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In an earlier draft, I included a discussion of why Friedman's position is far more reasonable than it might seem. For example, corporation that maximises long-term profit has powerful incentives to innovate, to produce quality products, to be an attractive place to work, and so on. In the orthodox framework, however, these are (or rather, should be) subsidiary goals -- not independent, but serving the primary goal of maximising share value.

That said, a focus on maximising share value per se is, in the world of real human beings, likely to lead to short-term thinking that produces inferior long-term results. Treating the subsidiary goals as primary may, in fact, better serve the primary goal than would directly pursuing it. (The psychopath model breaks down in part because corporations often pursue a more enlightened form of self-interest than the model would indicate.)

What I suggest would fully legitimise, in hard-core Friedmanesque terms, more corporate behaviour of the sort that you praise. It would recognise that these "subsidiary goals" have value external to the corporation that should, in some measure, be considered part of shareholder value.

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Fri Dec 22nd, 2006 at 07:09:30 PM EST
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That said, a focus on maximising share value per se is, in the world of real human beings, likely to lead to short-term thinking that produces inferior long-term results.
I know this is popular thinking, but I, and I think many others in business, disagree with it.  There is a book written by a couple of Stanford professors 10 years or so ago, called, I think, "Good to Great".  They had a great line, which was a question and answer: "Should we manage for the short term or the long term?"  the answer is "yes".  To think that you can't do both, is like saying you can't walk and chew gum at the same time.  Of course there are tradeoffs, and at times it's easy to forego the long term for a short term quarter, or year.  But if you're a CEO that wants to be around for 10--20 years, obviously you have to do both.  And there are many companies that accomplish this.

I believe the thinking that I espoused above is now very standard in business, at least US business.  But like so many other things the press writes about, it's the scandals at Enron, etc. etc. that make the headlines--not the consistent progress at Medtronic, GE, etc, etc.

by wchurchill on Fri Dec 22nd, 2006 at 09:31:17 PM EST
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The natural difference between "news" and the rest of human activity does indeed create a systematic bias in how we see the world. For example, there have been many more failed start-up companies because failure and mediocrity are so much less newsworthy than is blazing success.

Good management must indeed balance many tasks, including those with short- and long-term goals. I'm only claiming that there is not only an inherent trade-off between goals (as you note), but also a psychological tendency for easily measured, short-term, monetary goals to crowd out long-term investment in (for example) people and knowledge. An attitude that directly values the latter serves, I think, as a counterweight to this tendency.

This is a squishy point, and I was moved to state it in order to expand my agreement with your earlier point, as I understood it. Disparage my effort at ET civility if you must... Bite the hand... Examine the equine teeth... ;^)

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Sat Dec 23rd, 2006 at 06:47:59 PM EST
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