The Shareholder Supremacy
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Cause the media hello and welcome to Better off line on your host. They tron.

In the next two episodes, i'm going to walk you through a theory I have about how the tech industry and italy at large became the playground of assemble, do nothing management. Dictators that see human beings is assets and the customer. It's kind of an annoying diversion from growth.

But before I go any further, please check the episode details of this for you all that has sources for everything i'm talking about in this and future episodes. I want you all to be able to follow along with everything i'm saying. Don't take my word for IT.

Take the many, many links that i've included. It's important that you're just as informed as I am here. But now to the episode, and I promise you, once we've done with this two party, everything that's happening, we will make a little bit more sense even though IT all feels just chaotic and expensively stupid, disconnecting from reality in many ways.

I've been working on this episode, and it's follow up for years watching these trends, getting steadily more pissed off as you probably heard, unable to see the big picture because i've been picking up things as I go. Even since twenty, twenty, when I started right in my newsletter, there was something going on that I just couldn't quite get. It's been really hard to understand how companies like matter can run terrible companies with decaying services that are also somehow wildly profitable.

All or how matter microsoft, google keep proliferating this unprofitable, unsustainable generate A I tech that takes war from the deza s strains of power grades to produce these deeply mediocre outcomes by still incredibly, vogue promises and then see their stock Prices go up despite them not making any money. And i've been craving this way to explain the whole growth at all costs mindset. I've explain what IT is so many times, but there is an answer.

It's fairly simple. The customer and by extension, the service provided to the customer isn't really the primary concern of many, many companies these days. It's all about shareholder value.

And all this may seem a little bit obvious. IT requires also a little bit of a history lesson to really explain how profoundness damaging what I call the shareholders supremacy really is. And I know you're probably gonna think, well, we all knew the increasing shareholder value is what talks about, right?

I really need you to understand what that means. Our journey takes us back almost a hundred years long before the creation of the internet, the iphone, facebook, the Better offline podcast. You know, the major things in the tech industry, we're going to talk about the figures that predate the villains i've cover in the past, the old man, the sound opposites, the propagate, recovers of the world.

But despite their historical distance from this current era, these past figures are important to know and understand because they fundamentally shaped the culture and the psychology of today's managerial elites and crucially, built the incentive structures that guide companies in the hell. These stories explain the often, paradoxically, motivations of bonn capitalism, where those who make short term decisions that invariably result in long term agne and in many cases, decline, see a big reward, where, as those who build sustainable businesses that actually innovate and don't treat their customers and employees like that are ignored, if not actively malian, for a lack of growth. But like I said, it's time for a history lesson in one thousand sixteen, the four more company had idea to use its surplus capital to invest in new plants to increase productions of ford's model t car, which the company has continually made cheaper, or keeping pages for its work as high.

Ford, who I should be clear, was a poor, able piece of shit. Thank these building in hell right now intended to cut dividends to shareholders in favor of investing in its employees and infrastructure, which and good minority shareholders already in sense that ford prioritized the company's cx and its employees happiness over making the stock Price go up, leading to the famous dodge versus ford motor company case that would define and ultimately doom modern capitalism and in many ways birth the growth at all cost the economy. The michigan supreme court found that a business corporation is organized and Carried on primarily for the profit of the stock holders and that the powers of the directors are to be employed for that end, and intimated that cash surpluses should not be saved to invest in upcoming projects, but distributed to shareholders, because four had shown that IT was goods making money.

What was directly forbidden from lowering Prices in raising employee salaries and forced the issue a dividend by a court. That's the free market, baby. That's how we used to work. And I guess that's how IT works nowadays. Anyway, to be clear, the statement around corporations duty toward shoulders was made a bitter dict. This means that was not actually legally binding despite over one hundred years of people acting as if IT was citing IT in cases using IT as a justification to destroy so many lives in favor of growth. This statement, not even a legal precedent a statement, was the beginning of what I call the shareholder supremacy.

When companies moved away from building lasting, sustainable companies that created things, instead became these nasty growth pitches that focused on pleasing shareholders, IT earth, the short term mindset focused on increasingly abstracting a company away from the production of goods or services and promoting growth mechanics that increase stock valuations and made for Better baLance sheet. The cult of shareholders supremacy, which some people call shareholder primacy, is one disconnected from production. And I argue him many itself.

It's this weird, continual shell game where companies do things not to produce like an outcome in real life for a thing that people like can pay for, but to manipulate investors in the markets themselves, though at this point, kind of feels like investors and markets that kind of been on the cn. These tactics should be immediately recognizable to anyone who's followed my work over last few years. If a company share Price declines in management smells a shareholder revolt, they can produce their numbers by laying off a few thousand workers, adopting of special new technology like generate F A I or the meet of us, and then doing a big media blitz to show everyone how cool and growth hungry they are.

Or they can do the really annoying thing, which is a share buyback programme, where the company just buy its own stock, which then bumps the value of the stock. That whole situation, I really need to look into more because IT doesn't seem good. And also on top of that, that money is being diverted away from research and development and employee salaries.

And IT was this movement, the shareholders supremacy movement, that created the nebulous creature known as management. I realized there are many definitions of management, but the manager we see today is a figure head that exists to increase company value and make speeches rather than have any kind of domain expertise or bonfires. They're just a person with the ability to move numbers around in point of people and say, get this done even if this in this case means make something worse as a means of cutting costs or lay off a few thousand people.

So that number go up in the eyes of the shareholder is the premises. The C. E. O of a take company isn't someone that bills are investing or deliberates technology, but a kind of stage magician account hybrid that uses a combination of slight of hand, and they promises to convince those around them that a company is a future, occasionally resulting in the company developing something involving technology.

Yet IT took decades for the damage from ford verses dodge to really set in when, in one thousand nine sixty, a horrible little man, a goblin creature worse than hell, called jack welch, would join a company called general electric. One founded cofounded, they should say, by light b. Invent to Thomas citizen to sell things like light bubs and refrigerators.

And yes, I know a bunch of military stuff too. But putting that aside for a second, watch originally joined the companies, a junior chemical engineer, a job he lasted him for roughly one year before he was given the power of the manager. I really cannot express enough how bad jack welch was for the world, his damage to the world itself, to global economies, that the hundreds of thousands of people laid off because he told people how to do this.

He is on the scale of a war criminal. I'm sure he has LED to actual deaths, but he's definitely ruined lives. He showed corporate amErica how unprofitable having a soul was.

He is the, quote, Robert Evans, on behind the states, the reason you were laid off, you and every single other person who was laid off to make a company more money, but i'll get to them. Eight years into his tenure, welch would become the VP in head of general electric plastics division. And to quote David galaxies, the man who broke capitalism believe the business was a Darwinian competition where he was Better than the rest, which caused him to push G.

E. To the limits. In practice, this meant that watch, as the manager of a factory trying to develop a new kind of plastic in one thousand hundred and sixty three, continually pushed his team to move faster, run more experiments, whatever IT took, which LED to a massive explosion at the factory, thanks to welsh pushing his scientist to use untested process where oxygen move through a highly volatile solution.

If you've listen to the behind the bus this episode, don't worry, i'm not gonna over all of them and more nasty little take now, kind of like Roberts said on behind the bastard, one would think that you get fired for blowing up a factory, especially if IT was your decision making that lead to the explosion. But this story, an said, became a kind of noxious management consulting fable about failure and was, to quote David gillis, a point of pride for welch, one that demonstrated a healthy appetite for risk. Welch became gees head of plastics five years later in nineteen sixty eight, and reduce his aggressive and dangerous tactics to grow neural, a kind of plastic as well, suit for things like electronics, into a billion dollar business.

And crucially, becoming head of plastics gave welch his very first stock options, and potentially his first direction, which in turn began his obsession with stock valuations. And i'm, of course, referring to the stock options giving him that obsession. In one thousand hundred and seventy seven, welch was one of a chosen few in line to take over.

Then see a redone. I was handed a series of business minutes to run as a test to see if he had IT in him, including g appliance businesses. I'm most important of all, G, E credit. I'll get back to in a minute because it's extremely bad. What happens with that?

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Good morning, Steven. Have you done something new with hair? IT looks amazing.

They don't have the slides clue. You will have a sleep drilling on your pillow not ten minutes ago. Yp, switching and saving with guo feels just like that. Get more. get.

As galas recounts, welch decided that despite its profitability and continued growth, appliances would face competition from overseas and that the right move was to start laying people off. This was a huge success of the company in so far as IT boosted profits. Another divisions copy his idea, great, fully firing thousands of people from a company that grew successful by investing in making itself a great place to work.

It's so good. I love all of this. IT makes me happy. I don't feel angry at all. Anyway, to quote gill's welch, dispense with the notion the mass layoff s were a measure of last resort, and labor was a cost, not an asset.

Before welch, layoff s was something that happened when the company was collapsing, not as a means of boosting one's baLance sheet. Thank you, jack welch. Thank you very fucking much.

I'm actually not being angry enough here. There is no way to show how angry a person should be. A jank watch for this.

I hope he burns in god damn hell with Henry kiser and a ron reagan and magic shire and the rest of these bastard. I should do a shot around the assemble that doesn't good. Anyway, forget all that for a second.

We have a podcast record continuing the story about this piece of shit. Welch would become C. O in one thousand and eighty one, and the space of two years would lay off over seventy two thousand people. One time to keep with employ was stack ranking, also known as the vitality curve.

Or as you soon understand, why rank and yank, where high ranking managers were forced to rank their subordinate and fire the bottom ten percent, this tactic latest spread to and poison countless other companies, including amazon, google, blizz and microsoft, which has since stopped using them. It's worth knowing, though, that not every implementation of stank ranking usually results in immediate payroll cuts. Those perceived as low performers may be denied bonuses or raises or issued warnings or part on a performance improvement plan, which is almost always a precut into a fire and kind of like taking a break from a relationship or they just encourage the level bullet into doing so.

But even in the most benie for like of a Better word form, it's a pretty horrendous management tool. If you have a team of ten excEllent workers, but only I can get a bonus or a positive ranking, you have two left out who are considered inadequate, not based on a limas of whether they're they just, but whether they are not as good as their jobs. Other people, you pretty much guaranteed to kill marland cohesion, but perhaps that was the point.

Well, he is nasty. City philosophes have deeply damaged the concept of management itself. Turning managers into these tiny little accountants that see labor as well to did as a cost center and managers is this protected class above the fray.

They don't do work. They tell you to do work. Their job is showing your work to someone else and saying it's theirs. They're the ones telling you that you must come back to the office despite the fact that you can't tell what the hell they're doing all day. They're there all the time, but they don't seem to produce anything other than reports.

These people are a direct symptom of the poison in the veins of capitalism, which I know is far from goddam perfect, but it's so much worse. That was caused by jack welch, who reframed the definition of a good company to mean one that grows profits while controlling labor costs. And this is how jack welch got the nickname neutron jack, referring to the thermo nuclear bomb that kills people.

Infrastructure tanked. But I mentioned you credit earlier for a reason. G, E. Credit was where jack wells would really make his marking get into the guts of the business. General electric was at a time a reliable, profitable and sustainable company. I was able to fairly easily mobilized capital, which, of course, jack welch loved, claiming that compared to the industrial Operations, I did know this business seemed an easy way to make money and that you didn't have to invest heavily in R, N, D, build factories and bend metal to make money off of credit. In the first few years of his tenure, welch would aggressively expand, according to David galaxy, is the man who destroyed capitalism.

G credit, buying up companies that had nothing to do with manufacturing, including kito, p body and investment bank, that would eventually turn out to have falsified three hundred and fifty million dollars in profits, a thing that also didn't get jack welch fired. J capital would expand internationally, ballooning to three hundred and seventy billion dollars in assets by the time that welch left the company in two thousand. One, according to galleys, on likely referencing A C, N, N article and include in the links at one point, g capital was america's largest equipment, lisa, losing hundreds of thousands of vehicles handling credit Operations for companies like codec, becoming a backbone of america's increasingly debt ridden economy to go galeras.

But the time that watch left gee capital, effectively a giant unregulated bank, investing in all kinds of risky debt instruments, including insurance products, credit cards, I think even like thai auto loans, it's so weird. And crucially, watchest legacy is one where, at the time he was considered a genius that had taken general electronics market cap, which is just deep, some of all available shares from fourteen billion dollars to four hundred billion dollars, all through a very specific kind of financial tRicky, where g would move things around, laying people off, buying new company is selling old companies, getting into new industries to match the numerical analysis c expectations and make earnings targets in a form in quite embarrassing peace. From nineteen ninety, seven years before welch would leave in g would credit would actually lead to its collapse in some levels.

Reporter john Karen describes how g capital grew by seeing new opportunities, immediately growing a new business in adding new market IT could taking advantage of capital, low cost of funds at one point, both leasing equipment to companies and buying IT back refurnishing IT and selling IT to other companies, which isn't necessarily a bad business at this point. How many got down businesses? Can you be in jack where you can be in a your burning in hell? Want a shame?

In the space of a few decades, well had taken general electrics from a company that made light bubs and refrigerate is in plastics, to one that continually play with the numbers as a means of boosting its stock Price, including a ten billion dollars stopped by back in nineteen and ninety. And the new york times is john allusions. O at the g was only investing two point four percent of its revenues in research and development, nearly a full percentage point below in the national average at the time.

At this point, I really wanna take a step back and just point in that, which is this was the first company that really just fucked with capitalism. And there's a whole separate e episode. I wanted to in the economist note in freeman, who is also a gunbattle, also hope is burning in help anticipating te what g went from what g became.

G was able to raise these funds. They were able to grow so big and do this stuff because their company was so reliable, they didn't have terrible turn over. They had happy employees.

They had sustainable products. They had their own products, their own patents, they owned. They had scientists at work there for decades.

And then jack, well came along and destroyed all of that will make king IT quote a Better company. But the was company. This is the man who taught the market how to eat shit and love IT. I am sorry that's gross, but that's really what we're looking at here. To be clear at this point, general electric was an absolute dog of a company.

As David geller noted in a redit thread, wilge Operated a time before sabin's oxley, a sweeping series of financial reforms institute IT after the non scandal that required companies to do these annoying little things like disclose off baLanced eet financial arrangements. So know a series of loans or a credit agreements you made with someone that are not on your baLance sheet. I have no idea how that was legal, but and many other financial disclosures were also required that would have likely made what jack watch was doing before this a lot harder to play, which well claimed in two thousand and two, would suck risk out of the system and cause people to not go for their DRAM.

Growth way, a part in IT, jack, but also wrong. These things only made people get a little bit ever. But welches ten year was one that destroy general electrics ability to innovate while turning IT into one of the most wildly profitable companies in the world. Although this nyalong tic form of capitalism, where growth is really all that matters, even if that means making worse products, constantly entering an exciting industries, reducing spending in resurgent development for the products that make your company's name, outsourcing multiple parts of the company to avoid paying benefits and higher american wages, and generally treating human beings like an an animal asset and yeah, you're thinking, this sounds like every companies, this is why this is the guy.

As a result of all of this, when welch left general electric, IT entered a prolonged period of the client as IT became obvious that IT become as gallais code, a giant, previously at least unregulated bank one Operating in too many industries in a new regulatory environment that worked against them. General electrical, an exploded messy asset portfolio, was central to the two thousand eight financial crisis, with g capital over exposed to the crisis, while also invested in sub prime mortgage that would eventually see the company find one and a half billion dollars by the S. C.

C. The g would still make nearly half of its profits from its financial ARM. In twenty thirteen, IT would also sell off most of IT of twenty six and a half billion dollars, staying in twenty fifteen.

And while one might say, wow, this was a great moment when the company moved away from jack volta's legacy, the company with them proudly announced that this would allow them to return ninety billion dollars to investors. In the former, stopped buybacks and dividends by twenty eighteen promise. I'm not actually sure to have a cap though. IT recently announced the planned a fifty billion dollar by back in may. No, what is just kind of seems like a cn.

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I realized that this was an extremely long and arduous history lesson, but it's necessary to express the incredible evil and darkness that was jack welch and his horrifying legacy is poisonous philosophy, that everything must grow, that the value of the company is only that which IT returns to the shareholders, that human beings are a cost to be moderated.

These are all things that have been inherited by companies, you know, today, just in tech as well. But I mean, look at matter, look at google, look at microsoft. Microsoft, I think, this week laid off over a thousand people, and they posted over over ten billion dollars profit.

Maybe more than that. It's all jack welch. It's all M, B, S. Following jack welch during jack watches teniet, by the way, he went something that I found really gross on top of all the other stuff that was gross and IT was something that David gillis referred to as a campaign against loyalty, claiming that the psychological contract has to change and that loyalty to jack welch was not giving time to some corporate entity in return for shielding and protection from the outside world.

You know, some kind of value exchange where your labor is traded and they keep you because you could at the job, you want the job down. Well, no, no, no. What jack welch believed loyalty was was an infinity among people who want to grapple with the outside world and win, I assume, by blowing up factories and acquiring pRogerin investment banks.

You know, moving faster, breaking things, the meritocracy, making the numbers look right, all of these things that you hear, all of these things that jack welch did have been picked up and run with by companies that you've worked for, companies that you've worked with, companies that you've seen fire people as they make billions of dollars. Where do you think these people learned IT from? Where do you think people gains the ability to run a company that binged and purged assets like google, taking on entirely new unrelated business lines as a means of expressing growth in the markets like facebook?

Dep, when IT acquired oculus and what APP, and still, despite your legacy being one of object destruction and recklessness like mark zucker. G, you still get called an amazing leader of the new york times as recently as twenty twenty two, after hundreds of articles of multiple books talk about how bad you are a business, they still, people telling you your good. Why do you think mark zuker?

G is still celebrate. Why do you think that banker gets to fuck around on a goddamn half a board, sAiling across with an american flag and people go, oh, mr. Zc berg is so impressive.

Fuck that guy. Fuck all. I'm sorry. I know i'm antic. I'm no, i'm pissed. But when I read this story, back when I see this, it's like watching someone give a disease to someone else deliberately and then check to make sure they're still sick years later.

And the anger I feel, as i've mentioned in other episodes, is because jack well, is also the reason why there's not as much money going to research and development. He showed take companies how to do IT. He showed other companies how to do IT. This man is the outbreak monkey of the world economy. His dark influence has deeply poisoned american capitalism and created an environment where the only good companies are those that grow forever. His accolades ts include David cohn, once considered in line to replace a mate g, who lay a moved onto boeing, where he worked as a director of the board from two thousand and nine until he became the lead independent director in twenty eighteen and then chairman in twenty twenty and then CEO in twenty twenty, a period in which he was accused of strip mining boeing by pushing to cut costs with aggressive outsourcing.

Hey, if you worked out whether is going yah during his tenure, two boeing seven, three, seven makes eights crashed, one in two thousand eighteen just outside of jakarta, killing one hundred eight nine people, and another in twenty ninety on root nairobi's killed one hundred and fifty seven, followed by a door flying off in alasia airlines flying in january twenty twenty four that LED to an investigation or alaska airlines laim that IT found many loose boats on its now grounded boeing max nine plains bob, not daily. One of the three finals sag that competed to take over a foot ch. Got the job, went on to become the sea of the home deep in two thousand, posted profits immediately by aggressively cut in costs and when the stocks didn't stay competitive with laws, which is for non american, listen is another hardware store.

Now, delhi chose the court, experienced full time employees in favor of part time workers, eroding home depos already shaky position in the market until he was paid two hundred and ten million dollars to leave the company in two thousand and seven. Robert sophie, I will take two hundred and ten million dollars cost, otherwise the podcast will continue. Every single one of these men fails upwards, because shareholder supremacy is what truly dominates the markets and modern capitalism.

It's this sense that what matters is growth and shareholder value, even if shareholder value really means making a very specific group of people richer and showing perpetual growth to match the numbers of wall street. Well to himself, he had this one really disGraceful way of putting him that you can't grow long term if you can't eat short term, and that the main social responsibility for a company is to win. The crucial way to summarize jack welch, was that he was, for the majority of his career, not actually engaging in the process of labor or doing any work.

He started as a chemical engineering general electric in one hundred and sixty, but was a high ranking manager three years later, no longer participating in the actual process that made the company rich as well, grew more powerful in the organization. He furthered distance himself from production by the time he would see you in one thousand and eighty one. Jack welch hadn't done a real job in early twenty years under watch general electric distance itself from producing things too, and told the economy that one didn't after run a good business to be a good company, just one with the right numbers.

And knowing all of this is important to note that witch was, until fairly recently, as i've mention, considered a hero. And somehow one of the first people, people to criticism was mountain gladwell. In october twenty twenty two, only a couple of weeks before the new york times will publish a piece calling welch an amazing leader who inspired his colleagues to accomplish more.

Because welches horrifying methods were so effective at boosting stock Prices, he was a time considered one of america's greatest ceos, with forbes calling him a managerial genius and one of the greatest business minds of the time. No hate to my friends at forms, but you also put sam background freed lives with homes on the cover. You gave the clinker guy thirty under thirty, despite that all being made up to got you got a lie.

Actually, check these companies out. Anyway, the problem is that the Monica greater CEO, in part thanks to watch, no longer means somebody who makes a good company with happy customers and sustainable profits that will stand the test of time. A CEO is no longer a person that built a company and runs IT to provide a service, but the person that can make the company look good on paper, meaning that the company in question looks like it's growing either in quality earnings or when presented to a big adventure capitalist that hasn't participated in any kind of work production in years or decades.

Executives of companies are no longer people that build things that take that expertise. M maybe trying build IT further on a national or global scale, but this rotating cost of, like sketches style people from the dark Crystal with masters of business administration, from ivy league universities that all have had jobs with products in the name for ten years or twenty years before hand, people that have the right credentials who can continually fail at their jobs, much like propagate regular anded when he took over a google search after running yahoo into the ground. Because they're not measured at being good at anything, because really, what is the C. E.

O at this point? They not measured on a vacation. Y, they measured on their ability to increase numbers to make the number go up. And these metrics are often esoteric ways to express growth.

Something that David galas reports was commonplace in watches world, where senior management would just adjust inventory to show the appearance of profit feeling that, and this is a quote, the only way to achieve the enormous increases in sales and profits was to bend the rules. Little note for ed heads here. Go back to the facebook episode.

The facebook two party was specifically the people killing facebook. There was a bit in that episode where I mentioned how people were trying not to gain the system. They are afraid of being allowed to gain the system because max ochberg wanted ten percent year over year perpetual growth in these growth metrics. It's the same thing.

And it's all thanks to jack welch, who gave birth to this monstrous fake business person in this culture of the overpaid ea distant manager and chief executive a on artists that move numbers around to make rich people happy, one that will never, and maybe never has participated in the value exchange that makes them rich, or while lacking any real appreciation, respect for labor or the product or the company, or really anything, all while demanding complete field from the workers that they have no respect for. These people have now mentally themselves across generations of business freak, hiring them in, training others to be like them, poisoning private and public companies and investment firms and landlords. And if they are everywhere now, these people, these people who find ways to abstract themselves away from creating value while extracting as much of IT as possible.

And it's exactly this type of person that's currently destroying silicon valley. In the next episode, i'll show you exactly how damaging jack welches growth at all cost legacies to the tech industry, leading to the rise of a special kind of special management consultant personality that creates nothing while taking everything is a preview of what to know. Who recommends jack welch is winning at sam on anyway, see next episode.

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Welcome to decisions, decisions, the podcast where boundaries are push and conversations gig handed. Join your favorite house, me, Z W T and me. As we dive deep into the world of non traditional relationships and explore the often tao topic surrounding dating sex, every monday and wednesday, we both invite you to unlearn the outdated narratives dictated by traditional patriarchal norms to, in and enjoying the conversation, listen to decisions, decisions on the black effect podcast network, I heart radio APP apple podcast or wherever you get your .

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