"The U.S. computer industry is dying--and. I’ll tell you exactly who is killing it and why"
Last edited Tue Jun 30, 2015, 10:07 AM - Edit history (1)
The U.S. computer industry is dying and I’ll tell you exactly who is killing it and why
By Robert X. Cringely--June 24th, 2015
This is my promised third column in a series about the effect of H-1B visa abuse on U.S. technology workers and ultimately on the U.S. economy. This time I want to take a very high-level view of the problem that may not even mention words like “H-1B” or even “immigration,” replacing them with stronger Anglo-Saxon terms like “greed” and “indifference.” The truth is that much (but not all) of the American technology industry is being led by what my late mother would have called “assholes.” And those assholes are needlessly destroying the very industry that made them rich. It started in the 1970s when a couple of obscure academics created a creaky logical structure for turning corporate executives from managers to rock stars, all in the name of “maximizing shareholder value.”
Lawyers arguing in court present legal theories – their ideas of how the world and the law intersect and why this should mean their client is right and the other side is wrong. Proof of one legal theory over another comes in the form of a verdict or court decision. We as a culture have many theories about institutions and behaviors that aren’t so clear-cut in their validity tests (no courtroom, no jury) yet we cling to these theories to feel better about the ways we have chosen to live our lives. In American business, especially, one key theory says that the purpose of corporate enterprise is to “maximize shareholder value.” Some take this even further and claim that such value maximization is the only reason a corporation exists. Watch CNBC or Fox Business News long enough and you’ll begin to believe this is the God’s truth, but it’s not. It’s just a theory.
It’s not even a very old theory, in fact, only dating back to 1976. That’s when Michael Jensen and William Meckling of the University of Rochester published in the Journal of Financial Economics their paper Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.
Their theory, in a nutshell, said there was an inherent conflict in business between owners (shareholders) and managers, that this conflict had to be resolved in favor of the owners, who after all owned the business, and the best way to do that was to find a way to align those interests by linking managerial compensation to owner success. Link executive compensation primarily to the stock price, the economists argued, and this terrible conflict would be resolved, making business somehow, well, better.
There are many problems with this idea, which appears to be more of a solution in search of a problem. If the CEO is driving the company into bankruptcy or spends too much money on his own perks, for example, the previous theory of business (and the company bylaws) say shareholders can vote the bum out. But that’s so mundane, so imprecise for economists who see a chance to elegantly align interests and make the system work smoothly. The only problem is the alignment of interests suggested by Jensen and Meckling works just as well – maybe even better – if management just cooks the books and lies. And so shareholder value maximization gave us companies like Enron (Jeffrey Skilling in prison), Tyco International (Dennis Kozlowski in prison), and WorldCom (Bernie Ebbers in prison).
It’s just a theory, remember.
The Jensen and Meckling paper shook the corporate world because it presented a reason to pay executives more – a lot more – if they made their stock rise. Not if they made a better product, cured a disease, or helped defeat a national enemy – just made the stock go up. Through the 1960s and 1970s, average CEO compensation in America per dollar of corporate earnings had gone down 33 percent as companies became more efficient at making money. But now there was a (dubious) reason for compensation to go up, up, up, which it has done consistently for almost 40 years until now we think this is the way the corporate world is supposed to work – even its raison d’etre. But in that same time real corporate performance has gone down. The average rate of return on invested capital for public companies in the USA is a quarter of what it was in 1965. Sure productivity has gone up, but that can be done through automation or by beating more work out of employees.
Jensen and Meckling created the very problem they purported to solve – a problem that really hadn’t existed in the first place.
Maximizing shareholder return has given us our corporate malaise of today when profits are high (but are they real?) stocks are high, but few investors, managers, or workers are really happy or secure. Maximizing shareholder return is bad policy both for public companies and for our society in general. That’s what Jack Welch told the Financial Times in 2009, once Welch was safely out of the day-to-day earnings grind at General Electric: “On the face of it,” said Welch, “shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers, and your products. Managers and investors should not set share-price increases as their overarching goal. … Short-term profits should be allied with an increase in the long-term value of a company.”
Now let’s look at what this has meant for the U.S. computer industry.
Continued at:
http://www.cringely.com/2015/06/24/the-u-s-computer-industry-is-dying-and-ill-tell-you-exactly-who-is-killing-it-and-why/
= new reply since forum marked as read
for a long time. This will rock the world of those that are petrified by Conspiracy Theories.
Thanks for posting. 
