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. Nestorius
    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)

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

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