Value given for value received - Galt's Gulch

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Value given for value received

Posted by blarman 10 years, 1 month ago to Business

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Unfortunately, I don't have a subscription to get the entire results, but even the first page is a very compelling reason to encourage the elimination of third parties in transactions as much as possible.

SOURCE URL: http://hbr.org/2014/11/cooks-make-tastier-food-when-they-can-see-their-customers/ar/1

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Posted by CircuitGuy 10 years, 1 month ago

I think something similar causes publicly owned corporations to do things they're owners would not approve of. The owners own shares often through mutual funds, who vote on a board of directors, which hires managers. The managers need to answer in part to analysts whose analysis affects institutional investors' decisions. I think they make decisions that every person involved thinks is wrong. If the owners made the decisions directly, they would do things different.

I do not have a program to solve this while retaining the ability to form corporations with shareholders protected from liability. That ability is important to funding businesses, so I don't have an easy answer.

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  Posted by blarman 10 years, 1 month ago
  
  Part of what you are alluding to is the disconnect between manager bonuses and company performance, and that definitely is a tricky subject. On the one hand, you want managers to perform well now and reward them for it, but you also want the manager to take steps to provide for a strong company future as well, and often the short-term strategies and long-term strategies can conflict in a poorly managed company.
  
  I agree that there don't appear to be any silver bullets (or you could make a killing on the book/lecture circuit) for this.
  
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    Posted by CircuitGuy 10 years ago
    
    "Part of what you are alluding to is the disconnect between manager bonuses and company performance"
    That is part of it. Also companies sometime do things that the owners individually would find immoral. I think everyone involved truly believes it's someone else's fault. "Those evil C-level execs." The C-level people say, "The analysts will be on our case and then our board will be too." The board and analyst are just representing the shareholders. The shareholders are investing in equities partly b/c of limited liability; they won't want to have responsibility for keeping the company honest.
    Everyone has a way to blame someone else.
    
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      Posted by blarman 10 years ago
      
      A "company" can't do anything - every decision is ultimately made and carried out by individual people, so I'm not really sure where you are going with this one. And individuals are driven by a combination of values and incentives. That's why I believe that you have to look at both when determining the effectiveness of governance and management and why both are important to a company's long-term success.
      
      I see a great example of this in the differences between James and Dagny Taggart. Both ostensibly grew up in the same house with the same rules and values, but both took different incentive paths. Dagny got great personal satisfaction out of doing the job right. James allowed himself to get caught up in doing the job for the prestige. Different incentives led to very different behavior patterns - some constructive and long-term and others destructive and short-term.
      
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