Steve Jobs and the Purpose of the Corporation
blogs.hbr.org
blogs.hbr.org
There are other systems that work a similar way. For instance, the adversarial system in criminal justice works by throwing together two opposing lawyers, each of whom wants only to win the case, and as a result does a pretty decent job of both enforcing the law and protecting civil rights.
once externalities are internalized and the market is properly governed
If a company chasing down profits hurts the general public it is a failure of the market, not the company. However, for this to work in practice, there needs to be a strong firewall between the companies competing, the regulators defining the market and even the media informing the public about what is going on.
We're watching a rigged game where the coaches have paid off the referees and the sports reporters have realized there's more money in becoming promoters.
As you run a business, it should be pretty obvious to you whether you're profiting by exploiting flaws in the system. If you're not exploiting flaws in the system and you're still profiting, I don't think you need to worry a great deal about whether you're actually benefiting society. Most businesses do a small, dull, unexciting part of benefiting society, and that's fine.
That is the problem though, we are nowhere near the point where externalities are internalized or markets are properly governed. Presently any externality which can be ignored is ignored in the interests of maximizing shareholder value. This becomes doubly true when a company is really feeling the squeeze from the market. Every industry and business has externalities which are not being paid for at the moment. One is the environmental costs of manufacturing, infrastructure and energy. Another is dealing with repressive regimes. These are costs to society.
Regulation and enforcement are always met with market hostility because someone has to pay the cost (and whoever is paying usually doesn't want to). Self-regulation rarely works, honest companies may play by the rules for a while but eventually someone will decide they can make more money working around the rules.
Free market ideals are great and they all work on paper. I think it's a fine goal but an unlikely reality. Here in the present we are not moving towards a free market. Most moves to open markets are not making them freer they are merely giving greater power to the entrenched players. Until the market is truly free there is real damage being done to people and the planet.
What can a corporation do that I or a group of people can't do? What can that group do as a corporation that it can't do otherwise?
Be precise. And, for the purposes of this discussion, assume that I'm rich.
Suppose that the answer is "a corporatioin can do exactly the same as any other group of people". I suspect that you feel a corporation should be more restricted than a group of people. Why?
Steve Jobs realized that if you give people stuff they'll love, they'll fork over their hard earned money, and that is ultimately what shareholders want so they let him do it over and over.
Have people at all levels with vision, commitment, and passion for the work they do. They must be cross-disciplined and most importantly they must understand that their actions and decisions connect directly to the success of the company as a whole.
Then you will have some of the magic of Apple.
Apple worked like markets are supposed to work. That Apple was exceptional means that there is still a lot of cruft to be cleared out.
I've actually heard from a salesperson at a big SaaS company that it's normal to delay sales to the next quarter once your sales quota is fulfilled for this quarter.
This surprised me because it's obviously worse for the company as a whole to not capture that revenue as soon as possible (and to put it at risk entirely) and potentially worse for the customer. However, it's better for the salesperson to have an easy win next quarter, and easier for the management to show nice quarter-over-quarter growth. I think this is a good example of putting short-term gain before the interests of the company, and it seems to be quite common.
People were waiting for the new phone to launch. Apple moved nearly USD $3,000,000,000 in product in a single weekend just after the quarter ended and before the earnings report. And still, the stock got sold off.
I've heard that Apple tends to underestimate their earnings, and I'm starting to wonder if Jobs played the 4S launch date just to screw with market analysts even more.
Let's say you received $.0020/sh for adding liquidity and paid a commission of $.0001/sh. The tax would be, assuming aapl is $400/sh, $.0076/sh. This is much larger than the rebates, which means you need to buy at least one cent below your sell price on every trade.
Now look at bank of america. It's been hovering around 6.50 for the past week. The tax there is .000114, so in fact it's possible to buy and sell BAC at the same price and make money!
But getting back to your question, blind market making loses money when the tax exceeds the returns. For the larger players, they make .00295/sh before commissions (and ostensibly they are free because larger shops have their own clearing divisions), so X would have to be close to .29. For alpha-based (generating a predictive signal) trading, most HF signals have an amortized edge of .2 cents per share after fees, so I would say something like X=.2 would wipe out HFT
If a company goes bankrupt, pays penalties, has bad press, etc because executives can't take a long-term view, how is that good for shareholders?
The problem is "shareholder value" is defined using a measure of TODAY's stock price, which is highly volatile and subject to really minor changes in quarterly reports. So companies tend to spend an inordinate amount of resources trying to level out the volatility of their short term stock price by doing whatever they can to meet quarterly expectations, which leads to misallocation of capital.
A better measure might be the potential value of a stock some number of years out, which can be roughly measured using stock options trading if the options markets have access to enough data. That type of data would include things like customer satisfaction metrics, R&D spending, etc. (ie the types of things Steve Jobs optimized for).
EDIT: No, I mean as a counterexample. I think Warren Buffet's actual goal is to maximize the long-term shareholder value of Berkshire Hathaway.
(Also, this article makes business theory sound frighteningly simplistic and divorced from markets. I hope I am wrong.)
The only exception to this would be the banking/finance industries - which pretty much create nothing yet historically for the most part generate enormous profits for themselves.