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The Dumbest Idea In The World: Maximizing Shareholder Value

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Re: The Dumbest Idea In The World: Maximizing Shareholder Value

#61

Post by beagle3 »

Shorel wrote: post #48
beagle3 wrote: post #43

Earlier quoted context omitted.

> If they don't want customers (one, few or many), they shouldn't start a business. Legally, there is no such a thing as a "business". A corporation or LLP exists to limit liability. That's it. "Business" is not well defined in the real world. Is an HFT proprietary trading firm, trading its own money on an anonymous exchange, with no customers or clients, not a business?

So you say that the real world is mostly made from legal definitions? I would wonder what that would mean for string theory.

> So you say that the real world is mostly made from legal definitions?

No. I'm saying that arguing about what a "business" is or isn't is futile, because something which is a business to one is not a business to the other. Had there been a legal definition, there would have been merit to such a discussion.

> I would wonder what that would mean for string theory.

I wonder too. So far, string theory has not been predictive, and as such is a very interesting intellectual experiment, but not a lot more. When it can actually predict something testable that disagrees with another theory, we'll be able to call it "science".

Re: The Dumbest Idea In The World: Maximizing Shareholder Value

#62

Post by davidw »

Andrew_Quentin wrote: post #54
tomjen3 wrote: post #44

Earlier quoted context omitted.

First I see that you are new here, so welcome. That isn't much of an argument you are presenting though -- you could argue against a person being allowed to do anything based on that. The reason I can't drive a car the way I want is that it represents a clear and present danger to the health of third-parties. On the other hand running my business the way I want doesn't present a clear harm to others, so I can't.

The BP oil spill is a clear example of dangers to others, as is the credit crash. There are numerous other examples, one given in the article itself, where the actions of business can do great damage to individuals. Is my toothpaste safe? What about my tomatoes?

In economics this is called an "externality", specifically a negative one in this case.

http://en.m.wikipedia.org/wiki/Externality

Re: The Dumbest Idea In The World: Maximizing Shareholder Value

#63

Post by sitkack »

beagle3 wrote: post #41
forensic wrote: post #24

Earlier quoted context omitted.

It's your type of cynicism that is actually an apologetic for the dishonorable behavior. If you stopped saying "everyone does it" then we could start punishing the dishonorable. It's NOT TRUE that everyone is a liar. Rockefeller and Carnegie were liars, sure, but they had to keep it quiet, they had to buy up newspapers and physically intimate people so their lies would not be exposed, or they would lose face. Our ent…

> If you stopped saying "everyone does it" then we could start punishing the dishonorable. If you stopped putting words in my mouth, we might actually have a two sided discussion. I did not say "everyone is a liar" or anything that could remotely be interpreted to mean the same. > Our entire legal system is based on the concept of honor. What country is that? Is that the US system that a hundred years ago decided tha…

I think he is actually really bummed because his worldview is incongruent with how Darwinian and shitty the world actually is. Optimists take it the hardest.

"the optimists don't make it out of vietnam" http://en.wikipedia.org/wiki/James_Stockdale

Re: The Dumbest Idea In The World: Maximizing Shareholder Value

#64

Post by sitkack »

acslater00 wrote: post #10

"Meanwhile real performance was declining. From 1933 to 1976, real compound annual return on the S&P 500 was 7.5 percent. Since 1976, Martin writes, the total real return on the S&P 500 was 6.5 percent (compound annual)." Hmm...where have I seen those numbers before. Oh right! He's measuring his control period from the bottom of the great depression. Sounds legitimate to me! This is so hacky it makes me laugh. You ca…

At least is spawned a discussion here, but the lead is so full of flawed reasoning by analogy that it made me sick as a rainbow.

Re: The Dumbest Idea In The World: Maximizing Shareholder Value

#65

Post by lukeschlather »

yummyfajitas wrote: post #55
1gor wrote: post #22

The statement 'maximizing shareholders value' is meaningless without the timeframe. The correct phrasing is to 'maximize shareholders value in the long term '. The 'long term' bit is crucial, and it is not reflected in today's management incentives. The choice that managers of public companies are facing is the well known "Consume vs. Invest". Or, in the terms of an evolutionary fitness landscape, "Exploit vs. explor…

Why is the long term bit crucial? Specifically, what timeframe do you define as "long term", and why do you privilege that timeframe over other timeframes? And sometimes exploitation is better than exploration. Microsoft is a great example of this. Currently MS dumps billions into Bing, a form of exploration. If the shareholders were given a choice, do you think the would choose this? Most likely not - if they wanted…

>Microsoft shareholders would probably be better off if MS stopped exploring, exploited current revenue streams, and allowed shareholders to invest in businesses with a brighter future.

That's your judgment. I have to honestly say I'm thankful you're not in charge of Microsoft, because someone trying to compete with Google in the search space is a great thing. (And with Google doing a lot to make Microsoft's core markets vanish, getting into search could save Microsoft's existence in a 10-year timeframe.)

Re: The Dumbest Idea In The World: Maximizing Shareholder Value

#66

Post by chc »

Andrew_Quentin wrote: post #54
tomjen3 wrote: post #44

Earlier quoted context omitted.

First I see that you are new here, so welcome. That isn't much of an argument you are presenting though -- you could argue against a person being allowed to do anything based on that. The reason I can't drive a car the way I want is that it represents a clear and present danger to the health of third-parties. On the other hand running my business the way I want doesn't present a clear harm to others, so I can't.

The BP oil spill is a clear example of dangers to others, as is the credit crash. There are numerous other examples, one given in the article itself, where the actions of business can do great damage to individuals. Is my toothpaste safe? What about my tomatoes?

This seems like a bizarre leap from what mhartl was talking about when he said "A business should do what the owners want it to do", which is what tomjen3 was defending. Given the choice between a reasonable interpretation of someone's comment and an unreasonable one, it seems unkind to choose the unreasonable one without even asking for clarification.

When you hear someone say something like "People should be free to choose their own destiny," do you come in guns-a-blazin' about how they shouldn't be free to choose a destiny where they kill people or beat children? Because that's usually not what people mean when they say that. I think mhartl and tomjen3 were just suggesting that this same principle applies even when the person is a business owner — that people don't suddenly have any one particular goal forced on them just because they happen to be running a business.

Re: The Dumbest Idea In The World: Maximizing Shareholder Value

#67

Post by cwp »

nl wrote: post #33
forensic wrote: post #24

Earlier quoted context omitted.

It's your type of cynicism that is actually an apologetic for the dishonorable behavior. If you stopped saying "everyone does it" then we could start punishing the dishonorable. It's NOT TRUE that everyone is a liar. Rockefeller and Carnegie were liars, sure, but they had to keep it quiet, they had to buy up newspapers and physically intimate people so their lies would not be exposed, or they would lose face. Our ent…

There was a time in America where if you committed fraud, no matter how "technically legal", you would be lynched. Until dead. And juries would acquit your murderer. Citation needed. Or more to the point - when exactly do you think think period was? For example, in 1804 the sitting vice president (Burr) was accused (probably correctly) of corrupt dealings. He challenged his accuser to an (illegal) pistol duel and kil…

Two hundred years later, the sitting vice president (Cheney) was accused[1] (probably correctly) of corrupt dealings. He just ignored his accusers and nothing came of it.

Now, I realize you were responding to the statement about lynching, but it's worth noting that challenging someone to a duel is what you do when your honor has been questioned. In fact, the Wikipedia page on "Honour" includes an illustration of the Burr-Hamilton duel, with the caption, "Alexander Hamilton defends his honour by accepting Aaron Burr's challenge." It also describes honour as deriving from "perceived virtuous conduct and personal integrity."

It would seem that honour really was a more important thing two hundred years ago than it is today.

[1] http://www.google.ca/search?q=Cheney+corrupt+dealings&hl...

Re: The Dumbest Idea In The World: Maximizing Shareholder Value

#68

Post by Vitaly »

He misses the point. Focusing on the customer IS maximizing shareholder value. Its just its focusing on a much longer timeframe. If you want the most money this year - you play the stock market or accounting games. If you want the most money the company will earn this century... well, you focus on very very different things. And customer's loyalty is one of the top.

Re: The Dumbest Idea In The World: Maximizing Shareholder Value

#69

Post by forensic »

beagle3 wrote: post #41
forensic wrote: post #24

Earlier quoted context omitted.

It's your type of cynicism that is actually an apologetic for the dishonorable behavior. If you stopped saying "everyone does it" then we could start punishing the dishonorable. It's NOT TRUE that everyone is a liar. Rockefeller and Carnegie were liars, sure, but they had to keep it quiet, they had to buy up newspapers and physically intimate people so their lies would not be exposed, or they would lose face. Our ent…

> If you stopped saying "everyone does it" then we could start punishing the dishonorable. If you stopped putting words in my mouth, we might actually have a two sided discussion. I did not say "everyone is a liar" or anything that could remotely be interpreted to mean the same. > Our entire legal system is based on the concept of honor. What country is that? Is that the US system that a hundred years ago decided tha…

1. You aren't refuting the existence of honor or the fact that virtues of truthfulness and fairness had to be displayed in order to retain respect in the past. You are just saying sociopaths still existed and still lied. The difference is that in the past they had to maintain an image of truthfulness, which limited their criminal activity.

2. No social system is perfect and the honor system of course was not either. However, if an American aristocrat in, say, 1830, was openly and publicly caught in a lie that was obviously selling out the nation, he would likely be convicted of something, or he would be publicly shamed, or he would receive vigilante reprisals.

It wasn't a perfect system - honor systems by definition are not - but the reprisals demonstrate that there was a code of honor that went beyond the law. Honor by definition is a code of conduct with social reprisals that goes beyond the law.

American social conduct was heavily policed by codes of honor. Maybe you think codes are stupid but nevertheless they had a tremendous influence on social behavior, as they do in any society where a code is implemented.

Not everyone follows the code of honor, but those who blatently break the code are usually dishonored, shamed, ostracized, and face physical and finanical vigilante justice. The existence of this "street justice" worked as a deterrent so that the Dick Cheneys and Lloyd Blankfeins of the time had to work really hard to keep their skeletons in their closet.

Trial by jury is only one step removed from mob justice. Individuals should be tried by the court of public opinion and punished by that court. If public opinion widely sees Blankfein as a treasonous fraudster, it is right that he be lynched. And if the courts are too corrupt to charge him then the duty falls to the general public.

It's not naive to recognize that brutal and swift vigilante street justice keeps outrageous criminal activity in check. You want to paint me as some kind of utopian but I'm actually saying society needs more bloodshed, more violence, more vigilantism, more lynching, more mob rule. Mob rule and the judgment of the mob is the basis of democracy. Legal technicalities are not.

http://en.wikipedia.org/wiki/Honour

"Even personal shame and humiliation was preferable to a tarnished honor or the hint of corruption. When Treasury Secretary Alexander Hamilton was accused of corruption for making secret payments to a man named James Reynolds, Hamilton revealed he had been set up and was paying blackmail to Reynolds following an affair with Mrs. Reynolds. Duels over honor were common in the era--Hamilton was killed in one, as was Hamilton's son."

- http://conservapedia.com/Founding_Fathers

“Nobody can acquire honor by doing what is wrong”

- Thomas Jefferson

"Some men who are not real men love other things about themselves, but the real man believes that his honor is dearer than his life; and a nation is merely all of us put together, and the nation's honor is dearer than the nation's comfort and the nation's peace and the nation's life itself."

- Woodrow Wilson

“No person was ever honored for what he received. Honor has been the reward for what he gave.”

- Calvin Coolidge

"All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy, hope."

- Winston Churchill

"There are three classes of men; lovers of wisdom, lovers of honor, and lovers of gain. "

- Plato

"Who sows virtue reaps honor."

- Leonardo da Vinci

"I love the name of honor, more than I fear death. "

- Julius Caesar

"Leadership to me means duty, honor, country. It means character, and it means listening from time to time."

- George W. Bush

"The difference between a moral man and a man of honor is that the latter regrets a discreditable act, even when it has worked and he has not been caught. "

- H. L. Mencken

"You will never do anything in this world without courage. It is the greatest quality of the mind next to honor."

- Aristotle

"Life every man holds dear; but the dear man holds honor far more precious dear than life."

- William Shakespeare

Re: The Dumbest Idea In The World: Maximizing Shareholder Value

#70

Post by yummyfajitas »

lukeschlather wrote: post #65
yummyfajitas wrote: post #55

Earlier quoted context omitted.

Why is the long term bit crucial? Specifically, what timeframe do you define as "long term", and why do you privilege that timeframe over other timeframes? And sometimes exploitation is better than exploration. Microsoft is a great example of this. Currently MS dumps billions into Bing, a form of exploration. If the shareholders were given a choice, do you think the would choose this? Most likely not - if they wanted…

>Microsoft shareholders would probably be better off if MS stopped exploring, exploited current revenue streams, and allowed shareholders to invest in businesses with a brighter future. That's your judgment. I have to honestly say I'm thankful you're not in charge of Microsoft, because someone trying to compete with Google in the search space is a great thing. (And with Google doing a lot to make Microsoft's core mar…

The two scenarios, supposing that MS's current product line is dead in 10 years, and pretending share prices cost $1 right now):

Own MS now. $10 investment yields $20 in profits, all invested in Bing. Net result, in 10 years, you have 20 shares of Bing.

Own MS now. $10 investment yields $20 cash in your hands. You buy google. Net result, in 10 years, you own 20 shares of Google.

Unless you think Bing is a better investment than Google, you are better off taking the cash and reinvesting in Google.

And as an investor, I don't care if MS exists in 10 years. I care whether my portfolio is up or down in 10 years. And I care about liquidity - all else held equal, I'd rather have $1 cash in my hands than $1 cash in MS's hands with me owning shares. If I can invest $10 into MS, take $20 cash out, and have the company die, that's not a bad thing.

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