However, good luck when the shareholders sue you to try to recover their loses. That's the real meaning of that threat.
http://www.washingtonpost.com/opinions/harold-meyerson-the-m...
Until they are ready to cash out, which might be as soon as a year away. It needs to be redesigned with long-term incentives in mind.
Because it seems that generally isn't correct as viewed by the law (i'm not a lawyer blah blah...).
[0] - I mean "greedy" in CS terms, without attaching moral baggage to the word.
You may say this is a broken system, and for many B2C companies it can be. This is why I think that the benefit corporations are quite possibly one of the single best things to happen to corporate business in almost a century.
It allows a company to focus on a mission statement, and protects it from shareholders who only want to focus on profits.
EDIT:
TL;DR from Wikipedia for the lazier of us:
In the United States, a benefit corporation or B-corporation is a type of for-profit corporate entity, legislated in 28 U.S. states, that includes positive impact on society and the environment in addition to profit as its legally defined goals. B corps differ from traditional corporations in purpose, accountability, and transparency, but not in taxation.
* Etsy https://www.etsy.com/about/
* Patagonia http://www.patagonia.com/us/patagonia.go?assetid=68413
* Seventh Generation http://www.seventhgeneration.com/responsibility/certificatio...
* Warby Parker https://www.warbyparker.com/culture
By the way, they have a lovely FAQ:
"How did Etsy get its name?
The true origin of the word “Etsy” is a mystery known only to our founders. If someone asks you where the name came from, just make something up. That’s what we do."
The real point is that shareholders can't force the company out of general compliance. Meanwhile, managers retain considerable latitude in determining how they will remain in compliance as the company grows and evolves.
As long as founders and managers run a profitable company within these parameters, they - and their investors - will be fine. Indeed, they can, in theory, pursue the kinds of opportunities that companies totally beholden to growing their quarterly returns have to pass up. What they don't have to deal with is some short-term "investors" who want to extract a large hit of quick cash before leaving the smouldering ruin of a once-decent brand in their wake.
I don't have any real data on this but I've got a hypothesis that once a firm misses earnings a few times they "get serious", lay people off, and get rid of parts of the culture that made the firm great in an effort to expand margins for shareholders and say, "Look! See? We're getting better!". This really creates a toxic culture that causes a negative feedback loop and makes it even harder to be an innovative firm that grows like shareholders want.
This is probably a huge challenge for firms that do have excess employees, or need to change their employees to pivot strategies, and it would seem to be hard to do this without inducing the aforementioned effects.
Beyond a certain social level failure no longer counts against you. But income certainly counts for you.
So there's a small but unrealistically influential group who can hop from consultancy to executive job to consultancy. They're never held to account in the same way that employees of lower social status are.
Shareholders have no incentive to support a company either. They can sell up at the first sniff of a difficult quarter and look for higher returns elsewhere.
>Long-term growth is secondary to this goal.
Not always, but CEOs need to inspire investors with confidence and charisma to keep them from selling up.
Sometimes this works, but it's rarely related to the actual commercial value of a strategy.
Basically it's all about perceived status and social signalling, not about objective ability.
That disconnect is the big failure. It means the wrong things get rewarded for the wrong reasons, collective and strategic intelligence happens by exception, not by design, and the economy as a whole suffers badly.
A company can choose to be focused on creating long-term value, and many don't get punished for that either - see: Tesla, Amazon.
The most successful examples are of long-term value creation, not short-term. The best returns to shareholders come from long-term value creation and focus.
I'm sceptical this will ever happen with Amazon.
I dread the day Amazon will start running significant profits...
The exact opposite is the case. Shareholders are being extraordinarily patient with Amazon, and Amazon is being rewarded for their long-term thinking with an immense valuation.
Too often I see people lump shareholders into one group, as though they're all the same.
You can focus on long-term shareholders, or you can focus on short-term shareholders - IBM chose the latter, and as usual they're paying the price for it in expectations (and those shareholders will be nowhere to be found if the stock erodes later).
Berkshire Hathaway, as an example, chose the former. Buffett carefully cultivated very long term shareholders.
To say that Buffett is concerned with creating shareholder value (he is), means something different than to say that IBM is focused on creating shareholder value (they are) - because they have different types of shareholders, and go about it differently.
Jeff Bezos has talked about this concept a few times in relation to Amazon. He'd rather short-term shareholders just move along to the next stock.
Keep in mind IBM is an east coast company, not a more laid back west coast company. That might have something to do with it (or I'm just very biased).
> If you want me to do things only for ROI reasons, you should get out of this stock
http://www.theguardian.com/environment/2014/mar/03/tim-cook-...
I mean, we can call this "not playing a traditional ownership role" but I can't shake the feeling there's something deeply wrong with that. We're buildings piles of layers of abstraction and the most important people are the ones who are most separated from you, don't know or care about you at all, and yet they "own" you and can tell you what to do. How on Earth one is supposed to run a company like that? Also, didn't similar abstraction cause the housing market collapse in 2008?
> This is why the well run companies tend to be those where the founding family still holds a large block of shares -- they tend to think long term.
Yes, I've observed that too. That's why I tend to believe, say, Google when they talk about pro-bono plans much more than any other IT corp. That's why I believe Musk can and will pull off things he says while his competitors will lag behind - because he both has a vision and holds SpaceX in iron grip. He doesn't have to follow the market if he choses not to.
Technically yes. It's actually 22 seconds:
http://www.telegraph.co.uk/finance/personalfinance/investing...
However, it is usually the case that management only does layoffs when really necessary, and in that case the stock should respond positively to much needed reform.
"Increasing shareholder value" could conceivably mean long term growth and doing everything right for a win-win-win situation. It makes sense, in a way.
But really it's much more nihilistic than that. There could be one majority shareholder that smashes the company and fucks over minority stake holders, causes a bad outcome for everyone except him/herself, and finds a legal way to execute the plan. That is a real thing that happens, and can be done as legally and with as much validity as treating everyone well to encourage long term growth.
The shareholders own the company, and it's theirs to do what they want with, even if that means picking up their toys and going home.
Do you mean "IBM has a finite amount of money and can therefore is subject to the realities of business"?
I mean, what do you expect? Even if IBM was the most altruistic company in the entire world, they would still have to make concessions to the fact that it costs money to employ people.
This sounds like middle management is scrambling to meet budget objectives and they're throwing people out based on financial burden rather than actual performance issues.
Yeah I get that people looking to retire and collect benefits are a significant cost centre, but in that case the company should just make it official policy that minimal benefits are offered (or no benefits at all) instead of pretending they're actually offering an attractive place to work.
http://www.reuters.com/article/2014/10/28/us-ibm-buyback-idU...
And here they are now!
I recognize that sometimes companies have to fire people to stay afloat.
You've read way too much into what I've been saying. I'm simply saying the IBM execute leadership is not the ones making concessions despite being largely responsible for the mess.