I write this knowing that I really enjoy playing the stock market. I have
even made money over the past few years picking my own stocks.
I guess that is really my main point, that the purpose of these companies
is to make money for the investors (I) who buy stock and not the
employees who work there (E).In fact when the economy is down, the goal
is to make money for the investors even at the expense of the employees
(decrease benefits, layoffs, move jobs overseas).
There is a nearby consumer products giant. This company made $8 billion in profit
last year. In order for the stock to go up they need to make $8 billion
plus 5-7% more next year to meet wall street expectations. If they do
not, the stock will go down as people sell stock in the company.
This company employs 138,000 worldwide. So they made almost $60,000 profit
per employee. That is $60,000 per employee beyond everything they spent
on each person including:
salary
benefits
office space
computers
phones
office supplies
order chemicals and running tests
etc, etc
What would be wrong with that company saying "we choose to have no profit this year but give everyone a $60,000 raise?
What would be wrong is the company would then make no profit and the stock would crash.
But what is wrong with having a company whose goal is to make enough money
to create 100,000 well paying jobs with good health care? That would
seem to be nobel goal, but with no profit and no potential to grow that could never be a publicly traded company.
I would argue the additional $60,000 the employees had would do much more for the economy than the company. The economy is barely hanging on right now because consumers are managing to stretch their credit card debt just a bit further every year. Meanwhile the 500 largest companies have a record amount of cash on hand (from profits) that they are choosing not to spend on anything right now (do they know something?). So putting some of that money in the hands real people would get it circulating faster.
So I think the ideal model is a private company. One of my favorites is
Bose. Known for their great speakers, Bose has always chosen to remain
private. The main reason is that they said they do not want to pressure
from wall street to have to focus on making short term money when they really want
to focus on new innovations.
In fact, they spent 24 years developing a new suspension system for a car. Shown here
Why would a sound company work on car suspensions? They discovered that the math involved for working with sound waves could help improve stability of car suspensions.
But it took 24 years because the calculations are so involved and so fast
they had to wait and bet on computer processor speeds to increase
enough to make it work in a car.
No public company would ever wait 24 years to develop a new product, or even be able employ people in a group so far outside their core product base and explain it to wall street for 24 years without any revenue.
8 comments:
Agree with you wholeheartedly about public companies. Couple of thoughts:
I had this tongue in cheek conversation with my boss... I was telling him about something I was doing and how it would save ~$100,000... And I'd only ask for half of it as a bonus. He said on the other hand if something goes wrong and it costs us $100,000, I wouldn't be liable for it. I told him he had a good point. So basically the investors risk their money and require a return, that's why we work for investors and not employees.
However I share your feelings about public companies in that they are so short term focused, and that's because of Wall Street's attitude. Additionally, it causes us to try to hit numbers for Wall Street... many times at the expense of doing what's best for the business (anyone hear of waiting until next fiscal to spend money? or selling off inventory near the end of the quarter?). Wall Street doesn't realize it's screwing themselves by putting these expectations on a company.
A couple of thougts. The whole argument over CEO pay to me is ridiculous, sure it seems unfair that many employees are not getting raises but the CEO made $100 million that year. Seems unfair, but if the CEO met expectations of wall street and his salary was included should it matter? To me - no. If a company like Xerox could find someone to turn them around that person's salary would be priceless, so give them their millions. BUT the street is cracking down and controlling executive pay, therefore all of the best talent will of course go to prive companies who can offer more and aren't under the watchful eye being public.
Take a Steve Jobs or Bill Gates, I bet if they started over TODAY in the post sarbanes-oxley world they would stay private. I understand taking a company public to get value out, however it's only becoming less and less attractive, hurting the average investor (one who is not SEC accredited) who could have fewer quality public companies to buy in the market.
Meanwhile the rich get richer as SEC accredited individuals still invest in the private world.
http://www.sec.gov/answers/accred.htm
now that's a comment!!!
what i really appreciate about your blog is that it makes me think about stuff in a new, deeper light. I'd like to think i coudl come up wtih this on my own, but seeing the thought you put into it is great!
hey, davie boy, i like how you think.
Neat facts just released today.
We currently pay 9.1% tax for social security and medicare.
In order for those 2 to still have enough money to last 75 more years (for us to retire and use it) we would have to increase the tax to 20.8%.
dude, that's not a neat fact, that's a depressing fact.
I agree with karen. Quite the intellectual post.
I'm going to work for a private company, and I'm quite happy about it.
Visa's going public, at the cost of hundreds of jobs and a huge fiasco in Europe (who could have prevented it? Those who were fired had most experience and likely able to fix it...now the US counterparts who have not yet been fired are working crazy hours to repair b/c those still in Europe couldn't figure it out)
Dave,
One point on public companies that drives me crazy is since the inception of Sarbanes-Oxley, companies have spent millions on consultants and new hires to assure complinace. Due to a few companies developing and running with inaccurate accounting methods, companies are throwing away millions in profits. For the most part its a complete waste and one of the strongest reasons to me for a company to stay private.
Mike Sturgis
Interesting, but flawed.
The owner of a private company is using their resources (money and time) to build a long-term investment by generate additional money from this initial money. The goal of all for-profit companies. This additional cash (profit) and it belongs to the owner, as the owner also incurs all of the risk of failure. If this company has employees, and the employees are paid a reasonable salary for their service, that's all they are entitled. The work of the employee is to maximize profits for the owner.
Now if that company goes public, the owner has sold a portion of the company to someone else. With that sale the rights to a commensurate portion of the profits are transferred to the new owner. The employees rights or responsibilities don't change. But they are now able to buy stock, which makes them owners, and able to share the profits.
Which company would you rather work for, private or public?
Where you work is your vote.
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