Why All Corporations Ultimately Succumb to Short-Termism

I have previously talked about various reasons behind the inevitable decay of corporations, countries and empires. One peculiar reason, which I have have previously hinted at but never discussed at any length, is the problem of increasing short-termism in large organisations. But that presents a rational paradox- why would a large and stable organisation become more obsessed with the short-term as it becomes bigger and potentially more stable?

It comes down to promotions- or who is promoted in the hierarchy.

To understand this problem it is necessary to grasp the idea that an organisation which grows bigger has to promote people up the hierarchy. In my opinion and observations, promoted people fall into two broad categories.

Brown Nosing Charlatans: Most promotions in any organisation go to people who kiss ass, scheme, plot, try to bamboozle and are generally the least competent of the bunch. However they are also the most politically savvy, connected and charming. The net result is that promotions tend to concentrate scheming incompetents in the hierarchy such that they come to run the system- with predictable results.

Competent People: Unless there is an external challenge, war or disaster they account for the minority of promotions. Under steady state conditions, only a few are promoted- mainly to keep the organisation from falling apart. Even their promotion is meaningless as they now have to clean up more of the messes left behind by the brown nosing charlatans.

Therefore all large hierarchies are run by, and for, incompetent but cunning schemers.

The next question then is – How do the scheming incompetents demonstrate enough competence to make their promotions looks partially legit? or are they promoted for no other reason than favoritism and politicking.

It is the answer to this question which reveals a fundamental flaw in the current methodology of legitimizing promotions. Since all legitimization comes down to metrics– an incompetent person who is politically savvy can game the system to show better performance than a competent person who won’t sink the ship to make it run faster. Actions geared towards fluffing the short-term will often look good on the 3 month to 1 year time scale, even though they will sink the ship in the medium term and beyond. Since the rise of brown nosing charlatans in organisations is linked to short-term shenanigans, they simply do more of them (and on a larger scale) as they are promoted upwards until the organisation falls apart. The lucky ones then jump into other organisations and continue their ‘work’.

Therefore all large organisations which have existed for a while without a serious external challenge are always run and controlled by incompetent but politically savvy people who will game the system to progressively greater degrees thereby making it malfunction and ultimately implode. Usually the demise of such systems is facilitated by a emerging, younger and less incompetent organisation- until it becomes what it defeated.

However this cycle is not inevitable, as long as people in the organisation understand what is really going on and are prepared to act on it. In the past- poor communication, low levels of literacy and family obligations kept people quiet. That is however no longer the case and things will change, though it won’t be aesthetically pleasing to many.

Comments?

  1. November 27, 2011 at 11:07 am

    The worst part of this is the fact that corporations are the sanest sort of organizations we’ve ever developed; their leadership is far more connected to the bottom line than any democratic government will ever be.

    I think the issue here might be the corporate socialism; if corporations were actually allowed to fail, instead of being propped up with bailouts and anti-small business legislation, then the excessively incompetent would fall apart.

    These issues are depressing, but they don’t completely sway me from my stance of being pro corporate monarchism.

    • May 26, 2014 at 7:28 pm

      No, not at all. Corporate leadership doesn’t care about the bottom line; in fact, it doesn’t care about any one thing: it is a granfaloon. Individual corporate executives care about their careers, and want the corporations they control to succeed or fail according as it benefits their career.

  2. November 27, 2011 at 11:19 am

    I’ve read some business journal stuff saying that many companies are in decline because they let the sales department and accountants take over….

    ie-short term profits with more sales (short term) and more tax write-offs. Not so much development….

    I don’t know. it’s telling that we really don’t even have a space program at this point….

  3. JWRebel
    November 27, 2011 at 12:22 pm

    Good analysis, I see these mechanics at play everyday (my penny today is worth more than all the others’ dollars tomorrow).

    I would divide the candidates (brown-nosing charlatans/competent people) differently. I would divide them between conscientious people reluctant to start making decisions that will cost them sleep, and pyschopaths who feel free to make any decision unhampered by any knowledge of the matter at hand, whose focus on getting ahead has already made them completely immune to ruining other people’s lives, even if the trade off is pennies to broken lives, in short, between those afraid of losing sleep and those who have no qualms.

    @aurini — Corporations are sane only in the same way that pyschopaths are rational: Listing the key characteristics of corporations exactly parallels those of psychopaths.

  4. November 27, 2011 at 12:54 pm

    As I see it, promotions is the root cause, in the sense that promotions mean higher salaries. Humans will do anything for a higher salary.

    But what if everybody had the same salary?

  5. PT Barnum
    November 27, 2011 at 6:17 pm

    The worst part of this is the fact that corporations are the sanest sort of organizations we’ve ever developed; their leadership is far more connected to the bottom line than any democratic government will ever be.

    Cause an organization that is insulates the leaders from losses is “efficient”. Why they can kill a thousand babies and only lose the money they were unable to extract from the business before being caught!

    No that is some mother-fucking EFFICIENCY.

    The question is, what kind of person wants THAT KIND of efficiency.

  6. Matt Strictland
    November 28, 2011 at 11:38 am

    Nestorius :
    As I see it, promotions is the root cause, in the sense that promotions mean higher salaries. Humans will do anything for a higher salary.
    But what if everybody had the same salary?

    Its about ratios actually. If the ratio between top and bottom is too high, the system destabilizes. All people and cultures are driven by perceived fairness and while you can suppress them, they simply reply by doing as little as possible. Right that off too long get either socialism (in the European sense) genocide or collapse into a hollow state.

    My guess is the US limit needs to be maybe 20X1 maximum a bit higher than optimal but adequate.

    Thus if the bottom guy gets 20k, the top is limited to 400k, with actual wealth caps as well.

    Have that wealth cap and contain all efforts (trade and otherwise) to escape it and the internal structure of the institution refocuses to the long term.

    After you do that, you adapt your institutions and you control immigration you can stabilize a society. As I have said before, CONservatives should never support Economic LIEberalism, they are a poor fat since the latter destabilizes and does the opposite of what CONservatives want (CONserve)

  7. P Ray
    January 29, 2019 at 7:32 pm

    A great article to reinforce the posting:
    https://www.theage.com.au/business/companies/why-a-tiny-screw-caused-big-problems-for-apple-20190129-p50u7a.html

    And the most relevant comments:

    FRANKVIEW
    19 HOURS AGO
    The lesson ignored in Australia in all of this off-shoring of manufacturing is that it is strategically inept to allow it to occur.
    The IT industry is not the only industry that is strategically essential. Petroleum refining, the steel industry, public transport vehicles (we buy metro trains from Spain), ship-building except for “gold- plated” submarines, not yet designed. Even supermarkets are importing rice bubbles and corn flakes from Europe, oranges and grapes from California, and pharmaceuticals come from wherever. All in the pursuit of buying cheap imports to maximize profits for the importers.
    In return, virtually all Australian exports are from low employment highly automated industries, mining, farming and agricultural products to pay for the imports. Industries that pay minimal tax in Australia, and of course there are no income tax returns from the non-existent employees.
    The obvious, strategic stupidity is that the supply of any imported product can simply be turned off by an aggressor by directing the container ships (or aircraft) elsewhere, leaving Australia high, dry and impotent, even when not drought affected.

    raymond.ritchie
    22 HOURS AGO
    Laughable and I bet the local contractor could not make metric screws either.
    All part of the decline of empire (Glubbs 250y life cycle of empires). In just a few years you find you have not got the technical staff to make things because they have all retired or died. Soon people cannot even understand the textbooks. I am a Membrane Biophysicist and much of my knowledge will die with me because I have not been able to pass on my knowledge for lack of students interested in such stuff.
    The electronics of the entire military-industrial complex in the USA is now made in China. No Americans even know how to make them.
    Churchill and his mate Mountbatten in 1914 were horrified to discover that the fuses of the RNs naval shells were made in …………. you guessed it Germany.

    Diabolus
    23 HOURS AGO
    Chinese global manufacturing has already won the war. There’s no point in resisting. We effectively capitulated the day we started sending manufacturing offshore to them.
    RESPECT
    Reportflag
    Richard
    23 HOURS AGO
    Simple solution. The US government should tell all US manufacturers that at least 50% of the material value of products sold in the US must be made in the US.
    In fact this should be a rule in Australia. Once companies start building manufacturing again in their home countries then the economies of scale and costs come down across the board.
    It is no use just buying in your technology because one day shiit will hit the fan and we will have no technology or manufacturing experience to defend ourselves. Not to mention it would address the trade deficit and we may produce products that last a lot longer which is much better for the environment.
    With today’s robotic capability and production systems there is no excuse. It is just lazy government dictated to by the 1%.

    Richard
    23 HOURS AGO
    I find it hard to believe their supply chain people didn’t check on screw sources and were caught out.

    Their ceo was one of the best cpos!

    I get the feeling Apple’s pr machine is working putting out news to justify minimal Us production.

    This is just silly..standard form would be to develop that supplier back to mass production. Easily done by simply committing to some volume over x years so he can confidently buy or lease the machines. Supplier development is something Apple knows well…I think they even gave cash upfront for one of their chinese suppliers to buy better forges, or similar…huge multihundred million dollar cost.

    Helping ensure a supplier can upgrade a screw stamp is trivial!

    ozfreak
    1 DAY AGO
    Why would anyone design a custom screw in the first place? No wonder Apple charge an arm and a leg for their products (and yes I do own multiple current Apple devices).
    RESPECT2
    Reportflag
    pmjd
    23 HOURS AGO
    Because Apple can say only authorised services centres can work on your Apple. Anyone who isn’t and does voids you warranty and repair. It’s no wonder they charge an arm and a leg to fix their products. No excuse other than to crate a captive market. Fanbois love Apple. The charging blocks fail. The charging cables fall apart within months requiring users to go buy an Apple cable at $40.

    tb
    1 DAY AGO
    We are not going to ever compete with China and India until we rebuild our manufacturing base from the bottom up. Get rid of the false belief that you need an University degree to succeed. Re-educate the young that you need to work hard to earn a good job, it doesn’t just fall into your lap. Re open TAFE colleges to teach useful skills and, most difficult of all, learn how to manufacture at a competitive price, rate and quality. We are told we need to compete with China but we can’t with our current work laws and pay rates. Perhaps we may have a chance when China and India become the dominant powers and their wages exceed ours then we will be competitive. Perhaps 50 years.
    RESPECT1
    Reportflag
    Sejanus
    1 DAY AGO
    So it is fair to say Apple was screwed by US screws?
    RESPECT1
    Reportflag
    Bill Wilkinson
    1 DAY AGO
    I recently purchased a recharging plug for an Apple iPad from China – it cost me $2.48, postage free and arrived in my letterbox in five days.
    My local post office had quoted me $15 for the same item with a waiting time of around ten days – go figure ……..
    RESPECT
    Reportflag
    Jason Cleeland
    1 DAY AGO
    “China is not just cheap. It’s a place where, because it’s an authoritarian government, you can marshal 100,000 people to work all night for you,”

    The question is, how long will Chinese workers put up with this kind of treatment. And how long should we support such behaviour. $3.15 might be a reasonable wage for the poor in China today. But how long will that stay the same? Ultimately Chinese workers, just like the rest of us, deserve decent pay, and decent conditions. And ultimately, it isn’t crazy to think that they will demand it.
    RESPECT
    Reportflag

    HaplogroupU5
    1 DAY AGO
    Strange situation. Why doesn’t Apple US make it’s own screws or redesign the computer to take an alternative if they’re such a vital component? It’s been done before. I’m thinking of the giant Willow Run Ford USA complex built almost overnight during WW2. Most of the raw materials came in one end, and a complete B-24 Liberator, using Buick Radial Engines, came out the other about every 54 Minutes 24 Hours/day. Seems like that Apple is looking for an excuse.
    RESPECT
    Reportflag
    Jason
    1 DAY AGO
    It’s a brave new world we are living in.

    I use to be excited as a boy imagining the future and all it’s possibilities. Now we are here in it is not as exciting but more frightening!

    So it looks like in the next phase even the $3/hr Chinese worker will be too expensive and we can only afford robots for manufacturing?
    RESPECT
    Reportflag
    bravus
    1 DAY AGO
    The lesson in this for Australia, though, is *not* ‘we need to compete with China on labor costs and flexibility by driving down the wages and conditions of Australian workers’.

    We need to invest in upskilling, not race to the bottom on standard of living.

    AK
    1 DAY AGO
    That’s what happens when you hollow out the manufacturing capacity of a country. It dies and the skills are lost. It takes time and economic incentive to retrain those skills, bring in the workers, give confidence to trained workers that the industry is back for the long term, etc. Takes a generation of workers to pass and retrain and a lot of effort as a long term change though. The fact however that they are considering it and have given it a go shows that Trump’s actions are partly working. There’s a lot of sunk cost in China now however.
    RESPECT
    Reportflag
    3d3cs3is3ps3cpo
    1 DAY AGO
    What a great example of how one tiny screw can wreck a supply chain…..

    Australia faces similar issues having sacrificed our good industry on the altar of hyper capitalism and profits for the few

    Peterdee
    1 DAY AGO
    This is a fine example the wasteland left when key manufacturing is outsourced to low cost countries in pursuit of short term profits. The critical skills and infrastructure are gone forever. Thankyou Abbott and Hockey for helping Australia go down this road by driving car manufacturing out of the county. I won’t be surprised if the ‘manufacturing industry saviour’ submarines end up being built for the most part in France because Australia no longer has the skills to even manufacture things such as screws.
    RESPECT13
    Reportflag
    pmjd
    1 DAY AGO
    The car making industry was helped out of the country by unions demanding someone in Aus be paid 4 times what it costs to make the same car in Asia, and 2 times what it costs in Europe. Also, it was Labour and Gillard who made energy too expensive to compete.
    RESPECT
    Reportflag
    A Thinker
    22 HOURS AGO
    The error of government is not in it’s decision to drive car manufacturing out of Australia (vroom vroom), but the lack of effort in developing alternate industries to fill the void. Due to globalisation, activities like car manufacturing where it is currently still very human labour intensive, will always be more efficiently performed in a lower cost of labour environment. You cannot stop this gradient – in fact it is futile and inefficient to do so (…otherwise don’t have globalisation). So it actually makes sense to oursource this activity, whilst freeing up the labour for more advanced/profitable activities. For that to happen however, the country needs a pipeline of skilled workers ready to work in the ermerging field. Clearly neither the vision nor the infrastructure has been adequate to advance our country.
    RESPECT1

    Jimbalaya
    1 DAY AGO
    “… and relied more on robotics and specialised engineers instead of large numbers of low-wage line workers …” Tesla tried and failed to fully automate their production line for the Model 3. Tesla now relies on human assembly workers to complete their cars. It goes to show that, at the present moment, humans are far more flexible and can adapt to change quicker than a robot.
    RESPECT6
    Reportflag
    pmjd
    1 DAY AGO
    Having worked in the automotive industry (Honda, Swindon, UK) robots take a lot of money and time to tool up and be reprogrammed. Humans can be given some training and an instruction manual.
    RESPECT
    Reportflag
    DT
    22 HOURS AGO
    Have you seen the appalling panel fit on some Teslas? Presumably a consequence of hand assembly combined with poor quality control procedures and the need to ramp volume production to have any hope of ever making a profit.
    RESPECT
    Reportflag
    bloke from the outer
    1 DAY AGO
    Trump reminds me of many generals I worked with in the Army. You could explain why an ill considered plan couldn’t physically work and they would just get angry, tend to talk louder and slam their fists into their palms a lot.
    RESPECT3
    Reportflag
    Oh Really
    1 DAY AGO
    The irony in that if some companies had not off-shored their production the manufacturing – the skills, the machines, the capacity – would still exist in their home country.

    We weaken our nation by off-shoring.
    We strengthen others, our competitors, by off-shoring.
    RESPECT16
    Reportflag
    Dougal of Oz
    1 DAY AGO
    And:

    We strengthen our potential enemies, by off shoring to them.
    RESPECT2
    Reportflag
    41 Mclaren
    23 HOURS AGO
    How about we call it “competitive advantage” And how about you tell the truth “we” the consumers weaken our nation by demanding nothing but the cheapest price possible.
    RESPECT1
    Reportflag
    muppet
    17 HOURS AGO
    or they would have gone out of business as other companies went off shore and produced the same item at half the price
    RESPECT1
    Reportflag
    AJ Joe
    1 DAY AGO
    Well said and well written, reminds me of my recent kitchen Reno
    My installer offered me to do the kitchen using Australian sourced and assembled cabinets and carpentry which would cost 10 K or the fully completed kitchen from his factory in Guangzhou for $ 7500 with a promise of a higher quality finish which he said would be better then Australian version
    Guess which option I went for the job
    No one can beat China in manufacturing
    RESPECT5
    Reportflag
    pmjd
    1 DAY AGO
    On price, no question. On quality, not a chance.
    RESPECT
    Reportflag
    Concerned Citizen
    1 DAY AGO
    Yeah, and I managed the end of construction defects of a large nursing home that was built using cabinets and glass balcony infill panels imported from China. Within 12 months all the laminate had peeled off the cabinets and 10% of the glass panels had exploded due to nickel sulfide inclusions in the glass. Cost the builder over $300k to fix and he promptly went out of business. Buyer beware!
    RESPECT1
    Reportflag
    Samnm
    1 DAY AGO
    Yes, especially when we are limping after shooting ourselves in the foot by outsourcing everything.
    RESPECT
    Reportflag
    Shares
    1 DAY AGO
    was he telling the truth tho
    RESPECT
    Reportflag
    Raj
    1 DAY AGO
    That’s because the Chinese can easily beat Australia in semi-low skill wages. In fact so can just about any other country.
    RESPECT
    Reportflag
    Guido999
    23 HOURS AGO
    And very few can beat China on the staggering environmental pollution that is rapidly becoming a nightmare for many in China.
    RESPECT
    Reportflag
    Battered
    22 HOURS AGO
    The promise of a higher quality finish was likely quite empty. It’s more like the installer was getting a higher profit margin. We recently ordered some white plantation shutters for our house and we were told quite openly by the very Australian blind company ( “… with a Y” ), that the shutters are made in China. The reason is that WHS and environmental laws in Australia have stringent requirements around the controlled application of the coatings on the shutters. In China they do not have these requirements which makes it them cheaper to produce. As a result the worker applying the coatings also has far less protection and prone to illness as a result. Not very moral, but try sourcing Australian made shutters anywhere.
    RESPECT1
    Reportflag
    tmatsci
    1 DAY AGO
    A lesson for Australia! We have lost skills in manufacturing in whole swathes of industry by default and in some cases because our government decided that subsidies were not worth paying. For example, the consequence of stopping subsidies to the car industry will be a huge loss of skills in high level manufacturing. In the end we will just be a service country with insignificant ability to make much at all. This may be ok when we have good relations with countries that do manufacture but if these relationships break down then we are in trouble.
    RESPECT8
    Reportflag
    Ian Morison
    1 DAY AGO
    Tmatsci, your views are too simplistic. Car manufacturing was never going to survive here with low volumes, high labour costs, environmental rules, etc. there are now just 30 car makers making world cars, with components made all over the world. We faced reality here, and stopped the subsidies to Detroit.
    RESPECT
    Reportflag
    Lazarus
    22 HOURS AGO
    The lesson is not what you are preaching. The lesson is that Australia could never have a sustainable competitive advantage in providing low or moderately skilled labour – yet limited efforts were made over the last few decades, to develop a technological base and an army of highly skilled and educated workers that could provide a competitive advantage. Or at least a competitive equilibrium. Agriculture, Resources, Minerals and Tourism are our only viable and sustainable export (ie income generating) industries that are built on competitive advantage. However, all are there through serendipity….all inherently a natural endowment with relatively need for unique skills, expertise or investment to exploit them. The real lesson is that the Lucky Country is not actively planning to ride on anything other than lady luck.
    RESPECT
    Reportflag
    AJ
    1 DAY AGO
    It seems a bit daft that they would decided to go local for the entire 100% of a product straight away. It would seem logical that you would continue to source reliable supply for smaller parts (perhaps indefinitely) whilst you look for more appropriate areas to then involve local resources to assist with the construction.
    (Unless the the whole thing was a stunt, doomed to fail, so as to preserve the status quo for corporations relying 100% on Chinese manufacturing, who don’t really want to involve their locals?)
    RESPECT7

  8. P Ray
    February 4, 2019 at 8:12 pm

    https://asia.nikkei.com/Business/Company-in-focus/Apple-held-hostage-by-its-Chinese-puzzle

    Apparently Apple’s (Tim Cook’s) decision to move all production to China … made it easy for competitors to contract the services of companies originally producing for Apple.
    So … you wouldn’t have Huawei get so big, if it wasn’t for the major factor of Timmy wanting to keep his job, by satisfying his boss.

    The law of unintended consequences is quite hilarious.

  1. November 27, 2011 at 10:00 pm
  2. November 30, 2011 at 4:32 am

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