> they have to make decisions that benefit their stockholders
I wish the meme that this is the only thing a public company can do would die. It's not true in any way.
I wish the meme that this is the only thing a public company can do would die. It's not true in any way.
As I understand it these companies do in fact have a fiduciary responsibility to make every move be one that benefits their shareholders. Can you please voice your thoughts on how that is not true?
Now, for a public company, lots of investors base their decisions on the GAAP numbers companies are forced to report, so there are incentives to improve those numbers each quarter if you want to boost stock price. But if you communicate a long-term strategy to investors and seem competent enough to pull it off, you're Amazon and your stock price does well anyway, even if you lose money.
There are many things Amazon could do to transfer cash from their customers to their shareholders. Bezos justifies not doing these things because he claims there is more value in long term customer loyalty and trust. Because it's a good faith business decision, I don't see Bezos being ousted or sued by shareholders.
Likewise, it would be easy for Facebook to say "we think there's long term value in delivering the best possible experience to users, and if for some users that means using an extension that's fine with us" - it's a good faith business decision, why would they get ousted or sued where Bezos hasn't?
[1] http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_pro...
It would be easy for them to say it, but first they would have to believe it, and second they would have to believe they could convince investors of it.
it's a good faith business decision, why would they get ousted or sued where Bezos hasn't?
It's not a question of being sued, it's a question of having the stock price go down. Investors don't have to sue to do that; they just have to sell.
You're moving goalposts. That's a completely different statement. Whatever it is they truly believe is totally different than "they have to make decisions that benefit their stockholders or they will go bankrupt".
> It's not a question of being sued, it's a question of having the stock price go down. Investors don't have to sue to do that; they just have to sell.
Again, this has nothing to do with fiduciary duty, which was the topic that the original comment was responding to. The fact remains that for-profit companies do not have some kind of Sword of Damocles hanging over them, waiting for them to make a decision that costs stockholders value.
How is this relevant to what I said in the particular statement you were responding to here? I wasn't saying anything in that statement about what FB does believe; all I was saying is that, judging by their behavior, they don't believe that "there's long term value in delivering the best possible experience to users, and if for some users that means using an extension that's fine with us".
As for what I think they do believe, see below.
this has nothing to do with fiduciary duty
Which was exactly my point: saying that FB won't get sued if it lets third-party developers change its UI is not at all the same as saying that FB thinks its stockholders will benefit if it lets third-party developers change its UI.
for-profit companies do not have some kind of Sword of Damocles hanging over them, waiting for them to make a decision that costs stockholders value.
I wasn't saying they do; nothing in what I said requires that a single decision is all it takes. I didn't specify any time frame in which FB has to benefit stockholders or go bankrupt. If you read other posts of mine in this sub-thread, you'll see that the strategy I think FB is following is not one aimed at maximizing short-term return on capital, but that doesn't change the fact that they have to benefit stockholders on some time horizon that is relevant for the stockholders.
Can this meme die too?
http://skeptics.stackexchange.com/questions/8146/are-u-s-com...
Care to elaborate? This is pretty fundamental to almost every single business I have ever heard of...
The "maximize shareholder value" chant is a piece of MBA dogma that, although accepted by many as an immutable law of the universe, is a relatively recent American invention. It's not a law, managers don't go to jail if they don't do it, other countries do it differently, and we used to do it differently as well.
Many make good arguments that it doesn't even work very well. American car companies are a good example. Thomas Murphy, a president of General Motors said, "GM is not in the business of making cars; GM is in the business of making money." Carmakers like Toyota, on the other hand, focused on making cars very well (and making customers happy), and kicked Detroit's ass. (The book Toyota Kata and the TAL episode NUMMI give good intros to why, and why it was the philosophy of American carmakers that prevented them from adapting.)
The problem with focusing on maximizing return on capital is that there are a zillion ways to make those numbers look great in the short term while screwing the company in the long. But hey, by then, everybody has cashed out. Except the suckers, and who cares about them? As an example, see what the MBA dogma did to Simmons Mattress: http://www.nytimes.com/2009/10/05/business/economy/05simmons...
I didn't say "maximize shareholder value". I said FB has to make decisions that benefit their stockholders; that's not quite the same thing.
Also, as I pointed out in another subthread, there's a big difference between a company that gets revenue from users directly (like Amazon, the example brought up in that subthread--or like a car company) and a company whose users only generate revenue indirectly, as FB's users do (through ads). The latter kind of company has a much weaker link between benefiting users and benefiting shareholders than the former does. I've outlined in other posts in this thread the strategy I think FB is following, and it's not a strategy that's focused on maximizing their short-term return on capital, but it still makes them act in ways that make at least some subset of their current users dissatisfied.
They have many people who have invested their lives creating this company. They want their payout. If they have to create a bubble to get it, that's what they are going to do. They'll get their cash, you can bet on that.