Hacker News Reader

Comment by JackYoustra | Hacker News Reader

It's kinda fun, right? The whole point of tying executive compensation to share price was to have them have some rough stake in the business, but even that didn't prove enough: there's always a longer term, and doing a visible, clear NPV boost is usually accretive to market cap even if it introduces long-term risk, because the long term risks are usually hidden from public eye and very mushy.

Ironically, I think the poster child for how to properly structure compensation away from this is Hank Greenberg's AIG, where not only was his compensation basically all deferred stock options, they were deferred until retirement, so about as long-term a view as you can get. He was very risk-averse, and his biggest flaw wasn't under his operational ownership but under successor and personnel selection (looking at you, Welch).

But at some level, it was just bad people making bad calls. I don't think McNerney thought that this would wreck Boeing, he was just wrong. Even if he was left predictably destitute at the end of such a failure, he probably wouldn't have changed his choices because he thought they were good. You could claim that this is a failure of boards and governance (and, truly, I think boards are by and large really bad and I wish there was a much more pervasive activist investor culture) but at some level I'm not sure how much of this is solvable.

I don't know. There's probably a way to do boards well enough that this isn't a problem.

View on HN

We all know boeing won't be "wrecked"; they're too critical for state interests to be allowed to fail. If they're smart they'll either nationalize the company to remove the profit inefficiency or force the company to split to remove the profit inefficiency. Either way, the profit motive and lack of any competition is clearly a national security risk.

> We all know boeing won't be "wrecked"; they're too critical for state interests to be allowed to fail

People keep repeating this without context. The auto companies are strategically significant. That didn't prevent them from going bankrupt [1][2]. Wiping shareholders doesn't mean blowing up the factories.

I'm increasingly convinced Boeing needs to go bankrupt. It can then shed unprofitable units--through spin-offs, sales or liquidations--and restructure its obligations. I'm not convinced the union comes out of that better off than it is now. But America sure does.

[1] https://en.wikipedia.org/wiki/Chrysler_Chapter_11_reorganiza...

[2] https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reor...

Maybe so, but I would say cars are different than aerospace.

It’s clear that Boeing was able to squeeze costs centers at the expense of quality and business investment all while keeping the coin under shell in the form of regular old stock buybacks.

But if/when Boeing goes under who is going to vet all this NDI sitting in their portfolios? They’re just gonna spin it off to another buyer—consisting of who exactly? McDonnel Douglas? Elon Musk? Tencent?

Seems like a nightmare for someone, not sure for whom.

> But if/when Boeing goes under who is going to vet all this NDI sitting in their portfolios? They’re just gonna spin it off to another buyer—consisting of who exactly? McDonnel Douglas? Elon Musk?

Idk, pick one that's American or closely allied [1]. Ideally not one of the three larger than Boeing.

Worst case: audit and re-assign the contracts. We'll be better for it in the long run. And I'm not convinced it wouldn't result in quicker, higher-quality deliverables in the short.

[1] https://en.wikipedia.org/wiki/List_of_defense_contractors

Who even needs a specific buyer? Boeing itself is a publicly traded company, the spin-offs can be too. Put the business unit into its own corporate entity and give all the shares of the new entity to the existing Boeing shareholders to do with as they please, or sell them into the market.

The top secret stealth formula they could possibly be privy to is not publicly traded. I was making the point that you're going to have a board filled with people who in some instances could be hand-selected to say the quiet part loud, and the list of companies who makes some of this stuff has one item in it.

Its military stuff.

There are more than a million people with a US security clearance. Finding enough to fill the board of a new company shouldn't be prohibitively difficult.

> The auto companies are strategically significant.

Not really, they're more politically significant than economically critical. I've certainly never owned an american car and never plan to. We'll be fine continuing to rely on foreign companies to produce our vehicles. Foreigners certainly don't want our cars (outside of maybe tesla in the nordics, i guess?). None of this is true for the plane market, or at least not until boeing acquired its current popular reputation of not being very good at making planes (deserved or not)

The fact we bailed out the companies but refused to take ownership should be considered treason. Same for the banks, the car companies, the airline industry we bailed out for more than its entire value, etc etc. completely corrupt and incompetent governance

The auto companies are strategically significant because war footing America will turn those F150 lines into tank lines in a matter of months instead of the years it would take to spin them up from scratch.

IBM made machine guns on typewriter lines in WW2.

Exactly correct. Good time to skim https://en.m.wikipedia.org/wiki/Willow_Run.

Years of startup problems but when it finally started humming they were building a B-24 every 63 minutes! In the meantime existing factories were winning the war.

As Americans we tend to glorify the industrial feats of WWII but the US government used a very heavy hand to pull that off. Public-private partnership is the preferred euphemism today but essentially we were a socialist economy.

At its peak, the US had 40% of GDP going into the war. Forty percent!

Today the US military budget is 3.4% of GDP. Can you imagine it being ten times as much?

If America goes to war it will need many f-150s for the war itself.

No it won't, because only about 30% of F150 parts are made in the US. The rest are made elsewhere - mostly China.

This is not 1940, and the US simply doesn't have the strategic industrial base it used to.

Off-shoring made some people a lot of money and lowered consumer costs (while simultaneously cutting consumer pay.)

But it was economically and strategically unwise. The US is set up to run small-scale wars against technologically inferior opponents. It has no ability to sustain a prolonged multi-year slug-fest against an opponent with a superior manufacturing base.

Considering the US hasn't won a single war against technologically and numerically inferior opponents since the turn of the century, I think we have even more fundamental problems than just a rusty war machine dependent on Chinese blue jeans.

Now granted I might be unfair to the US here; the Middle East is known as the graveyard of empires for a reason.

The US clearly choose to lose all wars lost though. The military was doing just fine, but the people back home got sick of the efforts.

1) That’s still losing.

2) I’m not sure the military was doing just fine in all of those. Vietnam comes to mind, but also Afghanistan—reading the Afghanistan papers, the brass seems to have given up on any kind of actual goals or accountability in favor of a system that let them continually cycle officers through and let them claim they succeeded at their mission (funny, they all keep achieving their mission, but facts on the ground remain exactly the same or worse!), for years and years. Fighting fitness may have been OK throughout, but military leadership in the military itself was absolutely not committed to any kind of winnable mission, let alone to actually winning it. That may have been driven (I’m sure it was) largely by civilian leadership, but the entire upper echelon of military leadership betrayed their commands and the soldiers counting on them, to keep up a convenient (to their careers, and a bunch of junior and mid-tier officers who got a big boost to their careers…) political fiction at the cost of any hope of something resembling actual success, and all it took was shitting all over their soldiers and the trust of the American people.

I bet Iraq (part 2) was similar. I have some grave concerns about the state of our more-politicized-and-static professional officer corps since roughly Vietnam.

I'm with you 100% on point #2.

Disagree on point #1. We occupied Afghanistan for 20 years. We operated with nearly absolute impunity in all population centers, through all trade routes, and all agricultural areas. Our casualties were a minuscule amount our total forces. Our culture completely transformed theirs (in a way that old school hardliners lament publicly). We killed a huge number of Taliban (and foreign fighters).

Clausewitz says that "the political object is the goal, war is the means of reaching it." Can you tell articulate what the political goal of the war was?

Thinking back to 2001 (I was in middle school), the goal was retribution. I believe the military achieved that in spades. Yes, in the end Afghanistan did not turn into a US vassal state or a US colony. But was that the goal?

>Can you tell articulate what the political goal of the war was?

The goal was to eradicate the Taliban, remove terroristic sentiments, rebuild Afghanistan, bring the country to 21st century democratic standards, and prevent future 9/11s.

Did we achieve it? Hell no.

Verdict: We lost. Over 20 years of bloodshed and misery on both sides for fucking nothing. We failed on every single fucking count. Every. Single. Count.

The discussion was more about if the military fumbled Afghanistan or if it was a political failure.

You haven't shown a military failure.

I also disagree with that list of objectives and their current status. Let's go through 1 by 1:

+Eradicate Taliban. Complete. This is a new gen of fighters and the movement shares very little outside the name. Nearly all the Taliban from 2001 are dead of violent causes.

+Remove terroristic sentiments. Not a goal, but also has Afghanistan committed many terror acts in the last 15 years? Current status is trending green.

+Rebuild Afghanistan. Not an original goal (ie in Oct-2001). Also not a DoD goal, this was a State Dept goal after the military victory was secured. Also I'd argue that Afghanistan today has better infra than it did in Aug-2001, so this is complete.

+Democratic standards. Not an original goal. Also not a DoD goal, this was a State Dept goal after the military victory was secured. Not met.

+Prevent future 9/11s. Current status is trending green.

So we met all but 1 goal. That's not bad as wars go.

>The discussion was more about if the military fumbled Afghanistan or if it was a political failure.

While I started off with the former, overall it is both.

>You haven't shown a military failure.

It has been demonstrated by Afghanistan, Iraq, Vietnam and others that the best way to defeat America is to engage in low tech guerilla warfare. We have lost every single one of them.

Even more embarrasing is that the Houthi are demonstrating that the age old adage of "Don't touch America's ships!" also isn't true anymore. Our Navy hasn't adequately responded to some deranged goat herders lobbing missiles into one of the world's biggest sea lanes.

>Eradicate Taliban. Complete.

Are you drunk? The Taliban is literally back in power ruling over Afghanistan with an iron fist.

>Remove terroristic sentiments. Not a goal,

Lest we forget, we waged "The War On Terror".

>Rebuild Afghanistan. Not an original goal

You can not remove hate until the people thereof can live comfortable lives, which is still not the case.

>Democratic standards. Not an original goal.

See above.

>Prevent future 9/11s. Current status is trending green.

I've lost count on the acts of terror we've seen across the west, America and otherwise.

You've moved the goal posts of this discussion. We've been talking about military success or failure.

Democracy (and "comfortable lives") was not a military objective. The military provided security for the State Dept and NGOs to pursue those goals.

Since 9/11, Afghanistan has not prosecuted any terrorist acts on the West in my recent memory.

The Taliban of 2001 was largely killed off. Yes, there are people in charge of Afghanistan today who call themselves Taliban, have some limited pre-9/11 leadership, but are largely a completely different set of people than existed back then and this occurred because of military action, not old age.

When the participation trophy generation grows up and becomes generals you'll hear things like, we would've won that war if it wasn't for all that attrition!

What attrition? While deaths were not zero they were very low.

Roughly 2.2 trillion on the credit card for Afghanistan alone. That's without the interest that will be paid on it. Your grandkids children will be paying for that war.

The only time anyone cares about that debt is when democrats are in control of the government - then republicans care. (sometimes when republicans control congress and the democrats control the president they care, but it is not as much then)

The only president in my lifetime to not start any wars isn't really liked by either the democrats or the establishment republicans. Both parties are big fans of losing wars for some reason.

Were you born in 2020?

> An armed conflict between Israel and Hamas-led Palestinian militant groups[ad] has been taking place in the Gaza Strip and Israel since 7 October 2023.

> The United States has given Israel extensive military aid and vetoed multiple UN Security Council ceasefire resolutions.

> United States provided advice and intelligence to Israeli forces during the raid, through its "hostage cell" stationed in Israel. The attack resulted in the deaths of 274 Palestinians.

How would that work in your mind? Call that one for Harris because Biden is mentally unfit?

https://en.wikipedia.org/wiki/Israel%E2%80%93Hamas_war

By that measure what the hell was bombing Suleimani? Or moving our recognised capital of Israel to Jerusalem? Or arms to Saudi Arabia during their war with Yemen?

Neither Trump nor Biden started a war. They had wars happening around them that we were to various degrees involved.

Here's a (kind of?) objective take: https://en.wikipedia.org/wiki/List_of_wars_involving_the_Uni...

By my quick count, Obama (awarded the Nobel Peace Prize) started seven wars, Trump started zero wars, and Biden so far started one war. All three Presidents were involved in a war started by a predecessor.

So, yeah. Trump started no wars, and he is the most rejected POTUS by the Powers That Be(tm) for that and other reasons.

Reading a bit more into the war started by Biden against the Houthis, I... didn't quite realize the Navy had straight up admitted we are weak and useless.

>“We’re sort of on the verge of the Houthis being able to mount the kinds of attacks that the U.S. can’t stop every time, and then we will start to see substantial damage. … If you let it fester, the Houthis are going to get to be a much more capable, competent, experienced force.”

https://www.navytimes.com/news/your-navy/2024/06/16/navy-fac...

Worth noting, this is an entire USN carrier strike group. This is simply embarassing.

literally no one said that or even a rough approximation of that. Seriously I have no love for the generals but even they're not that dumb.

The comment I'm replying to said that and it was said frequently about Vietnam. What they didn't do is use the clear language I used and instead blamed the public for not wanting to spend every last penny on a pyrrhic victory as if that isn't attrition.

I agree that the dollar cost is real attrition too. Vietnam and Afghanistan were so wildly costly because we made the (political) choice to limit how we could engage the enemy, while our enemies were not limiting themselves

   Vietnam: limiting Cambodia ops, the DMZ, limiting bombing of N Vietnam
   Afghanistan: limiting Pakistan ops, focusing on creating a stable democracy rather than killing Taliban then leaving

We made political choices on how to wage war, and then blamed the military for those poor choices.

Yeah, we could use biological weapons or drop hydrogen bombs as a few examples. We could send marines house to house executing anyone who even looks like a bad guy. Trouble is giving a few million civilians radiation poisoning or the bubonic plaque to "stop communism" or to "spread democracy" is evil and insane.

You've made a rather wild leap here.

>then blamed the military for those poor choices.

Also the military.

A war effort involves the entire country: The entire economy beyond just the military industrial complex, all branches of politics, and the military including both officers and rank-and-file soldiers.

Look I agree with your war effort comment. That simply isn't what the GP is saying though, so my comments are addressing something else entirely.

The US did not lose the war against Saddam. The war was started under false pretenses and they made a mess of the reconstruction after, but that's different from a military defeat. If one side of a war manages to destroy the other's military, execute its leader, and set up shop in his palaces; that's a win on the military front.

> This is not 1940, and the US simply doesn't have the strategic industrial base it used to.

this is just wrong.

The US didn't really have that industrial base in 1940 either. We developed it fast over a couple years of war.

To the extent the US had an industrial base, we still do. US manufactures more than we did in 1940 - we just do it with far fewer people in factories via automation.

This is really the key - there's a ocean of difference between "we manufacture literally nothing" and "we don't manufacture/assemble as much as we could".

Seems like a terribly irrational and inefficient way to run an economy but I'm sure russia will invade any day now. Or is it china these days?

I agree. We should also stop subsidizing agriculture, there is enough food grown around the world for everyone. All this waste is very inefficient!

In fact, we dump our cheap overproduced food on third world countries and collapse their ag. sector. If we stopped producing and switched to importing we would boost their economies.

Since food can be grown in almost any country on earth, we would have a diverse supply chain. I'm sure nothing would go wrong with this plan./s

Major industries are economically critical for trade balance. Even if foreigners don't buy US cars, domestic buying means there's less import.

There's a limit to how long USA can print petrodollars to make up for the trade deficit. And the limit doesn't seem that far off.

Good, let's learn to get along with people without trying to dominate them for the first time in living memory

The auto bailouts saved hundreds of thousands of jobs and turned a profit for the US government.

Cool, i don't care about either of these things. Jobs are a poor index of economic health for americans and we should really be guaranteed one as a fundamental human right if we also refuse to implement modern welfare.

You don’t care about saving jobs but you think we should be guaranteed jobs? How do you imagine guaranteed jobs work?

> Foreigners certainly don't want our cars (outside of maybe tesla in the nordics,

The Nordics are not all the same, Norway is far ahead (20% of private cars already full EVs) of the rest with Denmark a distant second when it comes to electrification of transport.

But also the Tesla Model Y was the best selling car in the WORLD in the last twelve months, not just Norway. Of course quite a few of those were built outside the US so perhaps they don't count as US cars.

Norway is special. 94.3% of new cars sold last month were electric cars.

Actually, in the private marked it was 96.7% !

Links to info (in Norwegian)

- https://elbil.no/vi-kan-klare-hundre-prosent/

- https://ofv.no/aktuelt/2024/nybilsalget-i-august-h%C3%B8yest...

> Norway is special

I know, I live there. Been driving electric since 2017.

China is the biggest auto market in the world and also produces the Teslas they buy domestically.

    > Foreigners certainly don't want our cars

FYI: Tesla sold 600,000 cars in China last year. It is a huge market for them. They also sold more than 200,000 cars in Europe last year.

> Foreigners certainly don't want our cars

Then why are they always bitching about their neighbors who buy large American vehicles that are too wide for their streets?

>I'm increasingly convinced Boeing needs to go bankrupt.

I agree and hope they do go bankrupt, but I hope so because the country needs a fucking wake up call: American Exceptionalism(tm) is simply no longer true.

I sincerely think we need to see one (Boeing), maybe even a few (Intel? US Steel?) paragons of American Excellence(tm) go down in smoking ruins so we have to accept that we are not 1970s America taking mankind to the Moon and beyond anymore.

Once we realize that, we can actually get started on Making America Great Again in a real, meaningful way instead of a dumb political catchphrase.

> Once we realize that, we can actually get started on Making America Great Again in a real, meaningful way

I see no reason to believe this will happen rather than a continued slow decline and eventual collapse.

The Canadian government drove its primary aerospace company, Avro Canada, not just into bankruptcy/reorganization, but to completely shutdown operations. The country lost 14,000 aerospace professionals, but more importantly, it lost its leadership position in cutting edge aerospace. Its best engineers left for the USA or the UK. Canada, more than a half century later, has never recovered anything like the leadership role it had built during the post-war period. Be careful what you ask for.

Look, we're going down one way or another. We might as well get down there faster so we can start crawling back up sooner.

You probably know more about this than I do since you claim "people keep repeating this without context." Looking at your links, it seems to me a confusion of terms. Yes, the legal entities behind GM and Chrysler went away...in order for the new entities to receive billions.

So, technically, you are correct. The business entities of June 2009 failed. However, the consumer DGAF who owns www.gm.com or www.chrysler.com. They can still go to their local dealer and purchase a vehicle "made by" these companies. The "companies" live on.

> If they're smart they'll either nationalize the company to remove the profit inefficiency

So... remove the need to actually produce planes, or anything at all for that matter, subsidize their continued failures?

Some car manufacturers are definitely not critical to national security, they just employ tons of folks in few places. Company making weapons like choppers, planes etc for whole US military is on completely different level of importance.

Would love to see a shift towards something like deferred options for executives. Or, ya know, a fixed multiplier on median employee pay, like managers make 3x median, VPs 5x, CEOs 7x. I’m okay with people who have crazy responsibilities making good money, but it doesn’t have to be obscene.

This sounds like an incentive to fire/outsource all of your lower-paid employees

Good point. It would have to include contractor pay in the calculation.

> But at some level, it was just bad people making bad calls. I don't think McNerney thought that this would wreck Boeing, he was just wrong.

Well, he was stupid not to - there's no way he didn't know thay focusing on the short term stock price won't have negative effects on the quality and future of an engineering organisation whose main business, building and selling airplanes, is extremely capital intensive. He came from McDonnell Douglas who nearly bankrupted themselves doing the same sort of crap (pushing suppliers to the edge, cost cutting at every opportunity).

> [McNerney] came from McDonnell Douglas...

Cite? Wiki[1] appears to suggest otherwise.

[1] https://en.wikipedia.org/wiki/James_McNerney#Career_path

Oops, my bad, he was just a GE sociopath.

That being said, McDonnell Douglas' history was visible to everyone - what they were doing hadn't been working for decades (first as Douglas, then as McDonnell Douglas).

Then blame the board imo. They define the objectives for the CEO, the incentives for achieving them, and the governance framework for governing their execution. If shareholders want this “short term thinking” that always gets brought up, then they have every right to it.

Of course this “short term thinking” trope is just a meme that the armchair commentators like to pedal out. If the system was dysfunctional enough to prioritise short term profit seeking to this extent, then all a competitor would have to do to monopolise any market is do enough “long term thinking” to outlast all their failing competitors. Investors would notice this and reallocate their capital accordingly.

But none of this is what happens in reality. If anything I would say the market is over-interested in long term strategies. The popularity of the growth over profit model that we observe amongst most prolific capital allocators takes “long term thinking” to absurd lengths.

> If the system was dysfunctional enough to prioritise short term profit seeking to this extent, then all a competitor would have to do to monopolise any market is do enough “long term thinking” to outlast all their failing competitors.

This makes it sound like my broker, the finance community in general, or maybe the state is better able to handle long term thinking than our industry leaders, but why would anyone believe that? Aren’t they all looking quarter to quarter and retiring next year no matter how bad they wreck the company/economy/country?

Stock is sold and bought all the time with no tax. It's in the investor's intrest to sink a company for short-term profits. When the s*it hits the fan, they can sell the falling stock, short-sell even, to some clueless pension funds and invest the money in a competitor instead. When only one company remains, profit +++. This is how stock markets work. Why are you surprised?

Long term thinking is often incompatible with short term thinking. It doesn't matter if your company is long term sustainable if it's short term unsustainable. See dumping.

Its not like you have 30 competitors who can produce AH-64 Apache chopper equivalent out of blue with all support stuff required around it, its not perfect market and boeing c suite knows it very well.

Sure in 30 years they may be eventually pushed out but they can coast 2 generations of successful careers till then.

isn't this exactly what's going on with Boeing?

> Airbus last year topped Boeing for the fifth straight year in the orders race, with 2,094 net orders and 735 delivered planes. Boeing had 1,314 net orders and delivered 528 aircraft.[0]

I 100% agree the majority of investors don't seem to take the long view, and that's been the case for a while.

[0] https://apnews.com/article/boeing-airbus-airline-safety-manu...

>Then blame the board imo

Half of them would look like job hoppers with such short tenures on their resume. Some of them have simultaneous executive positions at other companies.

If you want some evidence of short-term thinking not being a meme, it's probably that.

> Then blame the board imo.

The Board of Directors at most major corporations is made up largely of current or former executives, many of whom come from the same industry. It's in their personal interest to normalize lucrative and exploitable compensation plans.

You would also be shocked to know what people control the lion's share of investment dollars.

> even that didn't prove enough

It did the opposite.

Humans respond - on some level - to incentives.

Tying compensation to short-term performance creates perverse incentives which make it much harder to accept the idea that your plans might be ruining the company.

There are four year vests, my point is that it’s not long term enough

Bad people brought to fruit by a MBAd culture whos claim to success is mostly inherited inertia.. Longterm Losers with an Attitude and shortterm numbers to silence doubters.

> The whole point of tying executive compensation to share price was to have them have some rough stake in the business

This reasoning was always flawed. The Stock Market is not real life. It consists of the opinions of a bunch of guys who sit in towers in New York, London, Shanghai, etc... In theory there are fundamentals that should drive the price, but in practice the market is not rational. It's not a good metric for the long term health of a company. Even worse, Goodhart's law applies in spades:

"When a measure becomes a target, it ceases to be a good measure."

Time and time again we see CEOs playing games with the stock price in order to get a big payday. We see management sacrificing long term stability in order to maximize their year end bonus.

Imagine if every time you remember a now dead company do a stock buyback they instead invested that money into R&D, or simply lowered their prices to be more competitive in the market? Maybe they paid their employees better and didn't have constant turnover problems and had higher quality output. How many of those now failed companies would still be around today?

Yeah, that's my point. A stock buyback is a visible boost to NPV, whereas the drawback (opportunity cost of not investing in core businesses) is much harder to measure. Sometimes, they don't need any additional investment. Other times, it's Boeing.

Reply on news.ycombinator.com