The Dumbest Business Idea in History
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Thanks to James Montier for his great research that served as the basis for this video
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Business decisions made in the interest of “maximising shareholder value” have caused mass layoffs, environmental catastrophes, an endless list of corporate frauds, and record inequality in the workplace. The very same CEO who made millions of dollars by being the first champion of “maximising shareholder value” in the 60’s called it the dumbest idea in the world, and something that could rot capitalism to its core.
But worst of all!
Maximising shareholder value… isn’t even good for the shareholders…
If you hate your job here is a history lesson for you that might make it start to make sense. In 1916 the Ford Motor company had revolutionized the automobile industry with the ford Model T. Henry ford the founded and majority stockholder of the company wanted to use the surplus cash they had accumulated to build additional plants and hire even more workers to build even more cars. Ford had also famously, and controversially raised factory workers wages significantly and offered benefits like the forty-hour work week. In press interviews Ford spoke about his plans for the company.
“My ambition is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business.”
This angered minority shareholders in the company that just wanted him to lower wages again, raise the price of the model t and keep paying them a regular dividend. Since Ford was the majority shareholder in the company though their options were limited, so they took him to court, where the court sided with the minority shareholders. Ford was forced to consider the best interests of shareholders above his other business ambitions. This was a case that set the precedent for “shareholder primacy” in America, meaning the board of directors and executives in a company must always try to maximise shareholder value to the best of their ability.
Some have mistaken this ruling to mean that CEOs and the boards that appoint them have a LEGAL MANDATE to maximise shareholder value, but the reality is that this simply isn’t true. The case was awarded in favour of the minority shareholders, but it upheld the business judgement rule which means that executives can do what they believe is in the best interest of the company, even if it doesn’t make the number on a stock chart go up. Ford himself wasn’t paying his workers more and making new jobs because he wanted to be nice… he was a ruthless businessman who wanted to control a larger share of the growing automobile market.
By paying his workers better and offering them higher wages he was denying his competitors a workforce, and by pricing his Model T’s just above cost he made it almost impossible for any other manufacturer to sell a profitable budget automobile. The biggest irony of all is that the minority shareholders that took Ford to court were John and Horace Dodge. They owned about 10% of the company and used their special dividends to fund the growth of their own company, Dodge, a car maker that would eventually become one of Ford Motors biggest rivals. So, this court ruling was bad for the company’s leader, bad for workers, bad for the country, AND bad for the shareholders in Ford who sacrificed market dominance for a quick payday, BUT there are three reasons why people still believe in maximizing shareholder value and three reasons why companies that operate this way are almost guaranteed to fail.
Corporate America didn’t always have the dangerous obsession with shareholder value that it does today, and even after the landmark Dodge V Ford case of 1919 companies were slow to change.
Between the mid 1960’s and 1970’s American stock markets traded mostly sideways. Corporate CEOs still had a duty to do what was best for the company, but they were paid a normal salary and a small bonus just like every other normal employee.
So it’s time to learn How Money Works to find out how the worst business idea in history became the new normal for Corporate America.
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wow thanks such a great idea the feds totally arent interested in people who join that bro!
This may be the best video you have ever made. Every single point you made was a home run.
I am interested in how taxes changed the decisions all thes people make.
Can you stop stretching out your words. Your content is good but your speaking style is obnoxious. “Amerikhah,””shareholdoor vahleeyooouh,”findehet,” companeeyh, emploeeeeyaeh,” “eeligahleeeyeah.”It sounds like you’re jizzing while talking.
you forgot to say that this idea has stay relevant because of state intervention, so the state and its evil hitmen AKA lawyers are the main reason because they are also scrapping pennies in front of a steamroller, they want to prevent people going batshit crazy.
Norfolk Southern approved a $10 billion share buyback program and a 9% dividend increase just before they told their employees that they couldn't afford to give them any sick days and 10 months before they had a giant accident that poisoned a whole town because they wouldn't invest in maintenance and pursued understaffing to save money.
They probably bought back those shares by issuing corporate bonds at (then) a very low interest rate.
Those same employees will be retiring at some point with a 401k that is funded by businesses that do the exact same thing. A lot of people demonize looking out for shareholders until they see their retirement portfolio underperform.
@@badluck5647 Capitalism makes people complicit with the exploitative relationship by making owning stock, real estate, bonds, and other financial assets as one of the few ways to be secure in their older years or when they fall too ill to work. A deceptive part of capitalism is that allows people to own equity on a market basis unlike feudalism but it is in such vast inequality and alienation that the Bossism and Landlordism starts to look a lot like a form of neo- (commercialized) feudalism.
@@rogerbartlet5720 I did some research... And you're right. $1Billion in corporate bonds! "New issues: Issuer Norfolk Southern Corp released international bonds (US655844CM86, US655844CN69) in the amount of USD 600, USD 400 mln maturing in 2032, 2053 respectively. February 17, 2022 Cbonds On February 15, 2022 issuer Norfolk Southern Corp released international bonds (US655844CM86, US655844CN69). • In the amount of USD 600 mln with the coupon rate of 3% maturing in 2032. The issues were sold at the price of 99.999% at par. The bookrunners of the placement were Citigroup, Goldman Sachs, U.S. Bancorp. • In the amount of USD 400 mln with the coupon rate of 3.7% maturing in 2053. The issues were sold at the price of 99.412% at par. The bookrunners of the placement were Citigroup, Goldman Sachs, U.S. Bancorp." - CBonds
@@rogerbartlet5720 I did some research and you're right, $1 BILLION in corporate bonds!!! "On February 15, 2022 issuer Norfolk Southern Corp released international bonds (US655844CM86, US655844CN69). • In the amount of USD 600 mln with the coupon rate of 3% maturing in 2032. The issues were sold at the price of 99.999% at par. The bookrunners of the placement were Citigroup, Goldman Sachs, U.S. Bancorp. • In the amount of USD 400 mln with the coupon rate of 3.7% maturing in 2053. The issues were sold at the price of 99.412% at par. The bookrunners of the placement were Citigroup, Goldman Sachs, U.S. Bancorp." - CBonds
Sacrificing long term for the short term gain seems to be the theme of humanity at the moment.
Parents are bad parents these days because of lack of discipline. No concept of delayed gratification.
insert your favorite meme with: "always has been" here
this is the difference between China and the US. China doesn't care if a company loses a few billion in the short term, so long as they position themselves to dominate the market in the future where the US companies only worry about the short term results. US companies need to change this quick or they'll get run out of business by the chinese companies twenty years from now.
Shareholder value is a focus on the long term
@@edwint1780And China is a shareholder in the companies.
I've lived this. Worked for a fortune 500 company that every single quarter results were about 1 minute of congrats for beating expectations and 59 minutes of all the things we need to do better. It seemed unsustainable to constantly do more and more in a saturated market, working for a mature company. I would always sit back and wonder why isn't it enough to just have a profitable business, with steady revenues. Instead, everyone was miserable, expectations were off the charts, work/life balance was non-existent and layoffs always a looming threat.
Because this is how company's create a culture of performance by not increasing pay. Just increase stress and anxiety and you will increase performance, it's a new fad and you will only see this get worse.
I just moved to a company like this. Best expectations by a wide margin? Great, now increase that by 20% next year! I'm not sure what the plan is for when there's an inevitable downturn...
@@jamalgibson8139 That's pretty easy to answer. Layoffs, restructuring, off shoring, on shoring, whatever allows executives to show they are "fixing it" in order to meet the requirements in their contracts for them to receive their annual bonus or have their shares become vested.
Plan? There is no plan. There's only maximizing shareholder value, no room for planning in that!
@@business_man_alexit’s going to bite them in the ass. Already people are acting their wage now that the companies are treating them like this
I never knew what was itching my brain about a CEO's conflict of interests within their own company until now - most of them didn't build their companies, and they have NO incentive to see it's survival past their tenure. Long-term planning and sound business strategy are things of the past.
You can keep all the bonuses even if the whole company collapses catastrophically into burning pile of garbage as long as you cashed your bonuses out in time
America runs like that so what's the big deal?
@@andybunn5780 America shouldn't, and corporate structures are a big reason why.
CEOs care about two things: bonus and compensation package.
@andybunn5780 The big deal is that there are consequences to this and you can only kick the can so far. When the can finally reaches the end of the road the consequences are catastrophic, and the solutions that could have been implemented to actually solve the problem three blocks prior will no longer work.
And this is why I'm glad I work for a company that's not publicly traded. The leadership makes business decisions based upon actual business value, not raw greed, and we, the employees, actually get treated well as a result. I'll most likely stay where I am until I retire.
I worked for a privately owned company that was total shit cos the boss' bonus was based on that year's profit.
Stress free
Private companies or established mid-sized companies are good to work for. I did a short gig at one and they treated people (and customers) well.
@@spankeyfishideally, the owner of the company is involved with the running of the company. That way long term plans are put forward and not short run
amen to that but there exceedingly rare to find
Gotta love when someone works from the bottom up, just to slam the door behind them. Jack Welch is the definition of boomer mentality
So many boomers and those like them failed to realize their prosperity was a spike and one being sustained at the expense of the futute.
It's not proper boomer mentality to slam the door behind him unless he ALSO complains that they don't want to work into leadership roles anymore. It needs a vicious level of unaware irony to be properly boomer. Not that I doubt Jack Welch has that too.
AKA "I got mine, so fuck you"
Facts
People like that constantly talk about they were “self-made” completely neglecting the hundreds of people and institutions that helped them along the way
Got my MBA. Teacher walks in and says, "This week is information I'm required to teach you. It's the dumbest thing you will ever hear and it was proven false in the 60's. First, Stockholder Wealth Maximization"
I knew it!!! Daym. Thanks! I knew mba is full of shit!
its sad that I had a feeling the way businesses were run today made little sense and this was back in Highschool where I took a business pathway. Stockholder Wealth Maximization sounds like to me. "How can I get as close to a gilded age robber Barron as possible"
@@kappadarwin9476 When I was in high school, we were barely taught about how businesses run - only to finish high school, graduate college, and go to work for them...
@@go_better it's still a very valuable degree that teaches much of what you wouldn't learn in the field unless being taught by someone else with an MBA. You just got to vet the college and teachers before you go. Just because it's a big name doesn't mean it teaches reality.
When I was getting my business degree it was more like a Jack Welch worship session. Jack Welch was the Messiah who could do no wrong. I felt stupid because I thought the whole thing was wrong and I was simply too much of a pleb to ever understand the 4D chess CEOs play.
Jack Welch is a perfect case study in someone who essentially ran a ponzi scheme with shareholder value. Made the line go up long rnough to cash out, then left the place to burn.
can you explain more?
@@annibhardwaj6914 The man ran General Electric like a financial firm. He would essentially make predictions for how GE would perform each year and quarter, then buy and sell companies to match the numbers he chose. This made GE seem like a more reliable stock, when in reality Jack’s business strategy for each new company was to simply maximise profits by mass layoffs and cutting projects. This approach was fundamentally unstable and ultimately led to the collapse of GE, but by then he’d already made his money and jumped ship, leaving the company to burn.
@@annibhardwaj6914 Jack Welch effectively chopped off parts of GE and fed them to the shareholders. The shareholders seemingly didn't clue in that not reinvesting the savings from layoffs and proceeds from sales of assets means the business does not increase in real value.
@annibhardwaj6914 Jack Welch used a lot of creative accounting, and essentially stated that if GE wasn't either the number 1 or 2 player in a product market, they would sell off that product or division. So on paper, it looked like they were more profitable, and yet shrank over his tenure. Before Jack, GE was a leading engineering firm in almost every product market using electricity. When Jack came onboard, most of the products either were rebadged products from other suppliers in Asia, which were lower quality at the time, or completely sold off to other companies. Meanwhile, he would sell off entire divisions and plow that money into financial services and industries that GE didn't have a foothold or history in (see GE's purchase of NBC).
My dad told me running a company is like running a marathon. You gotta keep moving at a good pace and avoid tripping on small stuff. And the runners who only care about appeasing shareholders at every move are like people who cut off thier arms mid race. Yeah, you lowered your weight meaning you can now run faster but you will bleed out either after you crossed the finish line or before crossing.
Except the CEOs that are "cutting off their arms" aren't the ones who have to finish the race. They hand it over to someone else mid way and it's now their problem.
More like the coach cutting the runners arms off and then getting offered a highly prestigious position at another college, just because his runner is currently in the lead in the marathon, which he takes and aways away from the current program before the runner bleeds out and collapses. Maybe they manage to limp across the line and survive, but they're still crippled.
Uh except you can't run without that arms swing. Now in know none of you ran track.😂
@@joe-zj8js armless runners would beg to differ. Have you heard of the paralymics
@@oliverhopkins8074 i have. I know they can run but not as quickly. Was being facetious.
Boeing cutting down on safety controls and testing is the thing that pisses me off the most. These psychos have literally decided that their returns are worth more than the safety and lives of their machines passengers. Literally criminal behavior. I think that all happened after the change from an Engineering-Educated CEO to an MBA CEO with little no engineering experience? Like, wtf is such a move even legal in a field that is usually pretty brutal when it comes to safety? Not to say that all MBA CEOs are necessarily bad or evil, but the one responsible surely was.
Dennis Muilenberg was actually an Engineer by trade before becoming CEO (and resigning because of the 737 MAX crashes). But the larger point still stands that even people who should know better will still knuckle under when their pressure and incentives are pushing them in the wrong direction
@@Erohlson Ah that's a good insight to have. One wonders how "having planes crash" does "increase shareholder value". It appears that the exact opposite is the case, considering the image problems Boeing now faces. Seems...extremely short sighted, almost to the point of blindness.
Exxon Valdez taught us it's cheaper for companies to drag things out in court with lawyers on the payroll for decades than avoid the problem in the first place or pay damages, until almost all of those affected have all died and they only have to settle with a few parties.
@@fortyfourandgore9787 Holy I didn't know about Exxon Valdez (it was a bit before my time). "Investigators later learned that Joseph Hazelwood, the captain of Exxon Valdez, had been drinking at the time and had allowed an unlicensed third mate to steer the massive ship. In March 1990, Hazelwood was acquitted of felony charges. He was convicted of a single charge of misdemeanor negligence, fined $50,000, and ordered to perform 1,000 hours of community service." Those must've been some darn good and soulless lawyers...
@TheFriendOfLucifer I don’t think it’s that they see having plane crashes as increasing shareholder value, but rather they see spending on improving safety as decreasing shareholder value. There’s also the hopium of thinking that it’s an isolated incident until reality shows that it’s not. The ‘small government’ cheerleaders simply want to remove legislation that legally binds them to do the right thing because doing the right thing has costs. Safety legislation in particular gets put in place as a result of companies not doing the right thing on their own in the first place.
In a university business class in which groups manage a fake company. Guess what we are graded on? Ending stock price. We are being taught to maximize shareholder value in school, how do we expect future CEO’s to perform differently
And then they get rewarded in bonus.
@@pedrob3953 very true, they are incentivized to do so
How many ceo of major companies come from a business school?
@@monsieurLDN certainly a good amount of them
Except irl there is no end date which you will receive a grade the company will continue on forever not just 2-3 years and long term thinking can be more profitable overall
Since the german federal railway (Deutsche Bahn) was privatized in the 90s, they have done this a lot. They let their infrastructure rot, because their contract makes the state come up for replacments, but they would have to pay repairs themselves. So now, 30 years later, the infrastrucutre is garbage and will take something like 60 billion euros to fix. Sacrificed short term cot savings for long term productiviy.
And when it dies, the stockholders will simply invest elsewhere. If government attempts to revive it, the propaganda machine will sow rage about taxpayer money being spent, because that money is to be siphoned into corporate pockets.
Same with all the public infrastructure in the UK. Now we even get to drink our own p*ss because the water companies flush raw sewage into the water supply. Real nice.
Obligatory Scheisse Deutsche Bahn
It's even worse. The DB was not privatized. Not really anyway. But just in anticipation of it they stopped repairs etc.
Privatized or you mean public private partnership? Only country to still have completely privatized railways is japan. No other country completely privatises railways.
All large companies are seeing one major seldom mentioned shortcoming of "shareholder value" now, the skills shortage. Looking at job listings in my area, everything is either entry level or senior positions. Nothing in the middle. Companies aren't loyal to the employees, so in turn the employees aren't loyal to the companies. So no one is with a company long enough to develop and refine the skills needed to perform at a senior level. And no one wants to hire and train for mid-level work when they can just lean hard on their senior employees and let the expectation of incompetence fill in the rest. Industries like telecom, railroads, and construction are in for a major hurt.
I would say that remote work and IT has also hit all other sectors, people have started to think, why would I risk my life or my back or legs if I can get more money doing....whatever... on my PC. I feel an impending doom to the way of life of the mid 20th and beginning of 21st centuries. Almost as if we are on the edge of technological greatness or societal decadence and a new dark age. You cannot keep wages stagnant yet productivity went up 2X, at some point that excess productivity will either disappear or will have to be transferred to the people creating it.
@WetPig True. People aren't going to transition from WFH to railroad or telecom work unless the pay is much higher. And for some reason most WFH jobs pay more right now.
Company loyalty is a 2-way street. If employees aren't loyal and will quit my hypothetical company to work for my hypothetical competition, or even use the training I paid for to start a new rival competitor, because that change offers better benefits to them, then that disincentivises me from investing long-term in my employees for the sake of loyalty. Loyalty is no reason to stay anywhere, if you the hypothetical employee can do better elsewhere.
@IcicleFerret Of course. But it was the corporations, specificially GE, that fired the first shot.
@@rightwingsafetysquad9872 Not sure I agree with that. Day laborers have always been a thing since antiquity. Only a very small percentage of ever experienced employment security, and assurance of having a paying job was a huge motivator behind learning a trade: For example, everyone needs shoes, so if one learns to make shoes, one can always earn a living. One of the driving forces behind the theory if scientific management on the 1890's was to create work standards for any person to be able to come in, follow a list of instructions, and do a job well. Companies often found that labor was unreliable: employees missed work, moved, or were unskilled. They needed to make sure they could still function, and function at a reliable standard, without having to rely on any one individual.
I had a colleague who was useless at her job. Got a big promotion to a new job and couldn't understand how. Found out the new employer had an internal auditor who found loads of issues. That auditor was let go and my friend, who they knew wasn't competent enough to find the big issues, got hired!
Why does this happen?
Probably because it’s easier to raise poor performance than high performance. But don’t worry, the incompetent worker won’t be the one raising performance. You’ll be doing it for them.
My knee-jerk reaction is "she was promoted for her diversity." DEI has made it next to impossible for companies to obtain financing without performing equity theater and showing banks they're promoting appearances over real talent. My 2nd knee-jerk reaction is, who's she sleeping with 😂 But maybe I'm just jaded.
Some people interview well. Especially in technical interviews done via zoom/teams/etc., it's becoming more common for people to cheat
@@IcicleFerretyou might feel more comfortable on ben Shapiros KZhead channel. Where they blamed the door flying off an airplane on DEI. If you're going to stick around, don't repeat racist agitprop.
So many people missed the point here, which is that reinvesting profits back into the business made for better results, better jobs, better quality, better overall profits, and actual stability. That was the model that made the US and its middle class prosperous. Believe it or not, some of us are still around who remember this system. Now everything is overpriced hot garbage. Soon we’ll be buying garbage washing machines that you assemble at home because the assembly line will be seen as dead weight that cuts into shareholder profits. As the video said, the shareholder model is unsustainable. Eventually there’s nothing left to cut and nobody left to fire.
You get it. Sometimes the comment section goes off on a tear. Haha
Neoliberalism and its consequences has been a disaster for the human race
AS long as there are patents left and people to sue, the model stays sustainable - it just becomes an even bigger societal problem
it will be marketed with tagline 'customized for your life' with series of downloadable operating system upgrade purchases.
That's what happened on an episode of the Twilight Zone.
This mentality is why layoffs are probably going to become more and more common than what we’ve been seeing. It’s the epitome of enshitification: provides a large, short-term gain that you can ride the effects of for at least a year before the problems it created are fully evident. You can maybe juice another year out of it if you can blame the remaining employees or use the family card to get them to work harder.
Soon with AI there's no reason to hire so many employees
@@aslamnurfikri7640 I dont trust a single big investor to have anyone’s self interest in mind when it comes to AI. AI could be used for so much good potentially but not in this current work climate
Of course. This is how the capital class drives down wages. More desperate people means you settle for less and work harder, or get replaced
Worked for a few companies that thought that they were going to fire to profitability. Every time they did it, 6 months later they're re-hiring as stressed, distrustful and angry employees were packing their bags and work wasn't getting done. Cue the company rehiring, the shareholders get mad and demand higher profits, and the company lays everyone off again. It's getting so damn tiring, especially after getting caught in yet another layoff.
@@aslamnurfikri7640 Quite the opposite actually. AI sucks. And cant replace anyone yet (or ever, until we get to like human-like level intelligence, not fancy excel document). And also requires a lot of humans to keep it operational, stable and doing useful work (because in the end whatever AI is doing would have to be finished and VERIFIED by human).
Having a career in cybersecurity and related risk management, it is true that we're never praised for blocking/deterring attempts and always blamed for information incidents.
yep. it’s ironic how often execs and management throw around risk but never address it.
iam a business dude , iamma make sure that them stupid rule don't work at my place , hope i don't create more problems those
Get a good management team in place that can advertise your wins! I also work in IT (not specifically security, but what part of IT doesn't touch on security now?), and when management started explaining what almost happened and what we prevented or mitigated before it was a problem, and the weird hours we work to run fixes after hours while providing support for things during normal people's work day... Let's just say the embarrassment of being highlighted is a price worth paying for the grace we get when things don't go perfectly. It's a night and day difference in work culture, and made the board happier to give us more funding for better tools to make our lives easier. If your IT manager isn't also an IT evangelist, then they are a bad manager.
Sometimes it's the same in defenders in sports as well
Dude way too often companies try to push back on everything on the cybersecurity side and drag their feet on funding their cybersecurity. The CEO will say they care about cybersecurity and data privacy/protection but often times internally companies do not care until they have lost a LOT of money because of a breach. Internal IT departments (if IT hasn't been outsourced) usually want to follow industry best practices if they can but they often do not have the C-suite and budgetary support to do so.
Private companies’ interests are often in direct conflict with the interests of customers and employees. This is how we got cheap disposable products being manufactured outside of places with solid labor rights.
He's talking about public companies. Private companies don't have to worry about a stock price.
Money is power, and power is a zero-sum game.
publicly traded but still private sector companies @@omeysalvi
It is in the interests of customers to acquire cheap products and it is in the interest of workers to work for a profitable company. All our interests are connected
@@doujinflipexcept no money isn’t a 0 sum game that’s the biggest economic misconception
The CEO's dream is to make one reckless decision after another until your company reaches "too big to fail" status, at which point your terrible decisions will no longer have consequences because you can just hold the entire economy hostage and force the government to bail you out over and over again.
I think the scary part of this concept of maximizing shareholder value over sustainability is that a large portion of the market(Probably close to 80% of publicly traded companies in North America), have been operating with this strategy for 3 decades now. It should have ended in 2008 but the entire economy got bailed out with 0% interest rates, instead of fixing the core issue. This pretty much gave execs a license to keep being idiots, and keep going into "unrealized debt" by penny pinching on key business initiatives that are critical to longevity. We have hit a cross-roads in the economy where the "fruits" of all of this "unrealized debt" from maximizing shareholder value is coming due, and all at once. You can only imagine the absolute carnage that is going to reap.
If these business ideas are vetted prior to starting up by a financial institution like #TDBank💳; then they could be stopped b4 any harm can be done... 🌎💘💰
I work in cybersecurity, and that statement is very true. When I started 15 years ago, small companies had teams of 10 to 15. Nowadays, large companies have 2 to 3 people on staff, and literally do not have the time to complete all the security issues.
In IT we see the same issues as risk management, when we’ve done everything right there is almost no work to do so some people think they can just get rid of us. We recently had a couple new executives come in and fire entire departments. Just to have the departments left to pick up the slack hire new people. We’re told there’s no money for raises but they hire new developers at 6 figures each. It’s ridiculous.
That's basically what Elon did at Twitter. The company can and will coast for a while but eventually the problems keep piling up. This is why workers need a stake in their workplace. Executives and shareholders don't know shit
@@Ciph3rzer0 Bruh, in what universe does a company that owns one site need 30000 employees? Pinterest has 6 engineers
@@MiauFrito why do you conflate employees and engineers? I am a software engineer, and with the right 6 people, you could build a competitor to any social media platform, easy. I could do the majority of it all by myself. But building it isn't even a tenth of the job. Not even 1% at many companies. I'm gonna guess you don't have any clue how a company runs, much less one that has to comply with the laws of every country on the planet. One that has to deal with securing customer data, building resilient systems, hiring, training, documenting, managing migrations, security updates, dealing with a constant onslaught of malicious actors assaulting your security, and gaming results with bots. Hooking advertisers and meeting their needs, managing all those relationships with personal contacts. Detect fraudulent activity that costs advertisers, moderate illegal content. There's a whole bureaucracy needed to report to shareholders and make sure your SOX complaint. It's nuts. I could go on for several pages just listing CONCERNS that go behind development for a company like Twitter. Each of those concerns would need teams of people working on it. Some, like complying with the laws of every country, of verifying all these local govts, dealing with so many advertisers, yeah of course you need 30k people. They're not all cushy engineer jobs, most are probably chronically underpaid for the work they do. My second job out of college was as a dev in Amazon's supply chain operations. I thought, how much work actually needs to be done? It's just an online store and it's already built. Wrong. Soooo wrong. It's impossible to convey how challenging it is to even make simple changes. The teams and services are so interdependent, you're constantly breaking each other's stuff. So much time and effort just keeping up with updates and security initiatives. But you can always get rid of people you don't think you need. You can coast for a bit. Let the ticket queue pile up, things break and you build up technical debt, and you're fine for a while because you put the fires out; pay the interest. But eventually all your best engineers leave for better opportunities and you're not just down workers, you're down your BEST workers. Because your workers weren't given time to pay down the technical debt and were instead expected to double up on their work. And now you're in a death spiral, it will only get worse until there's external intervention. Seen it happen many times at Amazon and elsewhere. Elon started by getting rid of his best employees, because nobody worth their salary stuck around after he gutted the company, I promise you. It's ok though. I was once fooled into thinking he was smart too. A lot of people were .
@@MiauFrito Looks to me like Pinterest employs around 4000 people.
He is Smart as engineer, and that means shit in managing a company@@Ciph3rzer0
That shareholder first mentality was what broke IBM. The company executives strived to reach very high EPS goals to the point of starving the company from talent, investments in R&D and building new products. Eventually their products became obsolete and irrelevant and couldn’t remotely compete against modern cloud services from Amazon and Microsoft.
Currently getting my MBA and all our classes are pushing us to focus on long term goals and encouraging innovation. They seem to be teaching us to do the opposite of what these disastrous businesses have done. So that's one good thing happening now.
Everyone knows that what they teach you in college is the exact opposite of what's done at work. So no. You'll still work on short term goals.
What part of the world are you located?
@@thegeforce6625 the U.S.
I just read today about a billionaire that was going to buy hundreds of schools here in Sweden and focus on long term growth by focusing on the teachers and students not dividends. This tanked the stock and the other share holders pressured the seller to not sell the shares and blocked the acquisition. They cared more about the short term drop than long term growth. Support for private schools are dropping because of owners taking the tax money to pay dividends instead of investing in the schools so it may even turn out that private schools paid with tax money will be banned and then they will lose everything all for short term profits.
Good lord ...
Even if the billionaire in question is trying to be benevolent, schools owned and controlled by private interests sounds like a dystopian nightmare.
@@drunknihilism7181it's only a nightmare when those private interests mismanage the schools, which isn't often the case. There's a reason why private schools are usually so desirable. This isn't a public vs private issue, it's a long term vs short term thinking issue.
God forbid the number stops going up for even a second
@@hugoguerreiro1078 Private schools are more desirable because the students are from wealthy families or they're religious and don't want scrutiny. Not because they're better managed. Public schools are under funded and that, shockingly, leads to worse management. Then they have funds stripped from them, things get even worse and that's used as justification to transfer the rest of the funds to private schools instead. I don't know about anyone else, but I personally don't think we should encourage stealing from the poor and giving to the wealthy. And there is zero reason to believe that businesses or faceless billionaires are more capable of planning for the long term than educators.
People forget that ensuring the company survives throughout various cyclical swings in the market, sustainable returns and growth without swinging wildly threatening layoffs, lost of reputation and ability to secure future talent market share of the industry basically far supercede any short term gains IS also maximising shareholders value. With the recent trend towards share price as a major KPI on whether an executive has done their job, is not maximising shareholder value, its profiteering at the expense of society.
All you need is to see into the future and you don't get burned really badly. Easy.
That doesn't guarantee any bonus. More KPI achieved, more bonus. Then when the sh*t hits the fan, you're already gone.
except like he said shareholders don't hold on for long term . they only care about short term and will sell the stock by next quarter.
Problem is the fed will just bail them out with cheap credit at the expensive of others savings accounts. There's no incentive for consumers or producers to be frugal and risk adverse.
No, it’s not “people” that forget. It’s the shareholders and financial sectors that forget that - and they are extremely incentivized to do so. Modern capitalism is a speculative vulture and nothing else. Massive regulations, tax system changes and union power are needed to force another behavior from the owners. But we have seen the opposite - deregulations, tax cuts for the rich and union busting/weakness - not to mention the bizarre bailouts after 2008…
Jack Welch was a pioneer in the vulture ceo field. American business hasn't been the same since
The reason being is because of the institutions that make these CEOs. They pretty much collaborate with one another and influence other CEOs on how to play their roles to follow the "unspoken rule" and they're incentivized with "failing upward" with these golden parachutes.
The short term thinking of shareholders is very real. I remember several years ago reading that Bezos having Amazon invest in it's own trucks rather than outsourcing all their delieveries to other companies and a lot of shareholders were extremely upset by this because they wanted more dividends. Couldn't believe how short sighted that was.
I remember so many people being baffled by Amazon "not making money" for so long, yet here we are where they are every other truck on the highway and every other delivery van. And all so people can buy cheap consumer goods from China. Hmm...not sure seeing long term is great either...
@@johnchedsey1306 Yeah, chinese future is kinda screwed. "Wonder" (investors money) is running out, country build to cash out for a decade or two and then use money to rebuild what they had broken has no money to do so, and now escalation with major buyers... I bet india/mexico is next.
@@johnchedsey1306 That the goods are made in China isn't down to Amazon though. We don't have Amazon locally, but if I pick up any random product in any shop there is a high probability it will say Made in China on it. China is a capitalist dream as far as labour is concerned. It has labour laws like those that used to exist in developed countries where workers had low pay and no rights. It's actually funny that people think China is in any way communist. If it were the workers would own and control the factories.
The current US rail industry is a great example of the pennies and steam roller. The infrastructure is so vast and needs constant maintenance. They can cut don't on maintenance a bit here or there and save money in the short term, but it will take a massive investment to return to normal, and will be more accident prone. The Milwaukee Road is a good example of the short sighted cost cutting. Companies will also trim and cut their ability to innovate, adapt, and find new business.
And now we have train crashes that lead to city evacuations
Do they not realize stoppage in shipments costs them more?
As a shareholder, it's more important to me that a company does not destroy its reputation, its employees' morale, put its customers in danger, or cause catastrophic environmental impact for the sake of increasing shareholder value. I want to own companies that are run by people who have souls.
Unfortunately the investment you make are probably so small that the line doesn’t even move So no ceo will care
Ethical behavior is better for everyone and will create more benefit in the long run.
Sorry, you’ve been outvoted by the majority shareholders.
You're in a minority there. The average shareholder wants growth through any means necessary, and if someone else has to suffer; so much the better!
@@anonmouse15 some of these clown CEO’s destroy the company forever searching for their “shareholder value”. GE would be a great example
Outside of the dollar signs and stock prices, this mentality has shredded the social contract between employers and employees. The current system is exploitive where companies just want to maximize productivity out of people in the short term, burning them out. We're all cynical, bitter and frustrated over our professional lives for the most part. Employees are expected to devote existence and be loyal ("we're family here!") but are immediately disposable. It's just not a healthy economic system and it's poisoning most aspects of our lives.
That is why the only people who should be able to "own" a company are the employees who put in the actual work. If someone makes money off of someone else's labor, they will always be incentivised to take a bigger and bigger cut. They are evil. They have never hidden it nor do they care to. Money rules our current economic and political system when it should be ruled by the will of the people.
The system was always exploitative. Pretty much any history book will show that to you.
@@TheSuperRatt In the 1950s it massively better. Most jobs offered generous pensions, hired people on the spot and paid enough feed a family suburban household on a single wage.
@@MVargica high school dropout could get a job as a janitor, work forty years at a rate of pay sufficient to buy a house, a car, get married and raise four kids, and take multiple vacations per year, then retire with a full pension. If that’s “exploitative,” sign me up.
I remember hearing about Ford's difficulty with shareholders, and i'm glad someone with more expertise is making this connection.
Congrats on your impending 1 million subs award. 🔥
Thanks Scott, I can't believe you aren't closer yourself. Thanks for keeping us all accountable!
Oh shit, lemme help
@@HowMoneyWorks is that a compliment or a ridicule 😂
I have heard that Ford needed to offer those wages and that work week because his turnover was so high due to simple, repetitive tasks being really miserable to do all day long.
And also because if he didn't, his workers would start getting ideas. Like, why are we struggling doing all the work while ol' Henry gets all the profit? That dynamic never changed. It was just sidelined for a few decades by the social programs which saved capitalism from the workforce it exploits. But because capitalism is a relentless machine which only values immediate profitability, it has consumed those programs and controls as it does everything else. And so it will fall, incapable of understanding that it brought this upon itself.
@Frommerman I imagine he was getting the profits because he founded the company and took part in the inventions that made the company possible. I'm not claiming Ford birthed the model T and its processes from scratch in his garage. But if anyone gets ripped off in these situations, it's the engineers and scientists who do the development work. Nothing would be possible without them. As far as the workers' negotiating power goes, the reason they lacked/lack it goes back to Renaissance Europe. Honestly, it goes back to the Roman Empire. Noblemen, like the estate holders they came from, slowly lost rights and control over the lands of Europe. But as the middle ages ended, they seized these rights and lands back. This meant that when factory jobs came about, funded by rich utopians--invented by gentleman scientists--rather than by the defunct trades guilds or village associations, the people applying for those jobs had little personal property to fall back on if they got fired and no legal rights. That means no negotiating power.
Quit just generically bashing capitalism. The "exploited workers" have it better under capitalism than any other system. Surely there are areas to improve. But the best systems are still capitalism at their core.
@rightwingsafetysquad9872 There are plenty of people that capitalism excludes, and this current version is among the worst. You just praise it because you’re not excluded from it. At least not yet.
@@lucibelle Perhaps you can enlighten me then. But it seems to me that anyone excluded from capitalism would be excluded from any system.
It was eight years ago, i was working for zeven years and the company ceo said during a years overview that times would be tough, but they would increase the value of shares by buying them. And on that moment it didn't make any sense. If you have funds and you know times will be tough, there is a better way to spend it right? Left a year later, stock is now about 20% of what it was. Has seen two new ceo's since.
The key is to hire and fire enough ceo that they all become shareholders. This short the stock since they won't want to sell.
I just read “The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America-and How to Undo His Legacy” by David Gelles, which discussed the emergence of shareholder primacy at length. I thought it was a great book and interesting topic as someone who is just starting out in the corporate world. Glad to see a video on the topic, too!
The problem is it is almost impossible to put the genie back in the bottle now that it has been let out. Wall Street is absolutely addicted to short term thinking. Any CEO who tried to prioritize the long term viability of the company gets shit canned and replaced by someone who will destroy the company for short term profits.
The peoblem isn't unsolvable, and it could be solved with a flick of a pen, just use taxes to make it more expensive to sell stocks soon after buying them, the longer you hold the stock, the less taxes you pay on it, BOOM, short term thinking iz dead.
@@yomanyo327there is already a distinction between short and long-term capital gains. Maybe the line (generally 1 year) needs to be changed - but as long as capital gains tax is lower than income tax, executives will always prefer compensation in stock options.
@@yomanyo327 How about cutting the Gordian knot and just remove the concept of shareholder altogether?
@@Simboiss Why? How will you figure out what a good investment is then? Are you arrogant enough to think you know better than hundreds of thousands of other people?
This makes more evident why some companies produce bad products, launch incomplete product, and make minimal innovations.
Oh you don't know a tenth of it. People that claim govt is incompetent IMO have never worked for a private company.
Imagine buying a movie for 50 dollars. Every time you want to watch it, you need to insert a dollar bill in your TV. In the movie itself, there is not just product placement, but advertisment for extra scenes you can buy for only $19.99 each. You need to maintain internet access for watching the movie, although this is no streaming service. In a couple of years, tech service for the movie will end and you won't abe ble to watch it anymore. Sometimes, the movie just stops working at all. The screenplay and story is mediocre at best. This is the current reality for the triple-A video game industry of Ubisoft, EA, Blizzard-Activison and others. Increasing shareholder value destroyed 90% of electronic entertainment.
@@valentinmitterbauer4196 I don't understand why people keep buying their crap. I switched primarily to indie games like 10 years ago as soon as they started paid cosmetics. I played thousands of hours of games like terraria which I pre-ordered for $20 and has had dozens of massive free updates. To some extent I feel like this is consumers fault. These companies are killing themselves, stop paying them and let them finish the job.
@@valentinmitterbauer4196 Who is making you buy the triple A games? You do realize it's people like you who preorder the garbage they put out that are fueling their decisions. Especially with gaming, since it's a luxury.
@@TunaIRL I do not preorder. I don't buy triple A. I play indie. You literally imagined a person to be mad at and projected that person onto me.
A couple of years ago Darden restaurants did a 1 billion dollar stock buyback right before the price of beef shot up. When the price did go up, instead of charging customers more, they cut the hours of every worker and had them do multiple jobs at once. This lasted for like 7-9 months
Now all companies are encouraging employees to do the jobs of 2-3 people for 2/3s of a salary in a cost of living crisis
@The.QuasiOG The working poor have more experience with this than anyone, regardless if the stock market is involved. Walmart’s been getting subsidies for keeping their workers on food stamps for how long?
So they had to sweep some floors, bring food to some people. Poor babies. That's called working. If you hate your job, then get a different job.
@@kevinlue4756 🤡🤡🤡
Essentially, we live in a system where the people who actually do stuff get fired or suffer pay cuts to give idle rich people even more money they don't need and hoard the bulk of it.
And they pay lower taxes on that income because capital gains are taxed at a lower rate than earned income. The tax code literally rewards you for not earning your money.
Management in public companies can have problems managing loose cannon shareholders and shareholder expectations. Even in closely held private companies, shareholders objectives evolve with different life stages (retirement for example). A local businessman inherited a medium sized manufacturing company with a
I mean it's helpful when the competition are screwing themselves over with short-term gains mentality and then flopping on quality.
This video rightfully highlights some alarming corporate practices. It's indeed a food for thought, how short-term gains are prioritized over long-term, sustainable growth.
The dutch IRS offered all employees a golden handshake when they left voluntarly. The most valuable employees left and more than anticipated and not valuable employees stayed behind. A few years later the IRS had a huge shortage of employees which are still slowing tax collecting decades after the incident.
What is a golden handshake
@@yonizaslavsky4246 A very royal package to terminate an employment.
There is a runaway trolley barreling down the railway tracks. Ahead, on the tracks, there are the trolly company's low and mid level employees tied up and unable to move. The trolley is headed straight for them. The company's executives are standing some distance off in the train yard, next to a lever. If they pull this lever, the trolley will switch to a different set of tracks. However, this will delay the trolly and cause the company's stock price to miss growth projections. They have two (and only two) options: 1. Do nothing, in which case the trolley will destroy the lives of the people on the main track. 2. Pull the lever, causing the company's shareholders to lose out on a half-percent of returns for that quarter. Which is the more ethical option? Or, more simply: What is the right thing to do?
If they cant see the employees they would chose the secpnd option
@@heitorpedrodegodoi5646They seem to be happy enough to pull the lever even when they do see the employees. Some people just don't care about anything but their own wealth.
I see a lot of execs picking the third option; two track drifting. Why just destroy hundreds of lives when you could destroy hundreds of lives AND crash your stock price in the process
Welch's "vitality curve" has destroyed so much in company and personal lives.
This is why I was investing in intel recently. Their CEO pat announced huge investments into capital for the future. The stock price tanked though because investors knew that meant earnings would decrease for a while while it was happening. Bottomed out at like 26-27 and then shot up to 44-50 recently. I thought the investors were stupid. I still think that.
The Shareholder Value mindset leads to every company becoming the exact same company. Boeing, Apple, Exxon, Pepsico, Disney. Salaries and quality will always be as low as possible. Prices will always be as high as possible. Skills and roles are seen as interchangeable. Strategies and moves are the same high risk, cost-cutting affairs. Speculation and marketing is king. The part where you actually do business is just a minor inconvenience.
That judge siding with the minority shareholders was the most morally questionable, most unfair and most consequential decision ever handed down in corporate history.
It was an entirely correct decision.
@@Peter.F.CIf these business ideas are vetted prior to starting up by a financial institution like #TDBank💳; then they could be stopped b4 any harm can be done... 🌎💘💰
There I was, studying Business Administration at the best university in Latin America, when I had the Dean of my college (who was also one of our teachers) saying that the role of a company is to maximize shareholder value and showing me that the world I was getting myself into was not one I was going to enjoy working on nor would I agree with 🙃 It was a sad realization...
Which BA school is that?
Faculty of Economics and Administration - University Of São Paulo
the fix is simple, pay the management team a meager base salary, and have the rest of the compensation in shares that vest in 20 years, that way their incentives really do align with long term shareholders
I mean, it would probably need to be a bit more than a "meagre" salary (I'm expecting big bosses to want to be paid well), but incentivising them with long-term unvested shares is a great idea.
That... sounds like a really good idea. They won't apply it, im sure. But sounds like a great idea
It is a bit funny that whenever someone mentions people getting ground to dust for shareholder and CEO profit the first response is always "why don't you go to [SOCIALIST/FAILED COMMUNIST COUNTRY] instead?" as if it's the only alternative is some extreme. Also, to anyone who might have missed it, GE wasn't just "one of the best companies to work for" it was THE BEST company to work for in the world prior to Jack Welch. The prosperity that turbo-fans of capitalism fawn over in the 50's and 60's was propped up by Welfare Capitalism that was essentially company-funded socialist policies. Some businesses saw Welfare Capitalism as a moral imperative to better the communities around them and enrich the lives of workers, some used it to stave off worker strikes. This was funding everything from sports teams and events, to education, to libraries, to social clubs, to childcare, to healthcare, to pensions, to free/cheap housing developments, etc. All of that progress went out the window, along with the R&D that put GE in the forefront of innovation, in favor of turning GE into a bank to use large sums of capital to speculativly invest in smaller companies or buy them and their patents rather than do research themselves. ~40% of GE's market capitalization was in financial services by the end of his tenure. For any Champions of Capitalism in the comments that really like to say "it's the best system we've got" and think there's nothing we can do about the current way things operate, I can guarantee that nothing will make you more sad than reading David Gelles's "The Man Who Broke Capitalism" to really get a grasp for how far we've fallen. I don't mean read the wiki or some journalist's take on it, I mean read the whole damn book and see how it makes you feel.
As a passionate capitalist and businessman, I truly appreciate this video. People never talk about it, but this is a plague holding us back. Thank you.
Capitalism is holding us back. - Sincerely a Shareholder
Shareholder capitalism literally destroyed capitalism. It brought about a neo gilded age and made everyone under 30 destitute anarcho communists
You ARE the problem, and one day you and your ilk will get your just desserts.
seize the means of production 💪
@@WanderingExistence The way it is being practiced is holding us back.
This nonsense is one reason why I have said for years that I would never go public with a company. Period. It is a deal with the devil. In the long term there is no way to reconcile the perverse incentives, and you get to keep your job or keep your soul. I have gotten to observe the board of a small company for years now, and the shortsighted approach that dominates is appalling... but they don't care, they're all old and just want their payout. No reinvestment in the company has been made, no acknowledgement of the power of concentrated wealth over dispursed wealth. Absolutely surreal.
If these business ideas are vetted prior to starting up by a financial institution like #TDBank💳; then they could be stopped b4 any harm can be done... 🌎💘💰
I was in business school in the late 80s. The ascendant share maximization theory was presented as one school of thought on business. I was always sceptical of it. Short term profit maximization sounds like a quick way to ruin a business. The real decider on the use of profits was: can the business reinvest the cash and make a greater return than the shareholders can. The whole premise of running the business is that the company can outperform the investors, otherwise the company should be wound down and the money put to better use.
Is the stock market actually getting better or is this the regular market manipulation to entice new investors, I'm currently sitting on an inheritance of 300k and i'm wondering do I invest in stocks or Gold?
Even while $300k mightt seem like much, one bad decision might seriously deplete it. As such, exercise extreme caution in where and how you invest. It is advisable to diversify while retaining 70-80% in secure investments. Along with your budget, you should think about financial advising.
Its unclear which stocks and sectors will lead the market in the next uptrend. Stay away from rebalancing if you do not have giudance from a plannner and invetsment strtegist. My finances have been in order since I got a wealth planner like Monica Mary Strigle working with/for me.
I would like to reach your coach but how? because I'm seeking for a more effective investment approach on my savings
The decision on when to pick an Adviser is a very personal one. I take guidance from ‘Monica Mary Strigle‘ to meet my growth goals and avoid mistakes, she's well-qualified and her page can be easily found on the net.
It's good you make your own research. and make sure whoever you work with is licensed n verifiable with a repute, this monica looks the part but i'd do my due diligence. I set up a call, tnks.
Agree 100% .. and anyone remember Sears and Roebuck...
If these business ideas are vetted prior to starting up by a financial institution like #TDBank💳; then they could be stopped b4 any harm can be done... 🌎💘💰
So basically, I've been 100 percent correct this whole time, when a company goes public it's 100 percent proof that the company is being run poorly
I don’t know, but it definitely will be.
Every company is a ticking time bomb. Ones that go public and just massively shorten their fuse in exchange for a quick buck. With private at least you get a chance to not have a short-term maximizer take over, with public it is almost guaranteed to happen soon as shareholders can possibly force someone who will give them more money in the short-term onto the company.
"You see where this line on the graph meets this line on the graph? That is why the poor should starve."
And absolutely no more nuance than that, huh?
@@mrfattypancakes even if nuance exists, the main point of exploitation for the sake of line go up is a problem.
Have you spent any time around the super poor? I'm not saying anyone should starve, but they make themselves pretty damn hateable.
I call it spreadsheet induced psychopathy.
@@rightwingsafetysquad9872have you spent any time understanding the systemic causes of poverty? Every individual is a group project and most of the poor represent a group failure. Those things you hate about the poor are most likely byproducts of group failure. If we put you in their position long enough, you would likely begin displaying many of the same qualities. You might be surprised to learn what cPTSD, chronic sleep deprivation, malnutrition, and long term exposure can do to an otherwise functional and ordinary person.
Hence why we need a new metric to measure performance that does not just include return on investment or stock prices.
Odd idea, but hear me out- scandals/per year. The less massive public incidents you have the better. Of course this wouldn’t stop people from burying things under HR but it would at least stop them skimping on safety regs. Ideally, they’re be an internal one as well for anything that did go wrong and that they did bury-you’d want that close to zero as well.
There are investment groups which apply ethical and sustainable practice standards to assess whether to invest in a company. They tend to outperform the market. Some share their criteria. Criteria can include possibility of shareholder activism improving actual performance as conditions change. I know of one which held shares in a destructive company for a time, in order to attend annual meetings and put motions seeking improved behaviour.
Issue is that as soon as a metric becomes a goal, it becomes useless. People will figure out hacks and gimmicky business structures that make important number high without actually doing the things the number is intended to represent. For instance, to avoid the issue of public scandals, a business may move its manufacturing base to a country with poor workers rights and safety laws, or hire undocumented workers who can’t safely report safety issues without risking deportation. They might lobby local government to relax or subtly rewrite safety laws, or if they’re big enough, simply threaten to leave if the local authorities raise a stink. They might also “sponsor” media institutions, which are constantly whining about lack of cashflow, and create a perverse incentive to prevent journalists reporting on screwups. Hell, they already do all these things, they’d just do it harder. I think at least part of the solution will be to chance the way people think about money and business, and require more transparency. Also stop hiring pillocks as CEOs, give them some reason to care about long term performance of the companies they run so they don’t just come in, fleece all they can, then drop out before the rest of the world realises how much they’ve torpedoed the business.
Risk management team members have a unique position at most corporations, and must maintain a delicate balance. Revenue-generating teams see them as "obstacles", while the Risk teams are constantly trying to prove their worth. It's easy to see quarterly fee income increased by 10%, but not so easy to see that 10,000 account takeover attempts were thwarted in that same time period.
I like how the general summary of the channel "How Money Works" could be "It doesn't"
As someone who is passionate about investing I wish companies would just focus on fundamentals and let the share price reflect their (real) growth as a company overtime. (I also love dividends but would rather know a company is well managed than get a temporary dividend that makes the holding less secure.
Lmao. They'll never do that. They literally can't. They ate the only systems which sorta made them do that for a few decades, just like they eat everything else. They'll eat you, too. They're already doing that though climate change, but more directly as well. Companies and the system in which they exist are incapable of seeing you as anything other than numbers. Some amount of labor which can be extracted and directed into the pockets of your *betters.* Some amount, to be minimized at every turn, which you require to scrape by. Some amount required to distract you, make you think any of this benefts you. That's all you are, to the things you invest in. A crop, to be harvested.
Maximizing shareholder value is always a great idea in that long term it will always be brought about by providing the best product at the best price by a healthy company. The problem is that in a quarter to quarter obsessed world, there’s an incentive to achieve short term gains at the expense of long term health & growth.
Maximizing shareholder value is ALWAYS a bad directive. Maximizing customer value is ALWAYS a good directive. And in the theory of enshitification, its ALWAYS the First step. Even If shareholder dont get paid. But soon enough, they haver enough scale so that they can start screwing the customer without losing them to maximize value for corporate clients, like suppliers and advertizers, and soon enough they haver enough scale to screw even the corporate clients and achiving the final goal of capitalism, increase shareholder value above ALL Else. The problem is that specifically when this happens to marketplaces, It creates a feud. A place where there is no true market, and the owner of the market decides what and who gets seen. The tecnofeudalism described by yaris varoufakis that is leading to a distopian Blade runner/Elysium Future no one wants to live in
The switch is to shareholder value from taking money out of the company instead of shareholder value from company growth.
This works until you reach a plateau. Then the fun begins.
You can't really blame them. Money is worth more now than in the future. Unless you can secure consistent return, then you might as well fail using the minimum amount of exposure, the maximum amount of leverage,the minumin amount of time, the maximum amount of return and the minimal amount of risk.
The problems listed don't seem to have anything to do with the maximizing shareholder value model. In fact, most of these are explicitly the opposite: using various tricks in order to hide the actual performance of the company from shareholders. Brand and reputation doesn't show up on the balance sheet (except as part of a merger), so, yeah, you can make your numbers look good through extracting earnings (numbers that do show up) by ruining your reputation (numbers that do not show up). However, this is obviously not in shareholders' interests. The problem is that the stakeholder model also has enormous issues, in that it essentially gives management leeway to do whatever the heck floats their boat, with no real oversight.
Underrated comment
Boomers experienced working for companies that reinvested back into themselves, and as soon as they got themselves in charge, abandoned that strategy in favor of appeasing shareholders. And now they want to lecture us on how things were better back when they were "on their way up" the corporate ladder.
5:29 keep in mind this is one of the reasons for stagnant wages and another major reason this happened, was the destruction of union power.
While I am a general supporter of unions, their decline isn't the major factor here. This has happened in basically every domain across the entire economy, even the domains that have never even had a union.
Heh... quite the timing, just preparing for my Financial Management exam in UK, and it is being hammered like in every class "Our main priority is maximising Shareholders Wealth!!!"
I love that new word first time I've heard it. " ENSHITIFICATION" , I'll use this now. 😊
Misuse of a comma.
Watch Cory Doctorow
@@AwesomeHairo call the youtube police! Oh dear!
The term was coined in 2022 for the downgrading of online platforms-increasingly cutting corners & screwing their users/business customers to milk short-term gains for investors-. I've also seen people use it to refer to how AI, SEO/algorithm abuse, etc. have hurt the Internet in general
What we need to keep in mind is: Private Equity has several companies that sell nothing but 'efficacy.' This concept, which is just 'Maximizing Share-holder Profits' misnamed so people think it is good, is being marketed to board members of other companies. Due to the fact these consultants cost the company quite a bit of money to do their 'inspection and report,' they are often listened to regardless what that advice is... Loss-Sum. That the advice does make the stock prices go up too, it can seem like it is bringing success until the company realizes it's coffers are broke, it's workforce depressed, and it's customers demanding their concerns be addressed.
Yup You see this happening if you work on any corporation now a days. They suddenly start laying off employees from essential areas like IT just to “save money” but then this escalated into an avalanche of efficiency loss that makes the company not even compete its previous years performance 💀
This short term attitude is also visible whenever money needs to be saved. Whenever there are steps like that to be taken the company only looks at stuff that will immideatly improve the balance in the books without considering solving root problems or longterm effects. Example: I work for a very large international manufacturer, we recently started to recieve measures to cut costs ... along the ones that were directly relevant to us: "Visitors from other companies may no longer be invited to lunch on the companies cost" and "Traveling for international buisness trips and conferences ahs to be significantly reduced and approved by senior management" ....The first one we managed to veto after a long fought battle because only an asshole would consider the probably miniscule amount that one would save worth it compared to the inhospitality and rudeness this would convey to every buisness partner ever. (We basically threatened to cancel all planned buisness meeting since we did not feel comfortable inviting people like that).The second one is still in place severly limiting our access to international science conferences and is directly cutting us of from recieving news and updates ... this will probably bite us in the ass in a few years. Also considering how much senior management is payed the time it takes them to look at each case and approve it is probably more expensive than the trip was to begin with ... but that cost of course doesnt show up in the books.
You could make a corollary channel called “How Money Should Work” where you highlight examples past or present of companies doing things in a more right or ideal way, and what widely shared benefits that produced
great idea tbh
Karl Marx wrote a book about that once. Very divisive topic, it turns out
@@Aighthandle im thinking much more about the American economy in the period of 1940-1973, where companies had finally turned from their Guilded Age ways and gave a lot of ground to their workers on things like worker pay & benefits, unions, & reasonable executive salaries, and when substantial U.S. Gov investment drove innovation & infrastructure. Democratic capitalism, if you will.
it would be nice to have some positivity
Or at least a series on it within the normal channel. AMD since Lisa Su took over seems like a good potential candidate for something happening recently. Older companies would be cool too
This is exactly why I'm suddenly scared to fly or ride Rollercoasters. Corporations only care about making more $ and again not paying the very ppl that RUN thier business. And if you don't make decent money at your job. You know those workers don't care. Can't blame the workers either
*This is beyond amazing. “How to create income flow”*
Making money is action, saving money is behavior and Growing money is knowIedge
I am fortunate I made productive decisions that changed my finance status (accumuIated over a MiI) through my finance mentor. I'm a single parent, bought my house in January, and hoping to retire at 53 by next year.
sear ch the name, lf you care.
*Rebecca Martin Watson*
I once had a training period where I was given a document with tons of jargon I didn't understand to sit and read for an entire week while almost nobody talked to me and then pushed onto a team of already busy people that were also supposed to train me as I immediately started taking projects. I hadn't even been given credentials to log into any systems, so I had to have one of them create a new IT ticket any time I had to do something new.
I refer to Jack Welch's policy of letting go of the 'bottom 10%' as 'Soviet Management Method'. The Soviets were fond of getting rid of their 'low performers' as well.
Employee owned coop companies seem to be the best idea to me. Employees generally want what’s best long-mid term to keep a stable job which is generally also good for the customers. Happy employees make better products and have better customer service
I think utility companies need to be federalized and have their board of directors elected in rank choice government funded elections. All the fun things can operate however, but we need to get extortion out of the market. People need access to preventative and restorative care, education, food, water, basic shelter and some form of telecommunication to keep a job. We need to elect the people who control these things, so they're beholdent to the voters and we know what we're voting on, instead of the senate who manage foreign policy, and medical access, and large environmental regulatory changes, and finance and media, and etc. etc.
Have you looked at the German system, codetermination and workers' councils?
What I am learning as an adult is we are so pretentious we cannot see how we are destroying ourselves. Endless wealth doesn't exist, greed is dangerous. We need to grow up as a species.
I can find articles/papers dating back to 2010 about how this corp. culture is stupid or is going to die. How about a video on WHY this dumb idea is still going strong despite all the excellent arguments against it?
Because it does work, it is just inefficient and has more negative consequences compared to more long term business strategies. It is still going strong because if your main objective is to earn the most money now (i.e. a quick payday), then this is the best strategy. Most people would take $10 today over $20 a week from now. Who cares if it is destroying the middle class and making the poor poorer and slowly destroying the foundations of the economy and modern social classes which will take four times the cost in money and human suffering to fix it compared to gains that said erosion will generate. Human impulsiveness biting us in the butt like always. People in medieval times knew banking 'generated' more wealth than it took in, but usary was a crime in many countries for centuries anyways. Social and cultural things can make people not take the 'best' options.
Toshiba is going down the same route, sadly. Last year a handful of companies get together and bought majority. Now most people think the new shareholder will carve up and sell the company, with their first scandal up in the air earlier this year. Sad ways a big business to go.
I wrote a paper for a class about this a couple years ago. I didn’t find the fact about CEO’s income being disproportionately tied to stocks after 1990s- that’s very interesting! Here are some things I had as well: Not only are companies rewarded for treating workers poorly, they are often slammed in the stock market for improving conditions. I had Milton Friedman as an additional source for the shareholder first ideology because he cemented it in the minds of academia and politics as the default position. High CEO pay spills over into other endeavors as it forces increased wages for charity directors and university higher ups. I can provide sources if anyone wants to look further into my claims
In theory, you raise shareholder value by providing the best goods and services. But that is not easy, most managers and executives find it hard to innovate and outcompete others so they prefer tricks like stock buybacks. It is like building muscles using steroids. It works quickly but you are not built like someone who did it naturally.
It's not about how much money you make but just how you make your money🙏🏾
Very true.
Frankly I feel if we can start by reversing course on this mindset, we can directly or be on the way to solving most of society's problems.
I feel more depressed about the job field everytime I watch these videos🙁 great content tho and happy road to 1 million🎉
As you should. Its affecting everyone. And will affect everyone even more in future, unless something is done. The entire world economy is rotten, and will decay until next great depression, y know, a time where even americans understood how it is to be hungry and not be able to afford food.
I worked at General Motors for 7 years. Every year had higher returns for shareholders followed by layoffs...
Thanks for mentioning internal auditors bro, respect 👊🏽
Shareholders and CEOs are only humans by technicality
Thanks for the awesome videos and all the amazing content!!
Glad you enjoy it!
Unfortunately, it's not even a choice for businesses to deviate even if shareholders are on board with long term growth. High Wall Street valuation means affordable access to equity through direct stock sales and collateralized loans. If you don't play Wall Street's game, it's difficult to gain access to the funding to make long term investments, especially since all your competitors will.
This video leaves out the fact that the main shareholders that brought about these "profit first" laws were the The Dodge Brothers. Ironic how Dodge's greatest vehicles were the Demon and the Viper, because these two were exactly that, a snake and demon.
So close to 1 mil subs!
Maybe CEO should have full legal responsibility for company failures...
I don't even think they are trying to expand the shareholders value, which can be many, including us individual investors. They are expanding the value for themselves, they executives and the C-level suite, which, yes, happen to be shareholders too. But take a look at the minimal dividends (barely 0.5 or 1%) paid to individual shareholders and compare that to the fat bonuses paid executives which exceeds by far the dividend payout and employee compensation as well, teaching 10% and sometimes 20% In short, executives are expanding short-term value for themselves rather than for shareholders or even customers.
It comes down to what I say to my friends and family all the time. 'Sustainability' should be the motto of this century and the following.
Maximize the path that makes the company profitable, but most importantly, that ensures the company is still alive and kicking 100 years from now
The solution is hilariously simple, but will never happen, because it requires everyone on the planet to simultaneously stop looking for work until the requirements are brought back down to a reasonable level.
I like the thought, but allow me to make a better suggestion on how to deal with these standards and the CEOs being greedy bastards. [REDACTED]
@@scruffopone3989 I guess Silverhand puts it best...
Court case that negatively affects the worker for personal gain: "I wonder who it could be" immediately see the dodge Brothers with their star of David
maximized shareholder value shouldn't even mean "price go up!!!" it means "the business is solid and stable, the price reflects the assets and cycle, and maybe a little dividend here and there"