A Company's first duty should be to the Staff & Community, not the Shareholders

Great Debates
1

This is an idea I’ve been trying to give a coherent form to for some time now, and the current threads on the Global Financial Crisis and the US Automotive Industry bailouts mean this is probable the best time to share it.

Basically, I think that Companies should, if they are turning a profit, not be cutting jobs or slashing expenditures just to keep the shareholders happy.

When I used to work for A Well Known Electronics Retailer, we were constantly faced with our wages budgets being cut so the company would meet the profit targets that the shareholders were promised and they’d get their dividends or whatever was in it for them.

I, on the other hand, ended up having to do twice as much work for the same pay. Why? So the shareholders could collect a dividend and the company could make some insane profit that would contain far too many zeroes in the number to be easily readable at first glance.

The company was making a profit and was well in the black; yet the shareholders wanted a bigger profit. The result was overworked and unhappy staff, most of whom either ended up quitting or just not caring anymore.

The same thing has started happening at my current job, and being in liquor the company makes the sort of money usually associated with Space Agency budgets. But the shareholders want a bigger profit- involving the sort of money that could finance a manned mission to Mars, apparently- and so the managers are being overworked, staff wages are being cut back, and once again I find myself thinking “This would all work a lot better if companies told the shareholders to stop whingeing and that they’d get a fixed dividend and if they didn’t like it, QQ.”

The thing is, if the company is making a net profit, and it’s a respectable profit, then IMHO the company should be looking after its staff and the community (which can be interpreted in a wider sense, not just the immediate neighbourhood) and any benefit the shareholders get beyond having their shares increase in value (so they can sell them for a profit) should be considered a bonus and not a right.

My last pay rise before I resigned my Assistant Manager’s job was below the rate of inflation, and my Area Manager couldn’t understand why I wasn’t happy about it and how come I thought my effective pay had actually decreased because I was doing more work, working longer hours, and now inflation was eating into my pay too. But the company would meet its profit forecasts and… well, apparently that was a Good Thing. None of us ever saw the point. So what if we “only” made $175 million profit instead of $200 million? I’d be happy with $175 million clear profit in any venture I was involved in.

In short, I think the current system where the Shareholders reign supreme isn’t the best option and that as long as a company is turning a net profit everyone should just STFU and be happy with what they get. Once the company has paid all its expenses, the staff should be the first in line for a cut of the profits (in the form of bonuses or pay raises), with the community coming second (maybe the company wants to use some of their massive profit to donate a park to the city or something? Tax write-off ahoy!), and then the shareholders can get something out of it beyond having shares worth $X.

You’d have happy staff who work harder because they get rewarded, the community benefits from the company’s largesse, and the shareholders still get something out of it. I suppose, basically, what’s happening in my proposed system is that Staff and Shareholders are swapping places in the queue.

Naturally I expect almost everyone to disagree with me about this, but sod it, I still think the idea’s worth discussing.

2

In a perfect world sure. I agree with the sentiment you are expressing. I just do not see how you can make it work as a practical matter. If share prices increase the company has more money (presumably it holds some of its own stock). That gives it access to bigger lines of credit and the ability to grow and invest in the company. If Company-A does as you suggest and Company-B focuses on share prices (assume they are competitors in the same industry) in general Company-B will bury Company-A and put it out of business. With that in mind how has Company-A helped its employees or community? Employees are out of a job, community loses the tax base that company provided and so on.

In the end Company-B, focusing on share prices, provides better for its employees in the long run even if not as ideally as one might like. The real problem with the focus on share prices is the overtly short-term view everyone takes on it. Make the price targets for THIS quarter…worry about next quarter when it comes. That has a long term negative effect on the company as they tend not to make long term strategic decisions to safeguard their own fiscal health. When the economy is going up a lot of companies can get away with that but if the economy heads south such companies fail quickly.

3

It’s worth discussing, but what you’re overlooking is another word for “shareholders” is “owners.”

Let’s say that instead of working at a large electronics retailer, you instead own a tiny electronics store with a single location. The entire staff is you, your office person, one full-time and one part-time salesperson and one person who does service/installation.

When business is good, you share the wealth, when business is bad you take the hit but keep your employees on staff. How long are you going to keep rising and falling along with your employees when you’ve put in the equity, you’ve let your income go down to keep your staff at full salary, etc.? At some point you’re going to want to take a paid vacation, to put money in your kids’ college fund, maybe even to plan for your eventual retirement.

4

My best employer so far was a company which, while saying many of the usual slogans, took them seriously.

They talked about “los cinco interlocutores” something like “the 5 people we speak with,” the 5 people that must be satisfied with our performance. The idea was that all 5 had to be satisfied, our performance as a company wasn’t acceptable unless all 5 were happy.

I can only remember 4 of the 5:
employees,
shareholders,
neighbors (the towns where we were located),
the environment (this was a chemical company),
… and I don’t remember what the other one was, might have been something about complying with the laws of the countries where we were located.

5

What you don’t understand is the very definition and motivation for a company’s existence is for the owners/shareholders to profit. There’s nothing evil about it. It’s just what the company is.

What you’re proposing is that “weddings’ and marriages’” first duty should be to the priets and rabbis (the employees of the wedding). The husband & wife are secondary. How do you propose that the husband & wife should swap places with the priest in terms of importance? That’s nonsensical linguistically and realistically.

I understand the ideological goals you want but you can’t accomplish it by waving a magic wand around the very essence of what a company is. Your “idea” will sound childish and not be taken seriously at all.

Well, take comfort in the fact that most people will agree with you.

6

The great thing about a free market (with an emphasis on “free”) is that you get to test your idea against others. You could well be right, but go out there and show us that you are.

Or were you saying that you wanted to force everyone to abide by your rules…?

7

The problem is not even meeting the owners/shareholders’ expectations, it is meeting the analysts expectations, and the analysts typically are only looking at short term current profits, not long term profits. As a result, capital spending gets cut (we can get another year out of that machine, rather than replacing it) and r&d gets cut (they can’t guarantee success, so we’re just pouring money down a hole). Capital spending and R&D are both critical to a company’s long term success, but you’d never know it from the analysts who’re driving shareholder opinion.

8

Of course, what is not evil in itself can still produce evil results.

9

There ARE employee owned companies out there.

10

Define “right”.

What’s your meter stick for that?

Seems the only measure of “right” these days is share holder interests. No one else, not the employees, not the communities, nada just share holders.

Why is it right for share holders to expect Martini Enfield to continually lower his quality of life with more and more work for less and less money?

He’s always making them profit, yet they want to wring him out like a used wash cloth. Is this “right”?

11

Bolding mine…

Your own idea puts the shareholders first.
Only if the shareholders are making a profit do you then consider the workers…

12

Not to speak for OP but I think if a company isn’t turning a profit then it does make sense to slash costs. The company staying in business so the workers keep a job is in their interests too.

13

Yep, I saw that film. Many valid issues are brought up.

The OP has commendable goals for fairness but to try and accomplish them through the mechanism of a company organization is nonsensical.

It doesn’t mean his desire for more $$ is dismissed. Maybe the answer is “community cooperatives” or “govt-sponsored worker rebates” to address his idealogical goals. I don’t know. But to try and do the impossible task of redefining what a company exists for is an unsophisticated argument. You’d have to be retarded to try and redefine what “marriage” is to make clergyman more important than the husband&wife in that marriage.

14

I certainly hope the the other one was the customers! If not the company has its priorities serioulsy f-ed up and won’t be in business long.

15

It seems to me that, with corporations, we have a construct for which, now, we’re not certain what the purpose is.

At heart, it’s a way for people to invest money and share risk and rewards; to pool their resources to launch a profit-making venture that no one person could make happen on their own.

But what is our GOAL for the corporation, and for the investors, even leaving aside the fact that we, as a society, may want the corporation to provide jobs for members of the community, etc.

As potential investors in a corporation, what are we seeking?

People talk about the long-term health of the corporation, but is that even an appropriate concern? After all, then we’re talking about making the corporation’s financial health more important than the investor’s financial health—an investor who may be perfectly satisfied with sucking every last penny out of said corporation until the overworked, underpaid employees stop caring, the facilities fall apart, public opinion drops to the point that no one patronizes it anymore, and the company eventually folds. If the investor sells before that happens and moves on to another hot potato, what does he care? Running a company like that WAS in his best interests; he has the bank statement to prove it.

The other view would be that the long-term health of the corporation IS important. But how long-term? 10 years? 50 years? 200 years? What’s the ideal lifespan of a corporation? How long should investors defer profit-taking? And what’s the best way for that corporation to die when it does go? Bankruptcy? Acquisition by another firm near the peak of its health?

I guess it would be important to know what the costs and benefits are when comparing a long-lived corporation that was carefully milked for decades with a short-lived one that was drained dry as fast as possible. Do investors really make out better with a healthy, long-lived corporation? Are the costs to the government and community significantly higher when there is continuous churn from corporations being run too lean, sucked dry, and collapsing?

16

There’s a very easy way for employees to cover this: buy shares, or negotiate for shares as part of the salary.

17

Which means that they are putting the shareholders #1 …

18

If you wanted a piece of that action, all you had to do was buy some stock. I’ll bet ‘A Well Known Electronics Retailer’ even had a employee stock purchase program that you could have made use of.

19

You are not alone here.

Source: http://blogs.reuters.com/summits/2008/12/04/diller-to-profitable-companies-lay-off-the-layoffs/

20

I believe that the corporation is antithetical to capitalism in that it acts as a responsibility shield. The corporation has served, to a large extent, as a remarkable vehicle or catalyst or what have you for growth, but when we look at the corporation as an entity that, instead of continuing to serve the public good, sacrifices real people for its fictional interests, we have to wonder what is going wrong.