Will Google for Food

Size Does Not Matter

After skimming through Google’s prospectus, I get the same uneasy feeling that I get when someone asks me for handouts. Allow me to explain. It’s easy to lose the forest for the trees when talking about things on a large scale, so let’s examine a microcosm instead.

Say you have this wicked idea for a new widget that you’re sure everyone and their dog will want, except that you’re flat broke, so you can’t even build a prototype. You convince your parents, relatives, friends, and anyone else that will listen to you to chip in for your starting capital. Eventually you raise enough and get to work. Now some questions.

All those people that gave you seed funding… do they have a right to periodically check up on you to make sure that you’re not just spending their money on lavish toys for yourself and living like a king instead of actually building the widget? In turn, do you not have a fidiciary responsibility to ensure that you are maximizing their investment, finding the best way to build and sell enough widgets that you can give a return on investment that matches the risk they took for putting their neck out for you? Of course you do.

The stock market is no different. Its purpose is to match up those that have money (investors) with those that need money (companies). The companies on the market are simply at a later stage in life (versus the example given above), so they are usually quite large in terms of both employee count and annual revenues. Despite their size, the management of a publicly traded company has the same responsibility to its investors. If it becomes clear that management is not demonstrating this level of responsibility, shareholders have a right to invoke any necessary changes.

Don’t like where you work? Blame management. Blaming the stock market and shareholders borders on the comically absurd.

Back on Track

Back to Google, the reason it feels like someone asking for handouts is because of the structure they have chosen. They’ve split their common share pool into two classes, Class A is allowed one vote per share, Class B is allowed 10 votes per share. The two classes are identical in all other respects. The Google founders hold all the Class B, the Class A is being sold to the general public. They intend to raise about $2.7B in this initial offering.

The proposed structure essentially says to the purchaser of the Class A common, “Please give us $2.7B, an order of magnitude more cash than we currently have on hand, but you can’t say anything if we decide to fart it all away on gourmet meals, massages, on-site physicians, and Gwyneth. Because you know, our employees need this kind of thing. Trust us, we went to Stanford.

In other words, they want your money, but all you get in return is their word that they’ll be responsible with it. Sorry, not convincing enough, there needs to be something more to balance this additional risk that they intend to thrust onto the holders of Class A common. Something like a dividend, perhaps? Not a chance. For all intents and purposes, the Class A common are preferred shares, only without the dividend, and without the seniority in the case of a liquidation event.

The prospectus cites companies such as Berkshire Hathaway and The New York Times that have similar two-tier common share structures. What they fail to mention is that the former is essentially a holding company where you pay the Oracle of Omaha (Warren Buffet) to manage your money, and the latter (supposedly) requires such a structure to maintain the quality and impartiality of its news reporting. Google doesn’t have a reason even remotely as good as these two.

So it’s no wonder that they’ve decided to sell their offering as an online Dutch auction, under the guise of “bringing their long-awaited IPO to the common-folk”. The truth is, with the terms they propose, they’d have a hard time selling to institutional investors, so they have to milk retail investors instead.

Imagine you managed the portfolio of the Ontario Teachers Pension Plan[1]. Would you like to be the one to tell your members, “Apologies, some of you won’t be getting a pension this year. We bought $500M worth of Google Class A, and their management arraged it so that we had no control. Then they went off and made some really really bad business decisions. How were we supposed to know this would happen, Larry Page and Sergey Brin gave us their word. Their motto is “Don’t be evil” for christsakes!”

I’ll stick to companies that aren’t afraid to remain accountable to the people bankrolling them, thanks.

[1] The OTPP has some $87B in assets. They didn’t get that big by taking on risks that don’t have a correspondingly large enough reward.

24 Comments

  1. Dave says:

    All hail testosterone, with its wonderous ability to remove all rational thought and reading comprehension skill.

    Terry says: “Now, can you say that with the typical shareholder disposition set like that, the stock market has NO causal effect on the quality of the workplace? Hahahah, now that’s comically absurd.

    Notice how my post says nothing about causal effect. Of course here’s a causal effect to shareholders demanding responsible use of their money. If their requests fell on deaf ears, why would they bother making them in the first place? What I did say was that any resulting negative consequences are solely due to poor management decisions, not due to the shareholders, and certainly not due to the stock market.

    Going back to my example of your widget business, let’s say a few weeks after you get your seed capital, your friends and family check up to see how you’re doing. All you have to report is that you’ve spent some of their money on setting up an office and hiring some help. The majority of your time was spent on a quest for the perfect LCD display, which you have now found. Your dad says, “That’s great Terry, looks like you’re on track.” Your friends say, “Uhh. Ok, you’re gonna start building a prototype widget soon though, right?” Your uncle says, “I can’t believe you’re wasting your time and my money on something that has nothing to do with the widget. Next time I check up on you, you’d better have a prototype going, or I want my money back.

    A month passes, and the next checkup is in a week. So far you’ve provided free meals to your employees, a games room, showers, napping areas, basically all the perks they could ask for. You’ve also been doing a bit of work, but have run into some unforseen problems so you still have nothing tangible to show. Do you:

    A) Make threats against your hired help that if they don’t re-double their efforts, you’re going to fire their sorry asses. For good measure you temporarily suspend all of their perks and block all windows in the office with filing cabinets to help increase their productivity.

    B) Cobble together a prototype widget that doesn’t actually work, but have a smoke-and-mirrors demo to fool your investors.

    C) Explain the problems you are encountering to your investors, but tell them about your plan of action and how you will eventually persevere.

    The options themselves aren’t what’s important in this example, the point is that regardless of which one you choose, the resulting outcome (whether good or bad) is entirely on your shoulders. If it turns out bad, should your employees blame your investors or should they blame you?

    Let’s say you choose option A. In response do your employees start saying, “Stupid investors, pressuring Terry to get something done. Why can’t they just give us money and leave us alone?” Or are they more likely to say, “Stupid Terry, he went and wasted 2 weeks on that stupid LCD, and he didn’t design the widget properly either. Now he’s taking it out on us.” That was a rhetorical question. Do you see now what I mean by blaming shareholders being utterly absurd?

    In addition, regardless of which option you choose, your dad, friends, and uncle are all going to have different reactions. Some will want their money back, others will double their investment because they trust your planning and your ability.

    The point being that not all of your shareholders have the same risk tolerance, nor do they have the same investment timeline. So the only time you’d ever see them all join together and act as a cohesive unit is if you persistently and blatently do things that are not in any of their collective best interests. Their ability to do this is important as common shareholders, even if they never exercise that right. The fact that it is there prevents you from farting away their money for your own personal gain.

    The stock market is exactly the same in this respect, the companies are just larger.

    Which brings me to the topic of Google’s employee perks. The draconian picture you paint where shareholders force removal of all perks is one extreme, and is highly unlikely because company-provided benefits do have a positive effect on productivity. The other extreme is Google spending all $2.7B on even better perks. Also highly unlikely, because of diminishing returns as they spend more.

    My contention is that their current roster of perks puts them closer to the latter extreme, which is a problem. Raising even more money through a common share offering, but removing the shareholder right to prevent blatent misuse of funds creates a situation that is just too tempting for management. If they really don’t intend to be “evil”, why do they want to ensure that shareholders can not intervene in a worst-case scenario?

    And if they really are keen on preventing intervention, a two-tier common share offering is not the correct investment vehicle to be offering to the public. For example, they could offer preferred shares instead, where voting rights are legitimately given up in exchange for dividends and/or seniority in case of liquidation.

    If they want to take away voting rights, they have to give something back in exchange. As it stands, they offer nothing but their word that they “won’t be evil”. Not convincing, instead it just ends up looking like a cash grab against the unsuspecting retail investor.

  2. Dave says:

    And please, you call all of this a “North American Capitalist Paradigm”? I think my Buzzword Bingo card is full.

    Show me a country where it is common practice for people to give out money and expect nothing in return, because I’d move there in a second.

  3. Terry says:

    Hahah Dave I knew something like this would come out very soon… looking from the previous posts you’ve made you always must have the last word… well, before this turns into a pointless endless argument, let me just say that the that I already have a prejudiced stereotypical view of big-time shareholder as the Evil Incarnate who isn’t afraid to make life miserable for everyone else for his own personal gain. Of course others will view this as too extreme, but I believe a basic disposition of sorts does exist. Since you and I don’t have the same image of the shareholder (and perhaps yours is more accurate because I’m guessing you’ve invested in far more stocks than I have) we’ll just leave it at that. But rest assured that I have read and understood all of your points, and I don’t dispute any of them. They’re all logically sound, but I have a different, colored, view on things mostly because of how I have seen my dad’s workplace degrade over time (and he’s in pretty top management), and how things just aren’t as peachy for employees as they were before in general. Hopefully you can just accept that as it is.

    I suppose your opinion of the Google anemities as completely frivolous and mine as “isn’t that a great thing?” are two things that will never come to agreement either… I personally believe that in general, workplace standards are far too low nowadays… and that Google’s environment is more of “how things should have been in the 1st place”. There’s no rationale for me to believe that way, only that if the company’s finances can support an environment, then why the hell not?

    Okay, I don’t want to get more involved, because it’s obvious we will never reach an agreement, so hopefully we just let things die down here…I have a nasty genetic tendnecy to continue arguing no matter what… so hopefully we can just come to a mutual respect for each other’s views.

  4. Dave says:

    You’d be surprised, my opinions are actually quite malleable (something my mom used to chide me about all the time), as long as the points being made are consistent with themselves and consistent with other facts that I know. As time goes by, I just find there are fewer people able to make points that fit into that category.

    Just some one liners:

    Current work environments may not be as great as during the boom days, but that still falls on the shoulders of management, not on shareholders. Yes, your dad is partially responsible.

    Wearing my worker bee hat, I think Google’s perks are great, I wish I worked there. Wearing my investor hat (which I must wear when reading a prospectus), I say they have a dangerous propensity to go overboard in that area.

  5. Terry says:

    Hmm, well if your mind is indeed as malleable as it is, perhaps we could continue a discussion without personal attacks or insults.

    Perhaps my colored writing gave you the impression that I am “blaming” shareholders for all the destruction in the workplace, in the sense that they are the sole entities responsible and corrective action should be taken. I never used the word blame in that context, in fact I have (hopefully) shown an above average effort to never blame someone without the understanding of why they acted the way they do. So that it something that you interepreted and requoted on your site, just like I did for you, to get even.

    It is not about blame David. As I have said, I don’t blame shareholders, I don’t blame management either. I like to paint them in a VERY ugly color using profanity and sarcasm but never have I said out loud “kill the shareholders… burn Wall Street down”. The shareholders are as innocent as are the managers as are the employees. I don’t LIKE the idea of stocks and the gung-ho shareholder doing everything it takes to get the most ROI, but that’s a personal tilt. My core philosphy, if you have been reading my blogger on a consistent basis, is that every entity in this world is a puppet of the system that it is connected with. I don’t believe in free will, and that is something that is of course very debateable.

    The key point in the whole argument I have been trying to make is that there is a fairly direct correlation between the existence of the stock market and the degradation of the workplace. Thus far, I am not exactly sure whether you can at least agree on that point. But it not something crazy or out of this world, many writers from well-known publications have echoed the same sentiment. Wall Street is the snake of Corporate Eden is a quote that comes to my mind recently. There are many books about how the modern publicy traded American corporation, through its shareholder-induced focus on profit and ROI, promotes unethical behavior and rapeage of natural resources with alarmingly little concern for the long term consequences and the impact on global happiness. I actually own such a book (“The Corporation: The Pathological Pursuit of Profit and Power”) and it is sitting on my bookshelf. It is accredited and not some far off wacky theory. Rather, it is simply a voice of concern over a system that everyone seems to accept without skepticism. The ongoing question is: Is this the best system we can come up with with all the resources and capital that are available?

    It is somewhat disheartening to see that an intellect like you express such disdain over Google’s attempt at self-preservation, which I believe is perfecty understandable. No need to lay flak on them for that, if that is indeed a stupid move as you say it is, they will be the 1st ones to pay for it, I believe. Equally disheartening is your dispostion to simply lay the blame all on management. Is management not following the democratic word of the shareholder? If shareholders successfully vote on a decision that impacts the workplace in a negative way, how can the shareholder be absolved of blame and mangement not? The manager would be fired if he didn’t carry out the orders given to him from above. Well, my from my point of view, everybody’s just a victim of the system’s external influence on individuals.

  6. Terry says:

    I will admit of course, that if I was a hard core investor and depended on that money for mortgage and feeding the kids, I would not have the same point of view as I do now… most likely I would be right over on your side, even maybe as far with the critique of Google’s IPO strategy. My current opinion is nothing more than a conveniently available critique of a system that promotes selfish gain above everything else, when I just wish that was something more optimal available.

  7. Dave says:

    The key point in the whole argument I have been trying to make is that there is a fairly direct correlation between the existence of the stock market and the degradation of the workplace.

    I’m not sure it has do specifically with the stock market. The capital markets are just one aspect of the larger picture. A free market economy is automatically self-optimizing in the sense that every entity that is part of the system tries to maximize productivity. That is, each entity independently tries to do the least amount of work in order to get the most gain.

    Degredation of certain workplaces occurs because as time and technology advance, the work that is being done in these places becomes dangerously close to the realm of unskilled labour. Unskilled labour can be farmed out to countries where the cost of living is lower, and eventually it can even be automated by machines.

    This is currently happening to computer-related jobs. Stuff like system/network administration and programming are being outsourced to poorer countries like India. The companies that have not done this yet must degrade the benefits they provide employees in order to compete.

    This is a natural progression for a free market economy. Poor countries start out with a product-based economy, where they simply manufacture goods and sell them. As their population becomes more skilled, they outsource or automate manufacturing and transition to a service-based economy, which is the stage that the world’s wealthiest nations are currently at right now.

    The next step is an ownership-based economy, where the majority of the population become business owners. People either start business that take advantage of cheap manufacturing and service labour in other countries, or they purchase shares in established companies that do the same.

    So currently, wealthy nations are seeing “degredation of the workplace” occurring for the manufacturing and service industries. In order to stop this, you must halt progress – prevent advances in technology, which will prevent gains in efficiency, which makes these “unskilled” jobs more important. Important jobs naturally come with better perks. So while we’re at it, we might as well go backward by destroying the technology we have, going back to simpler times. Certainly an extremist point of view, which is fine, but just highly unlikely and impractical.

    It is important to note that all of this progression happens naturally. There is no external force making all of this happen and pulling the wool over our collective eyes. Instead, it all stems from the fact that people are lazy, yet still want to maximize their own gains.

    I find that the people strongly opposed to this natural progression are the ones who feel they have already maximized their gains. Meaning that they are either people without much ambition, or are fiscally spoiled by their parents/spouse/etc. Usually a combination of both.

    On to other things…

    It is somewhat disheartening to see that an intellect like you express such disdain over Google’s attempt at self-preservation…

    It’s not the attempt at self-preservation I don’t like. It’s that they are attempting it by asking for money yet giving nothing in return.

    Equally disheartening is your dispostion to simply lay the blame all on management. Is management not following the democratic word of the shareholder?

    Ever see that Third Rock episode where Dick finds out that being a shareholder means he owns some of the company? He visits the head office and starts ordering random people around. It’s funny because by definition, shareholders don’t manage day-to-day operations, usually because they are not qualified to do so.

    A shareholder’s edict is simply, “Based on what I’ve seen of your company, if I give you money, you should be able to give me the return that I want. Here is some money, please do so.” There is no contract that says management must return a certain percentage (that would be called a loan or a bond).

    When a company has many shareholders, each one is going to have a different expected return. The actual return will be acceptable to some, unacceptable to others. The unsatisfied shareholders evaluate the situation and come to one of two conclusions: 1) The potential for better is there, current management is just not executing properly; or 2) Management is doing the best it can, the problem is that the conditions have changed, so I should no longer be expecting such a high return.

    Management gets fired only if there are more shareholders that come to the first conclusion instead of the second. If there are indeed more that come to the first conclusion, it is probably true, and management deserves to be fired.

    In either case, there is nothing that dictates management should lie, rape, pillage, and treat their employees badly in order to meet the expected returns of shareholders. If management does decide to do this, it is again, probably because the first scenario is true. It isn’t because shareholders forced them to do so.

  8. Terry says:

    The point of the quality of the workplace degrading due to offshoring labor is well taken, however, it is not what I was thinking. That kind of degradation is a reduction from the market norm, but I was thinking more of a handicapping of the POTENTIAL quality we could have for employees, should the company not be saddled with its obligations to its shareholders. As a privately owned Google has demonstrated, not only is it financially possible to have all those luxury things, but (according to the owners) it isn’t even financially restrictive. And yet it is all over the news, that if Google does go public their anemities are one of the targeted things to be handicapped because as many people have expressed (including yourself) they are frivolous and unnecessary for profit. Perhaps that is indeed a correct opinion, as Googlers are enjoying luxuries to such a point where their productivity is experiencing diminishing returns, perhaps even NO returns… and if that is so I believe that eventually through the natural forces that occur within a publicly traded corporation, even a 2-tier one, those anemities will be reduced in some way one way or another in the end. You are right of course, that in reality it will most likely not be as “draconian” as I have painted it on my site (but if I kept it realistic it wouldn’t be fun to read). However, from all this information, could you not say that there is a correlation between the presence of Wall Street and the potential level of workplace quality that Googlers can expereince? I think it’s fairly direct, and independent from the offshoring issue. At the very least, you must concede that being legally responsible to produce profit and returns to a bunch of people who have handed you money will at least cause you to sweat about lavishing your workers with anemities shareholders don’t even enjoy themselves, MUCH MORE SO than if you weren’t responsible to anybody but yourself and the people who work for you. And therein lies the correlation… Wall Street, from a certain point of view, can be seen as a indirect yet undeniable force that restricts how good a workplace can become, even if the company is financially successful. It is not its intention to do so nor is in malevolent in nature, it just the way the system works.

    Said in another way, given the same two companies that are enjoying the same success, the one that is privately owned will much more likely be lavished with luxury for its workers than the publicly owned one, simply because as you stated yourself, the publicly owned one is a system that is designed to maximize productivity. I’m sure you will agree on that?

    Regarding the last bit about the blame on management, all of what you said is true. In a publicly traded corporation, nothing dictates VERBATIM that management should lie, cheat, rape, and pillage to achieve the returns that the shareholders want. However, you cannot deny that shareholders, through their legally given power on being able to replace management should they feel it necessary, can pressure executives to do their bidding. At the very least, their mere existence can be a strong motivator for management to achieve shareholder imposed goals through fradulent means. A simple analogy would be a parent pressuring their son to get into a particular university on the implied threat that is he fails, he will be disowned by the parent and lose all financial support. The son, fearing for his own well-being, cheats to achieve this goal. Do you absolve all “blame” on the parent for the cheating? Both are equally responsible (in the north american blame system), or and both are just victims of their own desires and the system around them.

  9. Dave says:

    I don’t agree, because as I mentioned earlier, the stock market is simply one collection of entities within a free market economy, each trying to maximize their own productivity. Privately held companies are also entities with the exact same goal.

    For example, I’ve worked at a total of five companies, four were privately held, one was public. I’ve seen no correlation between public/private ownership and quality of the workplace. The relentless pursuit of productivity is what results in the decline of the workplace, not the type of business ownernship.

    Privately held Google just happens to be a very special case in that because of its recent success, it does not have to try as hard as its peers to maximize productivity. They are an entity falling into that category I mentioned earlier that thinks it has already maximized its gains at this point. I contend that this attitude will change as its peers become visible in its rear view mirror, and that the change would have happened even if they had decided not to go public.

    About your last analogy of the parent and child, I would blame the child for not recognizing unreasonable demands and attempting to talk some sense into his parents instead of cheating to appease them. If talking sense into them failed, he’s honestly better off without them. There’s always OSAP.

  10. Terry says:

    And yet this relentless pursuit of productivity which (as you concede) causes degradation in the workplace, is amplified and legally enforced through a public ownership. You would not extend the correlation one step further?

    Since you’ve worked at only 1 private institution and 4 public ones, the discipline of statistics would dismiss your perceived absence of correlation as a fairly weak statement. As I have personally only worked at 3 public and 1 private, I would much rather speculate on theoretical ideas rather than the extremely limited emperical data that is available to us. But, I happen to agree with you here, there problably is very little difference in the workplace quality of the majority of privately held corporations and the majority of publicy held ones, since the majority of owners of private corporations in America are gung-ho capitalists who are in the business looking to IPO and get rich. (or, as you stated, just another free market entity trying to maximize productivity). In that sense, they are no different from the typical big-time shareholder, so it comes as no surprise that the environments of their companies are similar. However, get this: I really think that there are people on this planet, even in America, who don’t think along the North American Capitalist Paradigm, that money is the #1 value above all else, NOT necessarily because they believe they have maximized their gains, or have a family they can fall back on, but simply because they know that while money is important, accumulating it is not their raison d’etre, especially when that money may come at the expense of their freedom or their moral values. Of course, one thing can certainly be said of these people, they were never POOR to begin with, but they don’t need to be born with a silver spoon in their mouth either. They just have a Old Fashioned Lifestyle gene that dominates their thinking.

    I think Google’s owners are somewhat along these lines. That statement may be quickly refuted on the basis that they made a lot of money, but I personally feel they made that money somewhat effortlessly out of their own genius and a burning desire to follow intellectual pursuits for the love of science, as opposed to a burning desire to achieve wealth at all costs. This is why I like them so much and approve of whatever they do. It would certainly explain their apprehension to IPO, which I have confirmed is the result of pressure from 2 venture capital firms that funded it at the very beginning, and perhaps some closet capitalist employees who work for them (even though they try their best not to hire “Evil People”). And I suppose that under this limited context is where I have drew the correlation between public ownership imposing restrictions on how good the workplace can become. But the scope is in fact much broader than that. The Google owners are free to carry out non-capitalist thinking (deemed radical by some, but heartwarming to me) with a private ownership, but there will certainly be additional pressure to “Think Capitalist” with a public one. If I was was working at Google, I’d sure as hell point the finger at Wall Street for the loss of my anemities and intellectual freedom before anything else, simply because the investors are the ones propogating capitalist thinking into my envrionment. It’s almost like they are the Capitalist Police, enforcing certain ways and standards at a company that may very well be better off without them.

    The Body Shop is another example a company that somewhat mimics Google in the sense that the owner was never there just for the money, but once it went public, it was assimilated into the capitalist paradigms proprogated by Wall Street investors. The effect, as stated by the owner after the IPO, was that the company gradually lost all traces of intimacy and the values it once believed in, and in retrospect, the decision to IPO was a “pact with the Devil”. I’m pretty sure the employees who shared the same values as the owner saw a “degradation in the workplace” (at least in the sense that going to work was no longer a happy affair) amongst a LOT of other negative things.

    But at least, you have shown me that my original statement was weak in terms of its limited applicability to specific circumstances, that is, when the owner of the private company has a different set of values from the typical capitalist.

    Now, in regards to blaming the child, that is certainly represntative of a huge difference between our core philosphies… but I think I can understand where you are coming from much better by your stance on who is to blame in that analogy.

  11. Dave says:

    With little exception, every entity in a free market economy acts to increase its own productivity. It doesn’t matter whether the entity is an individual person, a family, a privately held company, or a publicly traded one. At every level you can always cherry-pick the exception, but the vast majority (we’re talking at least 4 nines) put themselves first.

    0.01% of 4 billion is a lot of philantropic people. 0.01% of several thousand publicly traded companies can almost be rounded down to zero depending on the error bars. That doesn’t mean a philantropic public company doesn’t exist (if you looked hard enough, you’d probably find one).

    You have it backwards, I’ve worked at 4 private and 1 public, but I agree with your statement about the sample space being too small. Ignoring the actual numbers, the point I was trying to make was that for every public company you name that has a poor workplace environment, I can name one with a good environment. Same for private companies. Ownership style is not the cause, workplace quality differs based on how close the work being performed is to unskilled labour.

    You say that there are people who choose not to accumulate money because it may come at the expense of their freedom or moral values. This part is my own strongly polarized opinion, but I think that’s just something that the non-ambitious and/or the people with financial safety nets tell themselves so that they feel better. When it comes down to it, a person can choose to not accumulate money only if they have that safety net. If they have no such thing, unless they’re very lucky, they’ll eventually turn into one of those bums you see on the street. It’s easy to talk about freedom and morals if you have a reliable worst-case scenario backup that you’re not afraid to use. The people in this category are the 0.01% mentioned above.

    Google’s founders are no different. It’s difficult to “follow intellectual pursuits for the love of science” when you’re a broke, starving Ph.D student. I’m willing to bet that their “do no evil” motto came around only after they started making more money than they’ll ever need.

    The rest of us really do not have this luxury. If the founders of Google, The Body Shop, or any other philantropic private company wants money from the capital markets (i.e. the remaining 99.99%), they’ll have to deal with the fact that everyone else is forced to look out for themselves first. If they don’t like this, then they shouldn’t be asking for money from the markets.

  12. Terry says:

    This discussion is certainly getting interesting and I find myself impatient to see the next response. One more and we are tied with the record.

    Well, actually (and this is on the side sort of), I would hold that a genuinely philantrhopic publicly traded company does not exist, since reading the book the Corporation: The Pathological Pursuit of Profit and Power that I mentioned before, but that genuiely philantropic private companies DO exist. But back to the main topic. I would hold there are more private companies with a higher standard workplace (and I don’t just mean anemities, more intangible things like intellectual freedom and a genuine fostering of intimacy would count as well) than public ones, even excluding the “exceptional” companies like Google. This is pure speculation without actual evidence but hopefully I can justify it.

    It may very well be that a public company, for the period of time in which it is successful, may also enjoy these said benefits (Cisco and its long gone intellectual freedom come to mind), but once the company’s situation looks grim, these benefits will be stripped with far more speed and indifference than if the company was private. You are correct that even a private insitution would do the same eventually, however there is the human intimacy factor in a private company that would mitigate the cutbacks. In other words, even though the private owner may suffer financially, he is free to do the “illogical” decision of protecting the current status quo on the belief that downsizing is not the right solution, but to simply tough it out and wait for the good things to happen. He loves his company so much that he is willing to skip the “obvious” decision to immediately cut back even though it may mean financial ruin for him if he does not. This would CERTAINLY not happen in a public corporation, such an owner could be sued for irresponsibly managing shareholder’s money. And even in the case where the private owner is indeed forced to cut back, he would do so in a more soft and gentle way, as opposed to a mechanized stripping of the company. I’m sure the investors, who don’t have to look at the employees in the eyes, will come out with a far more hideous cutback plan than the private owner, who, becuase it HURTS to see his own people let go, it HURTS to see his own people deprived of a good workplace, would try his absolutely best to avoid doing so.

    So, I will go with you on the statement that ownership is not the CAUSE of workplace degrdation but is certainly a amplifying factor by the way it has a tendendy of removing the element of human intimacy in a company, which in turn, would also affect the availability of materialistic anemities which, at a high enough level, could be given only out of benelovence and not as a productivity enhancer.

    Now, onto the other point that the non-ambitious/freedom-moral philantropist can only do so with the financial safety net. Well, that is something that after 1 second of reflection, must absolutely be true. So perhaps I was a bit too hasty in stating that people who don’t just care for money don’t necessarily need to have a family to fall back on. That is most likely a very important prerequisite to develop such a way of thinking. And your point on the founders of Google is well taken, they most likely had far more visions of raking in loads of cash when they first started out than they do now, however it is my contention that they have always been fundamentally different from the “tributes to capitalism” running abound in corporate America. I’m sure that such capitalists, if they were the owners Google right now, would not have given their employees such a luxurious environment, and would have hoarded the profit for their own self. After all, nobody can say when you are too rich, but at least Google’s owners had the goodwill to use their mega-profits on something else other than themselves.

    And while you are certainly right that if you don’t like the responsibility of being a publicly traded company, then don’t ask for the money… one must wonder whether the owner of Body Shop envisioned things turning out the way they did. She was assured by investors that things would not change at Body Shop, that it could continue being a reflection of her ego and moral values, but just look at what happened. The company was stripped from underneath her and now she is being paid a 80 day/year salary as a “consultant”, when she was the one who founded the whole company. You may hold the contention that she is to blame for being so naive and not doing the proper research on what it REALLY means to ask for the market’s money, but in my eyes she is a victim of the capitalist system. Body Shop was doing fine until the capitalists got there, but to survive aftewards, it was decided that only capitalists were fit run the joint. Well, that’s just the way life is. The process of mechanizing and systemizing everything, at the cost of the human soul. It’s a trend that I am seeing all around me, I don’t like it, and I wonder if it will ever be stopped.

  13. Dave says:

    The intimacy argument is interesting, but you don’t have me convinced that it has anything to do with public versus private ownership. Instead, what you’re actually saying is that a small company has that intimacy, a large one does not. However,

    Small company implies private ownership, but private ownership does not imply small company.

    Large company does not imply public ownership, but public ownership implies large company.

    I’m even thinking that the intimacy argument is dubious in that it is simply a property of a small company rather than the root cause of what, on average, gives the employees of a small company a higher standard of workplace.

    The root cause is instead (I sound like a broken record) the desire of all entities to pursue productivity. Increase productivity, and efficiency increases, which pushes more jobs within the company closer to the realm of the unskilled. Unskilled jobs naturally get a lower quality workplace, until the job completely disappears because it gets outsourced to a country where unskilled labour is cheap and plentiful.

    With a small company, the shareholders must be extremely careful about who they hire because their pool of money is small. In particular, the productivity of each person they hire is usually several times that of a normal person. These people automate as many unskilled tasks as possible, leaving it so that the work they do perform is the highly skilled type. Highly skilled jobs get better perks and more intellectual freedom.

    As a company becomes larger, it is more difficult to ensure that every person they hire is of this type. More importantly, because of human interaction factors, a larger number of this type of person does not necessarily translate into higher productivity. So overall, the company as a whole has lower productivity per head.

    This is the key to why a larger company, on average, has a lower quality of workplace. To maintain quality at the same level, tangible perks and intellectual freedom must scale linearly with the number of employees. It may even be more extreme than linear, depending on the level of quality they want to maintain.

    However, productivity (and profit as a result) don’t scale in this way as more employees are added. It is likely to be more of a logarithmic scaling, which means that at a certain point it will be impossible to maintain the same quality of workplace without losing money. When something like this happens, it doesn’t matter how philantropic the owners/shareholders are, they’re going to start putting themselves first again.

    Right now the owners of Google say that the cost of perks are less than a rounding error on the financial statements. As of March 31, 2004, they had 1,907 employees. What happens when they have 10x more employees? If they intend to maintain the current quality of employee perks, I contend that the cost will be at least 10 times larger. For that still to be “less than a rounding error”, their revenues will have to be at least 10 times larger and all other expenses will have to be at most 10 times larger. Even if they pull that off, what if they grow to 50 times more employees? 100 times?

    It’s definitely not the type of business ownership, but the size of the company (in terms of # of employees) that determines quality of the workplace. It just so happens that publicly traded companies are usually large, but a large privately held company has the same problems.

  14. Terry says:

    That is certainly a good argument in disassociating the ownership type from the intimacy factor. But size is just another factor, along with ownership type, even though the two are correlated. A large private corporation is obviously going to be less intimate than the small one, but what of the case of the equally sized public corporation and the equally sized private one? Would you still believe that a difference in the tendency towards intimacy is same?

    No matter how you look at it, the nature of a public corporation is a strict enforcement the systematic capitalist ways that indeed, as you say, is the a reflection of the natural desire of all entities to achieve productivity in a free market system. However, this desire does not comprise of what we are entirely as human beings. Morals, kindness, sympathy are also part of who we are, and yet it has been shown time and time again throughout history that public corporations leave absolutely no room for such things, unless such well-natured acts can be proven to benefit the corporation financially. A private ownership has the POTENTIAL to be more humane on the basis that it is a direct reflection of the owner’s own ego and values. If the owner is a benelovent philantropist, then that is what the company will become through his actions and the resulting workplace. If the owner is another tribute to capitalism, then the company will resemble the publicy owned one. Once the ownership type turns from private to public, this reflection, over time, will cease to be that of the owner and subjugated into the capitalist model. The public ownership therefore, eliminates the potential for “eccentric” humane behavior” through the enforcement of capitalist ways. And there exists the correlation… the “amplifying factor”, the “humane handicapping”, the “capitalism enforcement” – the ownership type is the means by which it happens.

    It can always be argued that the stock market and the concept of public ownership is nothing more than a product of our own greed and desire to acheive wealth, and thus you dissociate capitalist trends from the stock market and instead associate it with the generic entity which tries to maximize productviity. Well, that is just a different way of seeing things, but to a lot of people in this world, they will point the finger at Wall Street. Ironically, I think your view is nice in the sense that it really does get to the root of the capitalist movement. But when we are talking in cases like Google or Body Shop, it is difficult to hold the stock market innocent in all of this simply becuase it is the product of capitalist thinking. By virtue of it being such a prodcut, it should also be associated.

  15. Dave says:

    You’re right, size is just another property, not the underlying cause.

    Instead, the cause is the number of owners/shareholders. It doesn’t even have to do with whether the company in question is a corporation, the same rules apply to partnerships equally well.

    This is why I think that book you’re reading is kind of inaccurate. It points at the act of being a corporation as being the cause of dehumanization when this is clearly not the case.

    The more owners/shareholders that are involved, the greater the probability that the majority vote will consist of people in that 99.99% that are forced to look out for themselves first.

    Public ownership automatically means a large number of shareholders, but private ownership can go either way. Law firms and accounting firms are one example.

    I notice that whenever you talk about private ownership, you say “owner” (non-plural), which is probably only true for tiny home-based businesses. Even in Google’s case, they had many shareholders beyond the two founders. As you mentioned, the VCs were the ones that pushed them in the direction of going public. The VCs represent people in that 99.99%, just that at this stage they probably don’t represent a majority vote at Google.

    The stock market doesn’t enforce capitalist ways, capitalist ways naturally and automatically win out when there are a large number of owners/shareholders, regardless of public or private ownership.

  16. Terry says:

    Hmm.. I agree with your last statement only when the number of outside owners/shareholders become many… that’s when the dehumanization trend really kicks in, particuarily when it comes to the working environment. Outside shareholders don’t have to face the emotional pain of the workplace cutbacks, but inside shareholders do. The stock market is the primary method by which ownership can be trasnferred to a large number of outisders. So the stock market doesn’t enforce capialist ways per se, people do… but it certainly is the primary means by which it is allowed to happen.

    I think maybe we’re okay with the facts but just seeing things from a different angle here. The book was certainly convincing for me. Did you know public corporations were outlawed back in the British Empire days? Many scholars predicted that this model of business ownership would only encourage people to further indulge in selfish and immoral behavior, particuarily when there is a “limited liability” clause which protects outside shareholders from being responsible past the amount they invested. But over hundreds of years, the forces of greed has gradually withered away, one by one, any kinds of governmental restrictions on a capitalist-model business.

  17. Dave says:

    I don’t think it has anything to do with inside/outside shareholders. As long as the majority vote consists entirely of people in that 99.99% that need to look out for themselves first, there will be a problem. Talk to anyone that has worked at one of the big 5 accounting firms, and they’ll tell you that their workplace is not the happy shiny one that you envision, even though such firms consist entirely of “inside” shareholders.

    It’s not really useful to point to what used to be outlawed in the “old days” as any sort of justification. e.g. At one time or another, alcohol was banned, women had no basic rights, etc., etc.; things which we now know were mistakes. Can you give an example of something that used to be outlawed, is no longer outlawed right now, but is generally accepted that it should be?

  18. Terry says:

    The people I am talking about are those who don’t work at your company that have significant voting power. They are die-hard investors concerned about ROI who are disposed to treat your company like an asset, not a place with living human beings. The law even encourages them to think that way, to think “it’s just business”, with the limited liability clause. Even if you have a die-hard capitalist employee working from within, at least they would have to face the emotional consequences of amoral decisions, and could be held responsible for ammoral actions. The other point which I have forgotten to mention is that public ownership allows companies to grow to a mammoth size that would seem unfeasiable with private ownership. It is the means by which it happens.

    The point about the old days was not a claim that scholars were “right”, but that people at one time have viewed the public corporation model as an Evil thing. We can’t be so arrogant as to believe what is happening now in America must be the “right” thing, on the basis that we are more advanced or in the future. I drink on a weekly basis, but can you really say there is no argument for banning alcohol? Drunk driving? Losing your life to drinking? All the propaganda and education in the world cannot stop this from being a problem. Women’s rights, while much harder to defend (and in which case I cannot side with the past), does have the advantage of creating stability in the family, at the expense of a gender’s freedom. Confuscius was a strong advocate for hiearchy in the family, because without it people would be disposed to just bicker with no foundation on who should be the one making decisions. Is his prediction completely wrong? Look at the divorce rates. The idea is not that Confuscius is “right”, but he has a POINT, much like the idea that public ownership is not a good thing also has a POINT.

    One pattern that seems consistent throughout history is the deregulation of society and the empowerment of the individual. That is, people are the king now, not society, and that pattern sure reflects itself through the mass amounts of destructive greed that are allowed to run amok in this world. Indeed, some of it is almost self-destructive, such as corporate scandal cases such as Enron. There will always be people who beliveve that the public ownership has NOTHING to do with it, because it is the management themselves who make the final decision, regardless of whether there is a group of outisde people who are pressuring them. But since I don’t believe in free will, and I don’t believe things are that simple, you can hopefully understand how I see things differently. The other point is that Enron would unlikely be able to reach the size that it is without some form of public ownership. So it’s state of existence when it committed the act, was partly thanks to the stock makret.

    There are anti-globalization anti-corporate protests all around the world (usually the humane and radical thinkers)… and at the same time strong advocates of globalization (usually corporate leaders who have made a living off the system) who lobby governments day in and day out to remove all kinds of restrictions on what they are allowed to do. They wil never reach agreement. Both sides have their reasons to believe the way they do… and this discussion is likely just a microcosm of this feud. However, if the corporation’s power is not curbed in some way, eventually the laws will give them too much power to do whatever they please. Much like the Catholic Church or the Roman Empire, they will eventually ascend to a omnipotent like figure with the absolute power to control our lives. Unfortuantely, unlike previous rulerships where certain moral philosphies are allowed to prevail, the corporation really knows nothing more than making profit at all costs… do you really think it’s wise to let such an entity become that powerful? That is debateable.

    Dave, I think no matter what you’re always going to find some reason to not believe a certain kind of way. The image the book paints is not 100% bulletproof, but it certainly isn’t soft flesh like you . Instead of me just echoeing the book, maybe if you ever have spare time at Chapters, glance through it a bit and tell me then what you think. I think I may be exaggerating the points stated in the book for the sake of argument, but give it a brief read and let me know what you think…

  19. Dave says:

    People that know me well know that I like to identify the source of things, get at the root of problems. It’s one reason why I’m a good technical problem solver, or at least I think I am, heh. It’s also one of the reasons why I didn’t do so well academically in the first couple years of university. While people were busy memorizing equations or memorizing solutions to problems, I tried to understand where the equations came from, why they are the way they are. Unfortunately I was either too stupid to do this in the amount of time given, or in some cases they didn’t have an answer to the “why” yet.

    I’m sure all of the examples given in the book are both heart-wrenching and true. But the point I was trying to make in all of the above is that isolating public ownership and the corporate structure as the driving factor behind degredation of the workplace and dehumanization is highly inaccurate and a waste of time.

    The reason is because public ownership is simply the most potent manifestation of the need for all entities to increase productivity and look out for themselves first. These needs manifest themselves equally well in privately owned companies, as I’ve shown above.

    Let’s say through some magic you are able to enact worldwide government legislation to ban public ownership. This effort will be futile because eventually a different, though equally potent manifestaion of the same inherent needs will appear. I can guarantee that someone will write a convincing book about this new manifestation as well.

    However, if through the same magic you were able to get rid of every entity’s desire to put themselves first, you would have nailed the source of all your complaints.

  20. Terry says:

    That last point is a very good one, and I have often wondered as well if the government simply banned public ownership, whether or not it would reappear as another manifestation. I’m sure it would… but at least the banning would have been an opposing force and have curbed globalization to some extent, futile as it may seem. But the same argument can be made for banning addictive drugs. Why bother to ban drugs when there’s always someone stupid enough to throw away their life and lead a life of chemical pleasure? Might as well let those people be, after all, unless you can get rid of people’s irresponsbility and stupidity, there’s no way you can stop the problem, it will just come back to haunt you. But that does not mean the government should not do anything to at least fight it.

    I think you’re in agreement here that the public ownership does indeed make things worse, even though you didn’t state it verbatim, because if it didn’t, why would you believe capitalists would try to make another manifestation of it? Wouldn’t human greed be able to accomplish their exact same goals through a private one? They need the system, past the private ownership, that allows them balloon to unbelievable sizes in order to maintain growth. In cases like Body Shop, it’s not even the owner who originally wanted to go public, capitalists come up to her and sweet talked her into it. Without the public ownership system, capitalists have one less tool to accomplish their goals.

    One thing that I would like to point out, is that while human greed is part of us since the day we are born, it can be nurtured and amplified through the reward system that the world presents it. That is, if the policies and laws and the ownership models available to you pat you on the back for looking after yourself and slap you on the hand for being socially responsible, greed will amplify on a global scale. So actually, putting down strict restrictions on what can and cannot be done (eg. banning public ownership) may indeed have the mitigating effect I’m looking for. Ironically, in this case trying to get to the root of the problem, getting rid of every entity’s desire to put themselves first, is truly futile, because you’re trying to talk individuals into going west when the whole world they are born in tells them to go east. Instead, you must change the system, and through government limit the power of individuals to change the system to fit their own needs. That is how the public ownership, after all, came to existence in the first place.

  21. Terry says:

    By the way, I must PRIASE you for your academic behavior in the first two years of univeristy. That is truly remarkable, becuase it shows that you were more concerned about the learning process than the final result. I couldn’t even bring myself to do that… unless the material was something I really liked. What you did was rare and TRULY commendable, but what is heart-breaking is that the implication that you abandoned this paradigm and simply went for results in the last two years, tells me just one thing: something needs to be done about the system, not the individual. If a person enters university with a dispostion not only just to get high marks on tests, but instead to really LEARN by asking why and getting to the root of the equations…. but time and time again gets beat by the test-taking experts who treat univeristy nothing more as a stepping stone to big money, and the individual finds out the only way to compete is adopt the same strategy, do you not hold the system as the “cause”, and not “individual stupidity”? Of course there will always be that super-geeky indian kid who magically scores 98 on every test and also seems to have a magical grasp on everything. But for normal people like you or me, it’s simply impossible to compete with others unless we adopt the same efficiency strategy. Maybe such a similar analogy can be brought to the disucssion at hand?

  22. Dave says:

    I’ve always agreed that public ownership makes things worse, but that was never the point I was trying to make. To summarize, my POV since the beginning of this comment thread is:

    – Capitalism and greed can sometimes result in people doing irresponsible things.

    – The people that actually do these bad things are responsible for their own actions, despite the system being set up to “tempt” them in this direction. This is where your “no such thing as free will” thing comes in, and where our opinions differ the greatest.

    – Capitalism and greed are a result of every entity’s inherent desire to increase their own productivity, to do the least amount of work while obtaining the most personal gain. This part is human nature, and cannot be changed.

    – The stock market (public ownership) is currently the largest manifestation of this inherent desire.

    – You can try and curb this desire through regulation, but given enough time, the system will approach a configuration that resembles or surpasses our current state. This can even happen if private ownership is the only avenue available after all regulation is put in place. People will find a way because of their need to look out for themselves first. Look at accounting and law firms – privately owned by internal shareholders, but they embody the same things you hate about publicly owned companies.

    – It is possible to write books about the evils of public ownership and debate about it until everybody is blue in the face, and sure, they’d be right, but the whole exercise is a waste of time. Getting rid of public ownership dampens the ability to fulfill the desire in the short term, but won’t stop it because it doesn’t get at the root of the problem. As you know, my natural inclination lies in asking “why”, the purpose of which is to identify the roots and origins of things. I really couldn’t care less about anything else, because it all disappears when you kill the root.

    About the university thing. What actually happened in the last two years is not that I abandoned this “paradigm”, but that the CE program at Waterloo is structured in such a way that the later years move away from the purely theoretical. Stuff that I have difficulty wrapping my head around because it is usually so abstract. Some people thrive with this kind of stuff, I don’t. The less theoretical stuff was easier not because I stopped asking “why”, but because the answer to “why” was more obvious and more satisfying.

  23. Terry says:

    That’s a perfect summary of what has transpired so far… I guess any further discussion about capitalism and the stock market would just be redudnant… so I guess it’s going to end at 23, or 24 maybe. But maybe you won’t think “blaming” the stock market is so comically absurd? Well maybe you still think it’s absurd, but I hope you can eliminate the comical bit, because a lot of educated people out there sure don’t think it’s funny. Anyways you’ve already started a new post so I’m guessing you’re pretty much sick of this topic by now.

    Just something totally on the side. There’s this video game store here in Taipei, one of the very few that dare sell pirated PS2 games, and the guy who runs the place looks EXACTLY like you. In fact, my first split-second reaction when I first saw him was to just blurt out “Are you David Sze?” until logic kicked and told me the chances you’d be selling pirated PS2 games in Taipei was pretty damn slim. But holy crap David, this guy looked just like you, even his paranoid nature where he kind of looks over his shoulder every 5 seconds and once refused to sell me any games because there was this security guard walking around. Not saying you’re totally paranoid, but the name of your site (distrust) and your fascination with computer security sure gives me a picture along those lines. Anyways, that was just something totally useless for you to read. I’d like to take his picture & show you but somehow I think he wouldn’t it take it very well….

  24. Russian CO-OP says:

    You can buy Google’s Gmail account invitations from eBay (just search gmail). That’s another scam they are pulling on people.

    BTW, direct quote from Terry’s website “D.Fish, I would suck your dick right now and let you fuck my girlfriend if you wanted to”
    Unless that terry in the menu is different terry, then my bad.