Quotulatiousness

June 9, 2023

Putting an end to “stakeholder” capitalism

The Streetwise Professor explains what “stakeholder capitalism” is and why it needs to be staked through the heart to save western economies:

A graphic from Wikipedia showing typical internal and external stakeholders.

At its root, stakeholder capitalism represents a rejection – and usually an explicit one – of shareholder wealth maximization as the sole objective and duty of a corporation’s management. Instead, managers are empowered and encouraged to pursue a variety of agendas that do not promote and are usually inimical to maximizing value to shareholders. These agendas are usually broadly social in nature intended to benefit various non-shareholder groups, some of which may be very narrow (transsexuals) or others which may be all encompassing (all inhabitants of planet earth, human and non-human).

This system, such as it is, founders on two very fundamental problems: the Knowledge Problem and Agency problems.

The Knowledge Problem is that no single agent possesses the information required to achieve any goal – even if universally accepted. For example, even if reducing the risk of global temperature increases was broadly agreed upon as a goal, the information required to determine how to do so efficiently is vast as to be unknowable. What are the benefits of a reduction in global temperature by X degrees? The whole panic about global warming stems from its alleged impact on every aspect of life on earth – who can possibly understand anything so complex? And there are trade-offs: reducing temperature involves cost. The cost varies by the mix of measures adopted – the number of components of the mix is also vast, and evaluating costs is again beyond the capabilities of any human, no matter how smart, how informed, and how lavishly equipped with computational power. (Daron Acemoğlu, take heed).

[…]

Agency problems exist when due to information asymmetries or other considerations, agents may act in their own interests and to the detriment of the interests of their principals. In a simple example, the owner of a QuickieMart may not be able to monitor whether his late-shift employee is sufficiently diligent in preventing shoplifting, or exerts appropriate effort in cleaning the restrooms and so on. In the corporate world, the agency problem is one of incentives. The executives of a corporation with myriad shareholders may have considerable freedom to pursue their own interests using the shareholders’ money because any individual shareholder has little incentive to monitor and police the manager: other shareholders benefit from, and thus can free ride on, any individual’s efforts. So managers can, and often do, get away with extravagant waste of the resources owned by others placed in their control.

This agency problem is one of the costs of public corporations with diffuse ownership: this form of organization survives because the benefits of diversification (i.e., better allocation of risk) outweigh these costs. But agency costs exist, and increasing the scope of managerial discretion to, say, saving the world or achieving social justice inevitably increases these costs: with such increased scope, executives have more ways to waste shareholder wealth – and may even get rewarded for it through, say, glowing publicity and other non-pecuniary rewards (like ego gratification – “Look! I’m saving the world! Aren’t I wonderful?”)

H/T to Tim Worstall for the link.

April 24, 2023

Unconventional hiring practices

Filed under: Business, Media, USA — Tags: , , , , — Nicholas @ 05:00

In The Honest Broker, Ted Gioia recounts tracking down Jazz saxophonist Jimmy Giuffre to interview him for a chapter in the book he was writing and discovering things about team-building that he hadn’t learned at Stanford Business School:

Back when I interviewed Jimmy Giuffre, I was gigging constantly and the format was obvious. The best option was piano, bass, and drum with at least one horn. If I didn’t have enough money to cover that, I brought just a trio — piano, bass, and drums — to the gig. If I couldn’t afford that, I did just piano and bass. And if cash was really tight, I opted for solo piano.

And which players did I hire?

Back then, I wanted to play with the best of the best. I kept careful tabs on all the jazz musicians in the greater San Francisco area, and wanted to play with all the top cats. Even if I didn’t know the musician, I’d make a cold call and try to hire them, provided I could afford it. If I got turned down, I went to the next name on my list.

Didn’t everybody do it that way?

Not Jimmy Giuffre. He explained that musicians played better when they were happier. Now that was a word I’d never heard in organizational theory class.

Giuffre continued to spell it out for me — surprised that I couldn’t figure this out for myself. Didn’t I know that people are always happier when they were with their friends? So group productivity is an easy problem to solve.

In other words, if my three best buddies played bongos, kazoo, and bagpipe, that should be my group.

When I heard this, I thought it made no kind of sense. They don’t call it “show friends” — they call it show business. I couldn’t imagine following Giuffre’s advice.

But over the years, I’ve thought a lot about what Jimmy Giuffre said about group formation—which is not only unusual for a music group but also violates everything I was taught back at Stanford Business School.

[…]

Can I turn this into a rule? And, even more to the point, could you apply this to other settings? Could you start a business with this approach?

That seems like a recipe for disaster, at least at first glance.

But I now think even large corporations could benefit from a dose of Jimmy Giuffre’s thinking. One of the biggest mistakes in hiring practices, as handled by HR (Human Resources) professionals in the current day is an obsession with the “required qualifications” for the job. They won’t even give you an interview unless you mention the right buzz words on your resume. But the best people take unconventional paths, and this checklist approach will exclude precisely those individuals.

(I’ve even heard of a scam for getting interviews — which involves copying and pasting the job description word-for-word at the bottom of your resume. This apparently rings all the bells in their algorithms and gets you moved to the top of the candidate list.)

Giuffre’s quirky theory gets straight to the heart of the problems with contemporary society outlined by Iain McGilchrist in his book The Master and His Emissary. That book is ostensibly a study of neuroscience, but is actually a deep-thinking critique of institutions and cultural biases. The best decisions. McGhilcrhist shows, are made by holistic thinkers who can see the big picture, but the system rewards the detail orientation of people who manage with checklists and jump through all the bureaucratic hoops.

Yet I’ve seen — and I’m sure you have too — amazing people whose skill set can’t be conveyed by their resume. Not even close. I’ve worked alongside visionaries whose education ended with high school, but have ten times the insight and ability as their colleagues with graduate degrees and fancy credentials.

That’s why Duke Ellington is such a great role model for running an organization. He hired people because of their musical character, rather than their sheer virtuosity or technical knowledge. And he certainly paid no attention to formal degrees. I wouldn’t be surprised to learn that Duke went through decades of hiring for his band without looking at a single resume.

That piece of paper wouldn’t have told him a single thing he needed to know.

For all those reasons, I no longer dismiss Jimmy Giuffre’s peculiar views on group formation. I’d recommend them myself — maybe even especially in groups where no music is made.

March 6, 2023

The Rise and Fall of Fast Food Architecture

Filed under: Architecture, Business, Food, History, USA — Tags: , , — Nicholas @ 02:00

Stewart Hicks
Published 3 Nov 2022

What happened to McDonald’s? Their restaurants used to be so iconic. It was impossible to mistake one, for say, a Wendy’s. Distinguished architecture used to be an important part of a brand’s identity. But today, fast food restaurant’s all look the same. Bland grey boxes. The great convergence toward this standard has been called “Chipotle-ification”. In this video, we trace the changing restaurant designs of McDonald’s, from the iconic golden arch era to the soulless boxes of today. We break down the architecture and the forces at play in the great homogenization of fast food architecture.
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February 24, 2023

“… they are all weedy, weird sylphs who are essentially un-people, without any wisdom or sense”

Elizabeth Nickson on the current cohort of raised-in-a-vat, cloned “leaders” of most of the western world:

Easily the most destructive cohort in the culture is the financially secure, semi-educated female on the cultural left. She reads nothing but literary fiction, is a book and knitting club member and knows absolutely nothing about the real world. But she is “bold” and “powerful” and never shuts up. Her views are confirmed, amplified and imposed by corporate media, for whom she is the aspirational shopper from whom all wealth flows.

It is the opposite of a virtuous circle. Ignorant protected women of all colors are courted by corporations because she makes 90% of buying decisions (and less fortunate women emulate her). Corporations force the press to slavishly pander to her every stupid whim and deep feel of the month so their adverts work like charms.

All the above leaders [Jacinda, Trudeau, Nicola, Rishi, and Macron] are manufactured in some MKULTRA facility to appeal to her ignorance, her prejudices, her over-weening self-regard. With the exception of the vegetable in the White House, they are all weedy, weird sylphs who are essentially un-people, without any wisdom or sense. They’ve lived their lives in classrooms and meeting rooms. They serve as pretty, platitudinous ciphers on which to project a profound political ignorance and emotional immaturity.

Our girl, for she has never grown up, has abandoned adult responsibility to luxuriate in narcissism.

She is ruthlessly used by the vicious communist left (as described below) and she has no idea who or what they are. She is the stupidest person on the planet.

And Michelle Obama? If you are thinking of running, think again. Because the hell we will unleash on your ignorant self will make Jacinda tremble with PTSD.

Let someone far less impassioned and far more knowledgeable than me describe Ardern’s humiliating failures below. The damage she caused to her people, to her party, to her country’s economy was as titanic as her ego. Every single other leader listed in the head of this piece is following the same dictated-from-above public policy initiatives. Their fate and that of their citizenry will be the same.

By their fruits ye shall know them.

If you want to know more about the rise and fall of Justin Trudeau’s New Zealand counterpart, Elizabeth’s post includes an extensive discussion of Jacinda Ardern’s career from Dr Muriel Newman of the New Zealand Centre for Political Research.

February 18, 2023

George Hudson: Railway King or Prince of Darkness?

Filed under: Britain, Business, History, Railways — Tags: , , , , — Nicholas @ 02:00

Jago Hazzard
Published 20 Dec 2020

Entrepreneur, politician, businessman, visionary, benefactor, conman. There’s a lot to unpick with old George.
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February 11, 2023

As predicted, HarperCollins’ fit of irrational exuberism has come to an unprofitable end

Filed under: Books, Business, Economics, USA — Tags: , — Nicholas @ 03:00

In the latest SHuSH newsletter, Ken Whyte refers back to HarperCollins and the predicted outcome of taking the one-off sales bonanza of peak pandemic and expecting those numbers to continue once the lockdowns eased:

Book sales spiked during the pandemic and no one enjoyed the ride more than HarperCollins CEO Brian Murray. In June 2021, with his revenue up 19% and his profits up 45 percent, Murray opened the taps:

    We are being aggressive in terms of buying books. We’ve seen the book pie grow maybe 15 percent and so our response, which is part opportunist, part defensive, is to be aggressive in buying right now. Because if that pie remains large, we want to make sure that we get a nice share of the larger pie. And if it happens to wane a little bit, we want to make sure that we have a lot of new, exciting books for the future that will maintain our revenues at the current levels. So we’ve been very aggressive over the last six to nine months in trying to sign up the best books that we see in the marketplace.

Murray not only bought more books than usual, he paid more than usual. I read his comments at the time and called my buddy, ECW founder Jack David, who, in his half century in the business, has seen everything. Jack’s response: “Don’t do it!”

Jack and I agreed (see SHuSH 103) that even if Murray acquired a lot of good titles, revenues would disappoint in 2022 and beyond. The publishing pie hadn’t grown. It was temporarily inflated by the unusual and temporary circumstances of the pandemic. Inevitably, life would return to some semblance of normal and aggregate demand for books would revert to the mean. “Twelve months from now,” wrote SHuSH, “Murray will be out of range of 2021’s windfall profits, and perhaps worried about losing money. That’s when the cutting begins.”

We promised at the time to check back to discuss “the great publishing contraction of 2022”.

It’s been eighteen months and the great publishing contraction is now upon us.

Here are the last six months of 2022 according to the Association of American Publishers: July, down 14.9 percent from the previous year; August, down 9 percent; September, down 4.5 percent; October, down 9.3 percent; November, down 6 percent. December should be reported in a week or two. It, too, will be down something.

Another data source is NPD BookScan, which estimates book sales were down 6.5 percent in 2022 compared to 2021.

Give Brian Murray credit for at least being first among his colleagues to react to these new circumstances. He announced last week that he will be cutting 5 percent of his North American work force because the sales surge enjoyed during the pandemic has “slowed significantly as of late.” His note to staff said “we must pause to recognize the depth of the core issues we currently face”. He pointed directly at “unprecedented supply chain and inflationary pressures … increasing paper, manufacturing, labor, and distribution costs”. The company has been raising prices and cutting costs since last fall (so maybe our timing wasn’t off), but “more needs to be done”.

More indeed. Unfortunately. Book sales in 2022 may have been down from 2021 levels but they’re still 11.8 percent above 2019, the pre-pandemic year, suggesting the correction is not finished. Meanwhile, economists say there’s a 70 percent chance of a recession this year. Let’s hope they’re wrong or, at minimum, that any downturn will be shallow and quick.

December 29, 2022

QotD: That foolish optimism of the early days of the internet

Filed under: Media, Quotations, Technology, USA — Tags: , , , , , — Nicholas @ 01:00

Thirty years ago, at the dawn of what we think of as the internet, no one imagined that this amazing new frontier in human interaction would become a tool of oppression wielded by massive corporations. In fact, it was assumed that the internet would break the grip of corporations, special interests, and even governments. People would be free of the gatekeepers who controlled public discourse.

Those we call the left were sure that the internet would help democratize American society by opening the floor to marginalized voices. The people we call the right were sure this new medium would follow the pattern of talk radio. Free of progressive control, normal people could challenge the opinions of the liberal media. The internet was going to be an open debating society that worked on democratic principles.

Thirty years on and people old enough to remember the before times think that maybe the internet was a mistake. Giving a platform to millions of talking meat sticks, banging away at their phones, has just made life noisy. Worse yet, the range of allowable opinion has become much narrower. We now live in an age of censorship that was unimaginable before the internet.

The Z Man, “Coercion and Consensus”, Taki’s Magazine, 2022-09-25.

December 17, 2022

The history of America’s most famous toys

Filed under: Business, History, USA — Tags: , , , , , , , — Nicholas @ 02:00

J.J. McCullough
Published 20 Aug 2022

The story behind some of America’s most iconic postwar toys, including GI Joe, Play-Doh, Monopoly, and Stretch Armstrong.
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December 3, 2022

QotD: Mantetsu and the Kwantung Army

When the Japanese decided to become a modern power, they consciously chose to emulate American business practices. But these were the business practices of the Gilded Age, so Japanese businesses ran in a way that would have the most hardened Robber Baron drooling — horizontal integration, vertical integration, trusts, combines, mergers, the works.

Thus the South Manchuria Railway Corporation, originally contracted to develop a defunct line in a disputed territory, soon developed into a full-spectrum enterprise. Pretty much all heavy industry in the Japanese areas of Manchuria were divisions of Mantetsu. But since all the heavy industry depended on mines, and transportation, and food and housing for workers, and banks, and schools for the workers’ children, etc., pretty soon Mantetsu ran all of that, too. By the late 1920s, you could argue that Mantetsu was almost its own country.

It even had its own army, and that’s where things get really interesting.

The Kwantung Army was the security force assigned to the South Manchuria Railway Zone. The Japanese weren’t stupid; they knew the perils of independent commands far from home, and they rotated units through with some regularity. Nonetheless, the command staff remained fairly stable over the years … and so did Mantetsu’s.

The Japanese weren’t stupid, but they were people, and people being people, soon enough the lines between the Kwantung Army and Mantetsu began to blur. And since the lines between Mantetsu, the Imperial Army, and the government were already pretty blurry, pretty soon the concerns of one became the concern of all. (Nor was the Navy left out, though I’m not discussing them in order to keep it simple. They were up to their eyeballs in Mantetsu, too, because warships need lots of steel and steel comes from Manchuria).

A small but highly committed and totally ideologized faction developed inside the Kwantung Army. Several, in fact, and one of them (the Imperial Way faction) attempted an actual coup d’etat in 1936. It was put down, and the Imperial Way faction dissolved (in theory), but the problem of an intensely ideologized officer corps remained. Long story short, you had a small group of highly ideologized officers garrisoning a remote province pulling the entire Empire into big, unwinnable wars.

One could make the case that World War II in the Pacific was ultimately caused by about fifteen or twenty guys in the Kwantung Army.

That’s overly reductionist, but it highlights the huge problem with organizations slipping the leash. In theory, there was a clear chain of command, and even the head of the Kwantung Army was a down it a ways — he was subordinate to the Army Council, which was subordinate to the War Minister, who was subordinate to the Parliament, who were subordinate to the Emperor. In theory, lots of people could’ve sacked Gen. Araki, or his mini-me Ishiwara Kanji (a lieutenant colonel through most of it). Equally in theory, Mantetsu had no say in any of it — the Kwantung Army was a formation of the Imperial Japanese Army, not Mantetsu’s private security force.

But in reality, Mantetsu was so wired in to the Japanese government that in a lot of cases, it was the government. But not always, because the same could be said about the Army, and the Navy, both of which were also wired into Mantetsu up to the very top (or vice versa, your choice). And Mantetsu had their Media arm, of course, as did the Army and Navy …

What all this boiled down to, then, was a power vacuum. I know, that seems weird, but a skilled bureaucratic infighter like Ishiwara never lacked for groups to play against each other. The Army and Navy would oppose on principle any move that seemed to aggrandize the other, neither could go against Mantetsu (and neither could control it), and all had to pay at least lip service to the civilian government. Because of this, real power fell to whomever had the balls to grab it …

… which was the officer corps of the Kwantung Army. They assassinated at least two Manchurian warlords, staged a number of false flag attacks on their own positions, and generally got up to however you say “standard issue Juggalo fuckery” in Japanese, up to and including a full-scale war with China.

Severian, “Slipping the Leash”, Founding Questions, 2022-08-27.

September 26, 2022

“We’ve credentialed people for membership in a series of high-cultural-status groups on the basis of their ability to chant slogans and perform rituals; they are coreless”

Chris Bray on Vivek Ramaswamy’s book Woke, Inc.:

Vivek Ramaswamy was trying to close a deal, so he went to do some relationship building over dinner at an investor’s house. As dinner ended, the investor’s son came downstairs to greet the visitors, and he turned out to be a high school senior who was applying to Harvard. By the most remarkable coincidence, Vivek Ramaswamy is a Harvard grad, so the kid asked for some advice on getting in. Stand out, the Harvard grad told the Harvard applicant. Have something that makes you different than all the other applicants. Oh, the kid said, yeah — I got that. It turns out the seventeen year-old son of a venture capitalist had started a non-profit to fight against global sex slavery, which did indeed impress the admissions office and did indeed get him into Harvard. When Ramaswamy ran into the kid again, a few years later, he was shopping for Wall Street internships — and had moved on from the whole sex slavery thing, which had by then served its purpose.

Ramaswamy’s book Woke, Inc., a title published last year that seems to be gaining new momentum now as its author takes on corporate ESG posturing, accurately promises to take readers “inside corporate America’s social justice scam”, though I don’t love everything he offers as a solution. He clearly is reporting from inside: He’s a Harvard grad, a Yale Law grad, a former hedge fund employee, and a former pharmaceutical CEO. (Those credentials make you trust his argument, right?)

The thing the kid did, dummying up a quick thing to fight global sex slavery to get it into his admissions package, is a version of a maneuver that Ramaswamy finds all over the woke corporate world. The highly woke consumer products company Unilever is passionate about taking deep notice of intersectionality and serving women of color, and it partners with UN Women, “a nonprofit branch of the UN dedicated to advancing gender equality and empowering women”. Also, dozens of women who work on a Unilever tea plantation in Kenya were gang-raped in front of their families, an event that was coupled with a dozen or so murders, and Unilever declined to provide them with substantial support or assistance: “Unilever said the attacks on its plantation were unexpected and therefore that it should not be held liable”.

Unilever provides money to UN Women, Ramaswamy concludes, and UN Women provides Unilever with “moral cover for the Kenyan massacre”. Woke Unilever is a façade for, you know, Unilever. It’s a strategy, one example of many, and Ramaswamy argues that the “arranged marriage” between wokeness and corporate capitalism was born out of Occupy Wall Street: Here’s a check, now let’s stop talking about TARP and start talking about white privilege.

You should read Woke, Inc., so I won’t go on summarizing. But without going deeper into Ramaswamy’s argument, which reflects a series of increasingly familiar observations about social class and the function of wokeness, the point is the inauthenticity and shallowness of corporate social justice posturing, all of which is meant to protect the core of the project — to provide cover for business practices that might otherwise be criticized. It’s a show, a performative and manipulative posture. You could easily make comparable arguments about wokeness and power in academia, media, or government.

Now, to take all of this and pivot to an argument that will satisfy absolutely no one, if the social justice façade is a façade — shallow, performative, calculatedly purpose-serving — then there’s a good chance the branch managers of the globalist project will drop it when it slides out of fashion. The kid who, wanting a career on Wall Street, did the sex slavery nonprofit thing just long enough to get into Harvard: That kid is a middle manager now, and he’ll recite slogans about white privilege or not, as Current Thing demands, as long as the checks still cash. We’ve credentialed people for membership in a series of high-cultural-status groups on the basis of their ability to chant slogans and perform rituals; they are coreless.

August 23, 2022

When the Great Reset turns into the Great Resignation, unexpectedly

Filed under: Business, Media, Politics, USA — Tags: , , , — Nicholas @ 03:00

Elizabeth Nickson is enjoying the spectacle of the Klaus Schwabs of the world being undermined by the rational actions of ordinary people:

Klaus Schwab’s slaves are quietly vanishing.

In the US, 52 million quit their jobs in 2022, which only added to the flood of 2021. 41% of the work force, when interviewed stated they were quitting, and another 38% were planning to. Mostly mid-career. That’s the ball game, baby, that is almost 80%. ABC Corp will be left with oldsters too tired to change and a bunch of kids looking to cash in and cash out as fast as possible.

Corporatists are in a bit of a flap, which is delicious to watch. Their Bible, the Harvard Business Review is scrambling to explain, to deconstruct, to propose ways to get them back, more money, more time off, more benefits. All of which would thrill trade unionists except that they won’t be getting their cut, their vig, their power base. No one is coming back, btw, Klaus, the UN and the CCP screwed the pooch, everyone knows about it, no censorship can hide the fact that their plans for us include pinning us in our matchboxes, hypnotizing us via screens and farming us like sheep with monthly allowances and Prime delivery of cricket paste.

HBR has therefore re-named this The Great Exploration, as a sop to the rapid individuation of the people they tried to turn into machines. Yeah, that’s not going to work either. No workshops from Tony Robbins, no retreats with Oprah, no courses, no sabbaticals, no Five Second Rule gal or Brene Brown explaining that investigating insurance claims is somehow spiritual, especially if you “fight” for the “rights” of the marginal, and give your next promotion to a person of color, preferably other sexed. Nope nope nope. It is over.

Target missed its earnings projections by 90%. Ninety percent. Ninety percent. The thing about being enmeshed in corporate culture is that you need a lot of stuff to be comfort yourself after the brutalism of your days. You can go home and wallow on your green mattress and lots of pillows with your achingly lonely pets. But when you’ve quit, and maybe sold your house and moved to a cheaper location and started farming, you don’t need more stuff, you have tasted freedom and a pox on all your big box stores. Instead of competitive co-workers, you have your dog, your family and friends, and an open road.

Bye-bye Black Rock. It looks like the hail Mary of ESG and DEI failed. In fact, it acted as a repellant. So obviously dishonest and a play to shame employees into submission, added to the manipulations of Covid, the lock-downs, the forced injections, the obvious sickening of your friends and family, bye bye.

I personally could not be more delighted, since I quit almost 20 years ago, reasoning that working in newsrooms was like entering a bee hive without protection. I look around my home place and there are a lot of eager new faces, young and thrilled, and loaded for bear.

August 21, 2022

QotD: The “social responsibility” of the corporate executive

Filed under: Business, Law, Quotations, USA — Tags: , — Nicholas @ 01:00

In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose — for example, a hospital or a school. The manager of such a corporation will not have money profit as his objectives but the rendering of certain services.

In either case, the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.

Needless to say, this does not mean that it is easy to judge how well he is performing his task. But at least the criterion of performance is straight-forward, and the persons among whom a voluntary contractual arrangement exists are clearly defined.

Of course, the corporate executive is also a person in his own right. As a person, he may have many other responsibilities that he recognizes or assumes voluntarily — to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. He may feel impelled by these responsibilities to devote part of his income to causes he regards as worthy, to refuse to work for particular corporations, even to leave his job, for example, to join his country’s armed forces. If we wish, we may refer to some of these responsibilities as “social responsibilities.” But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are “social responsibilities,” they are the social responsibilities of individuals, not business. What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation. Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire “hardcore” unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.

In each of these cases, the corporate executive would be spending someone else’s money for a general social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.

Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, New York Times, 1970-09-13.

August 16, 2022

“Penguin Random House is a vampire corporation”

Filed under: Books, Business, Law, USA — Tags: , , — Nicholas @ 03:00

Belatedly, as I was away for the weekend, here’s something from the latest SHuSH newsletter on the Random Penguin court case:

At the beginning of the millennium, Random House (pre-Penguin) had revenues of $2.3 billion (all US figures) and a profit margin of 9 per cent. At the end of the aughts, it had revenues of 2.3 billion and a profit margin of 9 per cent. It was the biggest publishing company on the planet but it had ceased to grow.

Growth matters, especially to Random House’s parent company, Bertelsmann SE, a public company. People buy shares in publicly listed companies because they believe the entity will grow and produce larger profits in the future, making the share price rise and the investor happy. That is the whole game for public companies.

When an asset at a public company does not contribute to growth it is dead weight. It needs to be fixed or jettisoned.

Bertelsmann decided to fix Random House. In 2012, it struck the richest deal in book publishing history, acquiring 53 per cent of Penguin Books, which it then merged with Random House to make the biggest publisher even bigger.

It was said at the time that the two publishers, with combined revenues of $3.9 billion, would be able to share costs, attract better talent, take more risks, offer new products, develop new markets, and otherwise innovate. Together they would have the scale to stand up to bookselling chains like Barnes & Noble and the massive digital players, Amazon and Apple.

It was a lot of hype, of course. Random House had its pick of talent, all the size it needed to negotiate with Barnes & Noble, and it would never be in the same league as Amazon. Markus Dohle, CEO of Penguin Random House, is lucky to get a mid-level account manager on the phone at Amazon.

But the deal went ahead and expectations for the new Penguin Random House were sky high. They had to be. Bertelsmann’s purchase price valued Penguin at $3.5 billion, or more than twenty times its annual profits of $171 million. Penguin Random House would have to be far more than the sum of its parts to justify that price.

Over the next several years, Bertelsmann doubled down on its bet, scooping up the remaining 47 per cent of Penguin in two separate transactions to eventually own it outright.

Did any of the anticipated magic happen?

The first full year of a combined Penguin Random House was 2014. Revenues were about $4 billion, and that’s where they’ve been ever since (leaving aside a nice bump in 2019, the year of Michelle Obama). Profits are up, which might be considered a good sign. But they didn’t grow as a result of the combined firm’s increased scale, new competitive muscle, better talent, new markets, new products, or innovations. As far as I can tell, the improved profitability was achieved the old-fashioned way: the payroll shrunk from a high of 12,800 to 10,800. Also, e-books and audiobooks improved the profitability of all publishers. And the Obamas each knocked one out of the park.

The point is that seven years down the road, Penguin Random House remained exactly the sum of its parts, minus 2000 workers. The acquisition was a big-time bust. Most of the $3.5 billion purchase price was wasted.

August 12, 2022

Apple, afterwards

Filed under: Books, Business, History, USA — Tags: , , , — Nicholas @ 05:00

In Quillette, Jonathan Kay looks at Apple after the death of Steve Jobs:

In 2004, Apple co-founder Steve Jobs asked famed author Walter Isaacson to write his biography. It’s a mark of Jobs’s hallowed place in the pantheon of American corporate titans that Isaacson, whose other subjects included Henry Kissinger, Benjamin Franklin, and Albert Einstein, would eventually say yes. While best-selling books about successful business leaders represent a popular niche, most specimens are fawning airport reads that combine hagiography with self-help advice for aspiring entrepreneurs. Isaacson’s Steve Jobs (2011), by contrast, was a serious work of literary non-fiction that exalted its subject as a once-in-a-generation technological savant, while also showing him to be a callous parent and scathing boss, not to mention a proponent of loopy “fruitarian” medical theories. (Much has been made of Jobs’s use of fringe therapies to treat the pancreatic cancer that killed him in 2011, but he also entertained the bizarre belief that his vegan diet allowed him to avoid bathing for days on end without developing body odour, a proposition vigorously disputed by co-workers.)

Tripp Mickle, a Wall Street Journal technology journalist who covered the Apple beat for five years, isn’t Walter Isaacson (few of us are); and, to his credit, doesn’t try to be. Nor does he seek to present his primary subjects — former lead Apple designer Jony Ive and incumbent chief executive Tim Cook — as world-changing visionaries on par with their departed boss. Indeed, the very title of his book — After Steve: How Apple Became a Trillion-Dollar Company and Lost Its Soul — presents Apple as existing in a state of creative denouement since Jobs’s death — a bloated (if massively profitable) corporate bureaucracy that increasingly feeds shareholders’ demands for quarterly earnings by milking subscription services such as Apple Music and iCloud instead of developing new products.

The first five chapters of After Steve are structured as a twinned biography, following the lives of Ive and Cook from their precocious childhoods (in England and Alabama, respectively), and on through the 2010s, when the pair jointly ran Apple (in function, if not in title) following Jobs’s death.

Timothy Donald Cook grew up in Robertsdale, a farming community located roughly halfway between Mobile, Alabama and Pensacola, Florida, the middle child of a Korean War veteran and a pharmacist’s assistant. In high school, Cook was named “most studious”, and served as the business manager for the school yearbook. “In three years of math, he had never missed a homework assignment”, reports Mickle, also noting that one teacher remembers him as “efficient and dependable”. Cook also happens to be gay, a subject that caused some awkwardness for his Methodist parents, even though Cook wouldn’t come out publicly till later in life. As a means to deflect questions, Mickle reports, Cook’s mother told drug-store coworkers that her son was dating a girl in Foley, a nearby town.

Following high-school graduation, Cook went on to study industrial engineering at Auburn University and business administration at Duke. He then gravitated to the then-burgeoning field of personal computing, quickly carving out a niche within its production and supply-management back office. At IBM and Compaq, Cook turned himself into a sort of human abacus, ruthlessly bringing reduced costs, increased efficiencies, and smaller inventories to every assembly line he set eyes on. By the time he’d arrived at Apple in 1998, Mickle reports, Cook was completely neurotic about keeping any stocked materials off the books, calling inventory, “fundamentally evil”. In time, he pioneered a process by which yellow lines were painted down the floor of Apple’s production plants, with materials on the storage side of the line remaining on suppliers’ books until the very moment they were brought to the other side for assembly.

Like Ive, Cook declined to be interviewed for After Steve. And so it is entirely possible that the man has a rich inner life that remains opaque to Mickle and the outside world more generally. But the portrait that emerges in this book is one of a fanatically dedicated workaholic who rises before 4am to begin examining spreadsheets, and thinks about little else except the fortunes of Apple Inc. during the waking hours that follow. Mickle reports a sad scene in which Cook is spotted by sympathetic strangers at a fancy Utah resort, dining alone during what appears to be a solitary vacation. We also learn that Cook’s Friday-night meetings with Apple’s operations and finance staff were sometimes called “date night with Tim” by attendees, “because it would stretch for hours into the evening, when Cook seemed to have nowhere else to be.”

July 29, 2022

“Shrinkflation” isn’t the only way companies try to sell you less for the same price

Filed under: Business, Economics — Tags: , , , — Nicholas @ 05:00

And, as Virginia Postrel points out, “shrinkflation” does get noticed for economic statistics, unlike some of the other changes many companies are making:

Original image from www.marpat.co.uk

My latest Bloomberg Opinion column is explained well in an excellent subhead (contrary to popular assumptions, writers don’t craft the headlines or subheads that appear on their work): “Packaging less stuff for the same price doesn’t fool consumers or economists. But diminishing quality imposes equally maddening extra costs that are almost impossible to measure.” Excerpt:

    If a 16-ounce box contracts to 14 ounces and the price stays the same, I asked Bureau of Labor Statistics economist Jonathan Church, how is that recorded? “Price increase”, he said quickly. You just divide the price by 14 instead of 16 and get the price per ounce. Correcting for shrinkflation is straightforward.

    New service charges for things that used to be included in the price, from rice at a Thai restaurant to delivery of topsoil, also rarely sneak past the inflation tallies any more than they fool consumers.

    But a stealthier shrinkflation is plaguing today’s economy: declines in quality rather than quantity. Often intangible, the lost value is difficult to capture in price indexes.

    Faced with labor shortages, for example, many hotels have eliminated daily housekeeping. For the same room price, guests get less service. It’s not conceptually different from shrinking a bag of potato chips. But would the consumer price index pick up the change?

    Probably not, Church said.

This phenomenon, which Doug Johnson aptly dubbed “disqualiflation” in a Facebook comment, is widespread. One example is the four-hour airport security line I chronicled in an earlier Substack post. Another is the barely trained newbie who screws up your sandwich order — a far more common experience today than four years ago. It’s the flip side of a phenomenon I wrote about in The Substance of Style and in economics columns in the early 2000s (see here and here).

    During the 2000s and 2010s, inflation was probably overstated because of unmeasured quality increases. Now there’s the opposite phenomenon. Quality reductions have become so pervasive that even today’s scary inflation numbers are almost certainly understated.

If you can read the column at Bloomberg, please do. But if you run into the paywall, which allows a few articles a month, you can use this link to the WaPo version, which doesn’t have links.

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