already in Germany, for tech at least.
My town had a downtown improvement committee of 3 people which seemed successful, so to further expand its "power" they decided to add dozens of people to it (I was one of the ones added). What I saw was eye-opening.
What effectively happened was that a small group of us with executive positions were the ones who actually ran the society, and we had our own meetings where we nailed down plans then presented it to the wider group as essentially a fait accompli.
Everything was far saner after we passed new regulations to force it down to a mere 11 people...
I'm not certain it's North America as a whole. I'm in Toronto, mostly considered the highest paid city in Canada, and I've long decided to not pay attention to Silicon Valley salaries, lest I get depressed :)
Whether you search for developer, software engineer, system administrator, SRE or the like, salaries in California seem positively extravagant to those in Toronto (which also has a very high baseline cost of living).
Further, I'm pretty sure Mexico salaries are even further depressed (which is the third country composing "North America" :)
FYI this isn't limited to Europe; Canada also pays much lower than the US. (The Seattle vs Vancouver comparison is especially striking). Elsewhere, Singapore is comparable to Switzerland and the US. I'm not sure about NZ and Australia.
So is this really a Canada [or wherever] vs. US comparison, or large US tech-hub vs. everywhere else comparison?
My theory of why tech salaries are higher in the US: the US, public and private, borrows trillions of dollars. It consumes more than it produces. Wages are higher. And so are imports and immigration. It's all a consequence of the borrowing.
If the US stopped borrowing so much and stopped inflating bubbles and re-inflating them after they collapse, consumption, wages, imports and immigration would fall.
If the US started paying down its debt, we'd be producing more than we consume. We'd be exporting more than we import and there'd be more emigrants than immigrants.
The growth industries are the most prone to bubbles. It's easier to believe something that is rising will get big than something that is the same or shrinking. So most of the VC capital goes to growth industries. Well, it would in any case, but even more so when there is an unnatural amount of capital. So that is where salaries get bid up the most.
One of the things the US produces with it's huge military spending is stability. The way the rest of the world pays for that stability is through buying T bills that pay <2% Every empire throughout history has demanded taxes from client countries, the way the US collects those taxes might be unique. All that is a long way of saying: don't worry about all that debt, it will never be paid back.
Just so everyone is clear, this is a heterodox (fringe) theory that is not accepted by economists, mostly because it flies in the face of both macroeconomic theory and empirical research.
It has its bases in reality, though. Remember Yo? 1.5M at 10M$ valuation for an app that broadcasts "yo". This is only made possible because borrowing money is extremely cheap in the US compared to Europe.
This is itself reductive and doesn't really represent the full story (venture capital in particular is itself already largely sourced from foreign money).
In any case, the statement "low interest rates encourage investment" isn't fridge (in fact, it is literally tautological). The fringe part is the idea that the US is fueling cycles this way, and the implication that the US economy would somehow be better off by paying off debt instead of printing money.
I thought that the entire point of lowering interest rates is to fuel the economy? Problem is when the markets have become addicted to cheap money, and politicians don't have the guts to force them to give up the cheap money, so eventually the bubble bursts...
[0]: https://en.wikipedia.org/wiki/List_of_public_corporations_by...
But I hardly think the investment environment in the Valley is irrelevant. Companies do use capital to get big.
But....
https://www.thelocal.de/20170411/germany-has-second-biggest-...
And in California, the state income tax is an additional burden.
Of course, it's the final take home pay that matters.
Moving to Germany wouldn't be enough. You'd have to emigrate to Germany, become a German citizen and give up your U.S. passport in order to escape the U.S. tax system.
Peter Schiff talked about it on Joe Rogan's podcast recently.
German billing requirements are often lower. My personal experience was 1150 in Germany and 1650 in the US, while my spouse's was 1300 in Germany and 1900 in the US.
If you factor a 1900 hour billing req at $120,000 (new lawyer at a bigger firm or experienced at a smaller firm) with a $20,000 bonus in the US going to maybe an in-house company position for $85,000 (US) and 1300 hours with little or no bonus and maybe 10-15% higher tax rate, then it can sure seem like a 2x or 3x pay cut.
But the quality of life is much different.
I know plenty of US lawyers who earn 6 figures but work the equivalent of more than 2 full time jobs' worth of hours to do it.
My spouse and I are planning to move back to Germany within about 6 months. We each have jobs as lawyers lined up (one definite, one tentative), and we will be taking nowhere near a 2x to 3x pay cut even factoring taxes. Based on changes in the US tax code, I am not even sure that my spouse's salary overall will be less there than here. Mine, I think, will be, but that's partly because of circumstances.
So, I'm not saying you're wrong, by any means, but to take a 2x to 3x pay cut moving from the US to Germany working as a lawyer seems to me like there's more involved than only taxes.
Anyway, good luck on your transition!
No, in some countries (e.g. southern) the pay cut is much higher.
4-5 weeks holiday, mostly 7.5 hour workday. Free healthcare and social safety net, but total tax burden is 50%-75% of pre-tax income depending on personal consumption patterns. Cost of living is comparable to some medium-size US cities. Average 1-bedroom apartment costs ~300k, very generally speaking. All consumer products are as expensive or more expensive than in US cities, due to 25% VAT.
Take a look at the evidence in the real world (y'know, actual facts, not baseless speculation) and you will find strong indication that larger board sizes increase corporate performance.
> Boards beholden to current workers may sacrifice a lot of progress to keep things comfy, at the expense of future workers and jobs.
Again, this is the sort of thing that you could investigate by doing research of actual facts in the real world. You might start by looking at how German firms with significant worker board representation responded to reunification and Eastern Europe online. Hint: workers did not sacrifice future growth to keep their "comfy" wages.
> Obviously it "works" in germany, for some amount of "works," but it should need no explanation that US companies as a whole are able to move faster, and in high tech, often with higher wages(!!) than in Germany.
Like most "economic debates" in the US, I expect the debate around codetermination will be driven purely by ideology. There will be no serious review of the existing economic research and zero attempt to seriously investigate what works and doesn't work in any countries. What you'll get is just one side crying "Communist!" and the other side crying "Capitalist!" and there will be zero progress.
So you have statistical evidence that an increase to board size on day t is associated with greater excess stock returns on days > t?
"One of the most consistent empirical relationships about boards of directors is that board size is negatively related to firm performance (Hermalin and Weisbach, 2003). Yermack (1996) finds a statistically significant negative relationship between board size and firm performance as measured by Tobin’s Q with a sample of 452 large U.S. industrial corporations for the period of 1984-1991. In the same study Yermack also exhibited that companies with small boards have more favorable values for financial ratios. Similarly Eisenberg, Sundgren and Wells (1998) concluded the negative relationship between firm board size and performance measured by return on assets (ROA) for a sample of 879 small private firms in Finland. In their 1998 study, Barhart and Rosenstein revealed that companies with fewer board members have superior performance compared to companies with crowded boards (...)"
https://www.researchgate.net/publication/321869618_The_Effec...
The point here, as stated before, is not uncritically accept nonsense about board size because it validates your ideology and to look at actual research and evidence on the topic. At some point if you want to be taken seriously (at least outside of the US) you need to do more than appeal to your ideology du jour.
The point here, as stated before, is not uncritically accept nonsense about board size because it validates your ideology and to look at actual research and evidence on the topic.
Physician, heal thyself.
It was a substantially better experience than I could get in most of the US at the time, although Amtrak has gotten better about not looking surprised when my ticket is on my phone, and some cities have moved in good directions there too.
Different experiences, different people, who knows who's the edge case eh?
This is objectively not true, because the median American worker has a higher disposable income than the median worker in most of Europe, including Germany.
This means that, even after paying for health insurance and out of pocket expenses, etc., Americans have higher purchasing power. The gap is even larger when you look at tech workers, because they're paid particularly well in the US compared to the general public.
The US has insane disposable income from top down. Even our low income have luxuries.
The problem with healthcare stems from corruption within out government.
The gap disappears completely if you consider hours worked. Based on [1] and [2], the median German makes $19.52/hr in disposable income, while the median American makes $19.29/hr[3].
Given that Germany does better than the US on many health and education outcomes as well it must be doing something right.
[1] https://en.wikipedia.org/wiki/Median_income#Median_equivalen...
[2] https://en.wikipedia.org/wiki/Working_time#Average_annual_ho...
[3] Yes, I know the math is a little wonky, but I couldn't find median hours worked and had to settle for average. However, the distribution of hours worked is not as skewed as income given there's only a finite number of hours in a year.
Did you mean discretionary income?
His point could just as easily be applied to an argument for the German system to have only three board members with one worker's representative member.
The premise trivializes worker's priorities and idealizes management's priorities. People's need for safety, money, job security, benefits, non-toxic environments, opportunity for advancement, reasonable hours and no off-the-clock work are not about 'comfy' - it's not a nicer office chair; these are their lives and careers; it's their kid's college tuition, their homes, and their health; it's their mental health and quality of life. Management also has plenty of self-interest and I don't find them so focused on efficiency.
> Thiel
He says plenty of outlandish things, and that quote fits his authoritarian bent. I don't take it at face value. Taking other people's ideas and priorities into account can be frustrating and it feels inefficient if you think you know everything. Too bad; that's your job as a leader.
People think there are enough people to take care of the problems, and don't exactly have to intervene all the time.
Because in Germany we have a lower cost of living compared to the tech hubs in the US. Also we have socialised welfare and healthcare systems. Additionally most Germany companies are more risk-averse and focus on long-term stability rather than massive growth.
And on a more cynical note we also deregulated the labor market in the early 2000s to circumvent labor laws by outsourcing low-wage workers to temp agencies that are allowed to treat them like contractors without running afoul of laws intended to prevent this.
Finnish law does not dictate board composition of companies in any way. In Sweden, companies of 25+ employees in most cases have 2 or more representatives in company board. Germany has a dual board system. Employee representatives have a right to seats on the supervisory board of larger companies – one-third in companies with 500 to 2,000 employees, half in companies with more than 2,000. If I understood this correctly, employees are represented by a union official.
Her view was that the German system is simply a bad model that doesn't work. At the same time she credited the Swedish system for the fairly low number of strikes and union activities in Sweden, saying that board representation creates a more keen understanding of business realities throughout union representatives & employees.
She advocated for Finland adopting similar policy to Sweden.
That's why I asked for details instead of an anecdotal unspecific remark by one person.
The reason for employee representation is that they have their own interests, independent of hers, and the reason for democratic representation in general is that humans have a hard time giving real weight to others' priorities. They'll help them when they can, but certainly not if it involves real costs and trade-offs to their own, obviously far more important interests. With representation, the employees don't need her good will; they have the power to act for themselves.
I apologise if this draws away from the primary point of your comment, but I thought this was quite poignant. It's a sentiment that manages to convey my intuition about the motivation behind hard-line anti-socialist groups, and also has the added bonus of explaining why "feel-good" one-off donation/volunteering stories in the media are so popular. People like to pat themselves on the back for helping others, as long as they aren't inconvenienced. People like to praise social constructs that help others, as long as they don't encourage constructs that inconvenience themselves.
Employees have power over the company. They can leave it for another company. At any time, actually. Companies have to compete for employees.
Of course, employees CAN own stock and accumulate enough to get a seat, assuming they can agree. And that, of course, is the problem. Employees won't agree on everything so the majority of employees will get represented and the rest of the employees will not be represented.
Winner-take-all decision making opens the door for corruption. It plagues our democracy. Why shouldn't it also plague corporate decision making?
If you had an arrangement where employees voted on board issues and the YES employee votes were proportionally assigned to the YES side of the board vote and the NO employee votes were proportionally assigned to the NO side of the board vote, that would make a little more sense.
But that would mean the workers would have to be privy to the board's discussions, which means the world will know what they discuss.
So, without that proportionality, the employee representative can actually make backroom deals with the other board members. Deals that might benefit him but cost those he represents a lot.
In any representative decision making body, any individual decision is going to be a `winner-takes-all` decision for whoever likes the outcome. However representative bodies tend to need to make compromises over time, to make sure all of their constituents receive some of what they want.
It's the representative that is winner-take-all. And that gives him or her all of the power of those he allegedly represents. And that means he can be an influence peddler.
This is the primary flaw in the US democracy, at least in its current form. In the original arrangement, the Senate was not affected by this and it was harder to game the entire system.
No, they make compromises in order to ensure that they have sufficient support to get re-elected, which typically translates into screwing over the same minority of constituents repeatedly.
> Employees have power over the company. They can leave it for another company.
There is clearly a great power imbalance between a company of any size and one worker, unless that worker is a superstar (like a star coder).
> Employees won't agree on everything so the majority of employees will get represented and the rest of the employees will not be represented.
That's not how democracy works. In order to put together a majority, you have to make deals with different groups and not alienate those who you might need in the future. The 'majority' shifts over each issue and over time, and the leaders compete to please as many as possible.
And regardless, I don't see what the parent is recommending: No power for workers because it will be imperfect/ What makes the current setup any better?
It has nothing to do with the color of their collars. Either interests are aligned or they are not. When you pay the costs and get the benefits, you are less likely to be corrupt. When you get the benefits and the costs get shifted to somebody else, you are more likely to be corrupt.
As I've already said, workers have power. They just don't have power that rightfully belongs to the owners. It seems like another way to create a monopoly over the labor supply and it would be destructive in the long run.
Tell me more about how rightfully these venture firms acquire their capital?
I don't think this theory matches reality. There is plenty of corruption in management and I don't think I need to provide specific examples. Also, plenty of managers are not risking their own money and, as individuals, their interests are not aligned at all with the business'. Plenty of startup founders screw their businesses for big exits; plenty of owners liquidate and leverage companies to suck out as much cash as they can before they dispose of them; plenty of CEOs think they are God, the company is their toy, and anything they want to do is fine; and there are plenty more dirty stories in the business world.
Workers are risking their own jobs, futures, and money; generally they have less career flexibility than managers. If the auto plant closes, that's it.
> rightfully
That's part of our question, not the answer.
I think the presumption is much weaker - that people for "work for living" (I assume you do not, for some reason, consider management to be work) can be as corrupt as "managers and executives", given the right circumstances.
> There is clearly a great power imbalance between a company of any size and one worker, unless that worker is a superstar (like a star coder).
Given how much money certain tech companies feel necessary to throw at their workers - and I'm not talking select few, I'm talking averages - it's obviously not just star coders. Moreover, given how many companies pay over minimum wage - I would say it is almost never the case. If all the power was in the hands of the company - why pay more than the minimum wage? Obviously, leaving - or not applying in the first place - has some power too, and this power is measured in real money.
"work for a living" is just an idiom for blue collar work. A response I've heard from army sergeants if someone addresses them as "sir" (which should only be used with officers) is 'don't call me "sir" - I work for a living!'. Managers and officers do indeed work.
> tech companies
Tech companies are one narrow segment, and you are talking only about one part of their workforce. Janitors, drivers, etc. also work for tech companies and don't make a heck of a lot (in fact, they don't even get to be employees and have no hope for advancement, at least in some places).
If you think Starbucks barristas, Uber drivers, supermarket checkout clerks, retail stock-persons, hotel doorpeople, coal miners, etc. have any control over their wages or working conditions, have any negotiating power without a union, I don't know what to tell you ... maybe talk to few. The minimum wage theory is interesting, but that's not reality and so not worth my time to think through.
While technically true, in reality, it's not nearly the amount of power that the company has over employees. For one, except in very spectacular cases, a company is not going to fail because one or two employees decided to quit. However, an employee that does not have a job is going to starve and become homeless. Given that the company can take away the ability of the employee to be able to make rent and buy food, but the most the employee can do is jump to another job, I wouldn't extoll this as some equalizing power the workers have over the company.
Carrots which to mind include:
* Lower reporting requirements from the SEC;
* Tax benefits from state tax authorities or the IRS;
* Limited liability shielding in employee lawsuits; et cetera.
These vest and are exercised. Biasing representation, at least initially, to those who have been at the company longer and bought their stock seems prudent.
> Employees generally also have to sign away their rights to vote
Above is a proposal to amend that.
VW tried to create a workers board in TN similar to the German model, but the UAW got in the way.
https://www.nationalreview.com/2015/12/adversarial-labor-law...
I saw a quote from a German labor leader (I think) saying American unions are overly adversarial against firms and don't care about keeping them running.
I think a lot of firms would gladly include worker representation in various form an there isn't a need to create laws to require it.
IIRC most German engineering firms are privately owned, many of them family businesses. Negotiations would definitely be easier than with typical large, publicly traded US companies.
Edit: I should add that I'm not necessarily defending hostile unions, or unions that do more harm than good. On just pointing out that the labor/corporation relationship in the US has been less than friendly.
A lot of social reforms followed eventually, in part due to pressure from worker parties, and we got most of the labor law up to 1919 when the weekly hours worked was limited at 48 hours. Up until 1945 the laws around labor were updated continuously and around 45 they were cleaned up and unified.
This included a lot of other stuff like overtime payments, break times, required time between work shifts, etc.
Unions also started appearing in that timeframe, first ones in ~1850, and that interacted with the labor law. Around 1870, Labor Unions were integrated into the corporations, which at that point basically consisted of the rich factory owner and the starving workers (cliched, but that was the situation here). The unions immediately went about fixing that and were subsequently banned out of fear (by pressure through the rich factory owners) and then later unbanned again. (Then in the two following wars abused and centralized)
The modern history is less interesting, there is some abuse through the unions but in general they had collective bargains which enabled workers to get a labor contract between their union and the corporation which basically sets the hours worked, compensation levels, days off per year and various other parameters.
Having such a contract basically rids you of most of the protections afforded by the state since you're now in the union and the union is strong enough to negotiate fair labor conditions for you (if it isn't this doesn't apply).
If you're not part of the union then this also doesn't apply, this is only if you're part of the union (though usually the collective labor contract is favorable and people use those even if not in the union).
Generally unions don't have a purely negative image (unless they manage to piss off a lot of people like when you effectively halt public transport). Most of them work along with the corporation to protect workers, ie if the corporation is short on profit they'll suggest that instead of firing a lot of people they could reduce hours worked instead.
(The original case was brought because of racial discrimination within the union, so I can understand how we got here...)
If a law is passed that gives my mechanic a vote on such things it would partially transfer the car's ownership from me to him, a redistribution of wealth. Whether you consider that to be justice or theft or both or neither, it isn't a great incentive for me to own a car or hire someone to fix it.
Once your car mechanic's single source of income is your transaction, which feeds their children and puts a roof over their family's head (as is the case for many employees), then maybe we can revisit this analogy.
Finally, because your analogy was so weak, I would also recommend to reexamine your opinion on employee rights at large, because they may be formed around similarly broken logic. Remember, the more your neighbors are protected from poverty and destitution, the less likely they are to be caught in a lifestyle of drugs and violence, which also benefits you and your family.
Here is a link to a Nasdaq policy on the matter[1].
In certain circumstances, a judge can also appoint you to a board, or even to a CEO position (been there, done that) - but things are generally fairly broken if that happens.
Would the non-tech equivalent would be something fanciful like a Chief Cashier Officer?
Yes. Consider these possible board compositions:
- 2/3rds founders, 1/3rd investors
- 2/3rds investors, 1/3rd founders
- 1/3rd founders, 1/3rd investors, 1/3 employees
It doesn't really matter whether the CEO is aligned with employees per se, the real value is in having the employees be the tie-breaking vote between management and investors.
Employees will always optimize for themselves, eventually leading to the destruction of the company.
In power law systems, the enemy of efficiency is local optimization. The very thing that allows the behemoth corporations of today to exist and scale to work is the fact that there are compounding factors working - which is the work of the board. These factors would be less likely in a more locally optimized system, which would naturally result in the case of employee run corporations where the employees are treated fairly.
I think it says a lot that many of the most large corporations are the result of this kind of organization structure. It’s clear that this isn’t the best structure for human beings but is probably very much needed by very high level business like the tech industry. Do you really think employee run business would have led to enough free capital and accumulation of wealth to invest billions of dollars in a pair of AR goggles?
Workers don't have a good incentive to offset the human need to want more more in worker wages which may be counterproductive to the long term viability of a company to compete.
This bitter struggle has been ongoing for the last 300 years and has seen the rise of communism, socialism and other struggles. And its going to continue. The solutions are simple but entrenched interests with capital will obviously protect their interests.
1. A useful or valuable quality, person, or thing; an advantage or resource: proved herself an asset to the company.
2. A valuable item that is owned.
The accounting term is closer to the second definition. I assume that you don't think a company should consider a worker to be "a valuable item that is owned."
Do you have examples of this?
The problems in a company are obvious for most workers.
I agree that workers see things that management doesn't, and good managers are aware of that and work hard to overcome it. However, having seen both sides of that coin, workers also lack awareness of many issues and constraints. They think, 'why don't we just do X? It's obvious!', without realizing that X would cost the company a major investor or partner, or put the company in the crosshairs of a dangerous competitor; or that X would divert resources from a higher priority; or that the CIO, who is great in every other way, opposes X and it's not worth alienating them; etc.
The workers at best see a part of an individual tree, but the job of the board is to manage the whole forrest considering how the entire world is at that moment and where it will be in 5 or 10 years in the future.
I have friends that were laid off (in the end) and the problems in their company were obvious to them. They did not even bother trying brining it up (hint: Never do!).
Now a major consulting firm is trying to restructure the company. They have zero understanding of the business (niche) and based on his former perspective of the company many decisions are major major mistakes (e.g. they only see the profits that a business devision brings in but they don't see how many other divisions rely on that business devision to bring in their business).
He had a genius idea (trust me) how to combine two different fields that could have started a complete new business division with basically close to zero start-up cost. He never bothered brining the idea up because "this company is too conservative to even consider this".
So, a guy with a tremendous insight into the problems and possible solutions goes totally unnoticed. And this is just one example.
What's interesting though is that Germany is an industrial powerhouse compared to the US.
The DAX is up 37% since 2015, the S&P500 is up 74%. (That's as far back as DAX goes on Yahoo finance.)
There are two reasons for that.
1. The US has the stuff she develops produced abroad (IT, Computer, Phones etc.), mainly due to tax reasons (Produce in China, sell to Hongkong, sell to the US, major mark up in HK is done tax free).
2. German companies don't not pay their engineers. You can make more as a dog walker in the US or an English teacher in China than as many engineers in Germany.
Workers representatives are picked to represent workers in negotiations and discussion, and their job is to spend the whole day figuring what's going on.
Shareholders don’t act rationally, but the market eventually does.
Citation needed. I hate to bring up 2008 again, but the market first acted irrationally by over-investing in garbage CDOs and then "corrected" in a way that would have tanked the economy without massive public intervention. If that's rational behavior than perhaps we should nominate the next person drunkenly weaving between two lanes for Driver of the Year.
The market does not seem to be good at optimizing for long-term outcomes, bluntly.
Profits today can be easily invested in another short term profit project tomorrow. Therefore, I say long term should be done by a foundation that has the explicit goal to achieve, rather than a corp whose sole purpose is to make profit.
So we've all now universally accepted the Friedman doctrine?
You're aware that the Friedman doctrine isn't held as an inherent truth everywhere and by everyone, right? Not every culture sees corporations as having the sole moral duty of maximising shareholder value with no regard for societal wellbeing.
Society's wellbeing < shareholder's value < executive's value
1. https://www.nytimes.com/2008/10/24/business/economy/24panel....
At the last large corporation I worked at, they got rid of most of the inside embedded device engineers and outsourced design to India and Japan. The reasoning was probably something like we spend $X on engineering staff here, whereas we could spend $Y to outsource development of the same products, where $Y < $X. Whoever made that decision made a fat bonus and left. The time necessary to determine the real value of that decision takes a few years, after that guy was gone. Anyway, most of the outsourcing ended up being a huge waste of money and put one of our flagship products a year behind schedule. The company has since moved embedded development back inside.
It's not so much that the market favors "short term" growth. The market favors high-risk high-growth (which usually only works short term and requires an exit) over low-risk low-growth (which is usually fairly stable in the long run).
The S&P500 has done extremely well, long term.
Corporations are essentially feudal, and one of the biggest unstated goals is to maintain and signal class power differentials.
You don't do that by including social inferiors in board-level deliberations - no matter how inane, misguided, and ultimately self-destructive those deliberations turn out to be.
Here is one example of a board-level decision that a majority of workers would have said was a very bad idea, but which executives decided to complete anyway.
It's really ridiculously easy to list other examples from corporate history:
https://www.theguardian.com/lifeandstyle/2018/mar/30/homebas...
The reality is that there’s a point of decreasing returns for productivity. If the “happy workers make more money for the company” truly had a positive ROI, then the market would pay it. There’s plenty of capital willing to make long term investments that would take companies private to jack up wages.
Comical. "The Market" is far from perfect - especially in more monopolized industries. Consider the 2008 housing crash for a recent[1] example where "the market" did not behave rationally across a wide swath of professional investors. Add to that the fact that the "someone" in your example is most likely part of the noblesse oblige themselves and will default to respecting the opinion of the board (no matter how wrong) and not the workers.
> If the “happy workers make more money for the company” truly had a positive ROI, then the market would pay it.
Most often, the market behaves like a gradient descent algorithm - seeking slightly more optimal operating conditions without rocking the boat too much. This normally leads to finding local minima, not global ones. The most notable exception is "startups", where the initial conditions of the search may be radically different than a typical big-co - sometimes leading to better results.
Now consider that most medium-to-large companies have been operating for years (maybe decades) on the assumption that cutting costs - including wages - is the best way incrementally optimize profit. Reversing direction would mean going back uphill for a while as the culture, employee attitudes, and recruitment pipeline slowly change in response. How many boards do you think would put up with years of declining profits during the attempt to find the better way?
This doesn't mean that there aren't examples of companies that take this approach even for low-skilled labor[2][3]. Just that it's rare because of conventional wisdom and the corporate politics involved in making it happen.
[1] An even more recent example is Theranos - where companies that should have known better bet big on partnerships with a vaporware medical company against the explicit advice of consultants they had hired to advise them on these matters.
[2] https://www.businessinsider.com/costco-pays-retail-employees...
That is the key. Executives are taking the lion's share.
https://www.cnbc.com/2018/01/22/heres-how-much-ceo-pay-has-i...
If you follow Phaedrus's telling[0], introduced as "Partnership with the mighty is never trustworthy" -- all of it:
"I take the first portion because of my title, since I am addressed as king; the second portion you will assign to me, since I’m your partner; then because I am the stronger, the third will follow me; and an accident will happen to anyone who touches the fourth."
Other versions from around the world typically have the lion taking a majority of whatever is being divided, and whenever possible, everything.
--- [0] https://en.wikipedia.org/wiki/Lion%27s_share#The_Phaedrus_ve...
Or do you propose returning Chinese workers' wages to 1978 levels in order to afford restoring American wages?
True, but it's been increasingly overvalued since the middle ages with the liberalisation of compound interest. That particular activity is zero sum and will concentrate wealth in one end until real wealth generation (farming, mining and refining of the results of the former two) becomes infeasible. Right now it's Venezuela, my bet is South Africa being next. Europe in our lifetime.
Unfortunately to American workers, it turns out that the workers who enjoyed the upside were some of the poorest in the world and not the very expensive American workers of the mid-1900s.
Fortunately to American executives, they started the race ahead of everyone else and with their multinationals corporations captured most of the upside from globalization.
If it's a low margin business, it will go bankrupt.
Note that in the past several years, shareholders have experienced massive returns due to rising corporate profits, largely because corporations have held workers' wages stagnant throughout the economic recovery/boom.
I agree that if you split the CEO pay it does not affect so much the employees.
I just wanted to highlight is that the CEO does NOT want the employees in the board as they may see the CEO's salary as unfair. So, to protect his own salary, the CEO keeps employees out of the structures of power.
Then we can argue if is that lack of power the one that keeps or not workers salaries low. But workers are not represented becuase is against the CEO best interest so her own salary can grow unchecked.
Either the board is corrupt and is wasting company money on their executive buddies and the shareholders ought to discipline the board (and perhaps putting some salt-of-the-earth workers on it may be a good way to do that, but certainly no silver bullet), or they pay what they need to keep the executives from jumping ship and go work for a competitor, and they are in fact not overpaid. I suspect there are companies that fit in either category.
The moral hazards inherent in a "handful of powerful leaders who represent the interests of $GROUP" doesn't change much when $GROUP is "workers" instead of "shareholders". Executives and union organizers are often two sides of the same coin in that respect.
Unions claim to represent labor, but due to a confluence of laws, there's no guarantee that they actually do, as pointed out above. Even within a union, politics exists, and those who are influential and important are able to extract resources away from those who are viewed as dispensible.
You last sentence is true for any human organization. Politics exist and those with power sometimes take from those who don’t.
That includes unions.
But you have to compare it to the alternative. The question is whether the incremental amount the union gets from management over what the employee would have gotten for themselves is more than the overhead/corruption cost of the union.
For shareholders of public companies there is little choice. If you own $1000 each worth of a hundred different companies, you're not going to have the time or incentive to manage them all properly yourself (and neither is any other individual shareholder), so the benefit of hiring a board to do it is worth the cost.
The math is a lot different when you only have one employer and you're getting ~100% of your income from them. In that case people have a strong incentive to do their own research and try to get the best possible employment for themselves. It's the same reason most companies with a single owner are owner-operated.
About the only thing a union is going to get you is leveraging its monopoly power, which only works against monopolistic employers that have enough margins to pay you more without themselves becoming uncompetitive and also individually represent too much of the industry to just let everyone walk out and hire all different low level employees.
This is why, for example, unions worked well for workers in the dominant era of the Big Three American auto companies, and much less well now that they have aggressive competition from Japan, Germany and Korea.
But their cars are a lot better now. A lot more people died back then. Other people wrote scathing books and passed new laws. Uncompetitive markets are terrible.
Actually they don't. They either represent a political organization or some other interest group. The workers only take a passive role in the whole process.
Saying "a political organization" is misleading because it evokes an image of a super-PAC or something else overtly political, and saying "some other interest group" glosses over the reality that, yes, you could call unions interest groups that represent their workers for collective bargaining, but again, that's misleading.
The fair way to phrase this is "Labor organizers represent a union that's trying to unionize a new workplace," but that obviously sounds less sketchy.
And the workers take a verrrrry active role in the process, especially any that become involved in the organizing themselves, up to and including being fired (illegally, because firing someone for labor-related activities is not allowed).
* Not a union member, but I hate seeing anti-union and anti-labor tropes trotted out, especially on a group that usually prides itself on accuracy.
I think it's more because the national guard is only necessary to suppress large-scale riots, and there aren't enough executives all in the same place to make even a small-scale riot. Executives who are charged with crimes can be individually arrested.
But all of that is beside the point, because I'm comparing union leaders and organizers with executives.
> The only change in this in the US was the brief history after WW2 where FDR and Truman wielded outsize political power and the country saw the ills of the gilded age because of the enormous impact felt by the average person during the great depression.
This completely misses the more relevant fact that the US represented 50% of the global economy at the time (due to every other industrialized nation being absolutely devastated by the war) and reinvested much of their remaining wealth into rebuilding both their allies and their former adversaries, which led to an unsustainable period of "catch-up" economic growth that faded just as soon as the Germans and Japanese started doing a better job at manufacturing than the US did.
> To answer your question directly there are most definitely executives tied to organized crime.
Citation needed.
Back to the matter at hand... having workers in the board helps, but doesn’t secure raises.
I never said that a government is to blame for financial stagnation or decline.
I was referring specifically to Schröder's and Merkel's tenure as chancellors (2000-2018). I was wrong to add the 90s, although it is debatable if the above strategy was already planned by Kohl.
> Thou not clear on how they are responsible for having companies produce massive profits and keeping wages low.
You have to look at this in the EU context, otherwise it's hard to grasp. For any kind of group, which share the same currency, there must be a surplus recycling mechanism in place. Y. Varoufakis has talked extensively about the lack of surplus recycling, which was and is today a major design flaw and probably the reason the EU is going burst.
In a common currency group, where no one can devalue, the exporting countries will have positive surplus vis-a-vis non-exporting countries. To revert the flow, exporting economies must invest in infrastructure (build schools, universities, public swimming pools, stadiums, roads, airports, setting up social services, public internet infrastructure, welfare which translates in jobs, etc.). The action of building infra will create scarcity in the labour market: companies will struggle to keep underpaid workforce. The secondary effect is that products, will be become more expensive. At that point the positive surplus will become balanced or negative... Then the same process should be repeated.
Of course there are a lot of important details, but hopefully you get the gist.
So there were no soaring profits to distribute at the time, and wage restraint agreed by the unions was one of the factors in bringing Germany back (note: not "the" factor, as usual there were many).
Speaking of glossing over - let’s not pretend that the history of violence in the US labor movement was all one way...
Without that interest, you're just putting high schoolers up against an NFL team--no match for the wealth, power, and credentials of shareholders and their representatives.
Weakening unions seems to have caused much more damage than whatever evils they were accused of (profligate compensation for unproductive workers)
My wife is a member of a nurses union and it is nice to have a contract with your employer (something all top executives have) instead of work conditions being at the whim of a manager.
A downside of most contracts is there is little room for performance bonuses - almost all contracts are based on time in the union and not performance. The effect is an A player and a D player all get the same wages and benefits. There is no reason a union contract has to be structured this way, but for some reason they almost always are based on time and not performance.
Isn't the nurse at work if they're sufficiently sick?
(That thought occurred to me reading this and I found it somewhat amusing.)
For union leadership, this has the great perk of more or less aligning incentives among members. This works as long as a sizable chunk of members don't start to see themselves as equipped to do significantly better than their supposed-peer.
And, well, as soon as you do performance pay it means someone's going to lose out, because now workers are competing with each other. And this definitely aligns incentives away from where the union leadership wants them.
If you've ever worked somewhere you couldn't change a lightbulb on your own, or carry a small box of materials to another building, plug in an appliance, or similar you quickly get a dim view of their value.
I'm not saying all are bad, but the bad ones...are really bad.
I have been forced to sit in company meetings where they help drive the anti-union message home every time there is the slightest talk about organizing. Have you had one? I am curious how wide the practice is.
I used to work in healthcare, which could really use some representation too.