How the Carl Icahns of the World Benefit Firms but Not Workers

[giofranchi]

How the Carl Icahns of the World Benefit Firms but Not Workers

 

https://hbr.org/2015/10/how-the-carl-icahns-of-the-world-benefit-firms-but-not-workers?utm_source=Socialflow&utm_medium=Tweet&utm_campaign=Socialflow

 

In a separate paper, two of the same researchers found that firms targeted by activists also became more innovative, despite spending less on R&D.

 

Imo a very good paper about activist investors.

 

Cheers,

 

Gio

 

 

[jawn619]

How the Carl Icahns of the World Benefit Firms but Not Workers

 

https://hbr.org/2015/10/how-the-carl-icahns-of-the-world-benefit-firms-but-not-workers?utm_source=Socialflow&utm_medium=Tweet&utm_campaign=Socialflow

 

In a separate paper, two of the same researchers found that firms targeted by activists also became more innovative, despite spending less on R&D.

 

Imo a very good paper about activist investors.

 

Cheers,

 

Gio

 

Good stuff gio. 3G's philosophy is one of the ultimate value creator at the expense of the workers.

[APG12]

How the Carl Icahns of the World Benefit Firms but Not Workers

 

https://hbr.org/2015/10/how-the-carl-icahns-of-the-world-benefit-firms-but-not-workers?utm_source=Socialflow&utm_medium=Tweet&utm_campaign=Socialflow

 

In a separate paper, two of the same researchers found that firms targeted by activists also became more innovative, despite spending less on R&D.

 

Imo a very good paper about activist investors.

 

Cheers,

 

Gio

 

Good stuff gio. 3G's philosophy is one of the ultimate value creator at the expense of the workers.

 

What does "at the expense of" mean? 3G doesn't take anything from anyone. A job isn't owned by an employee anymore than an employee is a slave owned by a company. Employment is entered into as a win-win trade just like any other market transaction. If anyone is guilty of getting something at the expense of others, it's the workers who are receiving more in compensation than they create in value- ie. the people 3G fires.

[AzCactus]

How the Carl Icahns of the World Benefit Firms but Not Workers

 

https://hbr.org/2015/10/how-the-carl-icahns-of-the-world-benefit-firms-but-not-workers?utm_source=Socialflow&utm_medium=Tweet&utm_campaign=Socialflow

 

In a separate paper, two of the same researchers found that firms targeted by activists also became more innovative, despite spending less on R&D.

 

Imo a very good paper about activist investors.

 

Cheers,

 

Gio

 

Good stuff gio. 3G's philosophy is one of the ultimate value creator at the expense of the workers.

 

What does "at the expense of" mean? 3G doesn't take anything from anyone. A job isn't owned by an employee anymore than an employee is a slave owned by a company. Employment is entered into as a win-win trade just like any other market transaction. If anyone is guilty of getting something at the expense of others, it's the workers who are receiving more in compensation than they create in value- ie. the people 3G fires.

 

Completely agree.  A job is a mutual agreement between the employer and the employee.  An employee could move on at anytime and an employer can do the same.  Lest we forget the main purpose of a business is to earn money not maximize employment. 

[Travis Wiedower]

This is basically the nature of capitalism. In the short-term a lot of individual workers are harmed, but it's best for the overall economy and the greater population over the longer term.

[Jurgis]

This is basically the nature of capitalism. In the short-term a lot of individual workers are harmed, but it's best for the overall economy and the greater population over the longer term.

 

Oh the certainty of the greater good. How wonderful.

 

Perhaps you should talk to these individual workers directly and explain to them how their job loss is for greater good. I am sure they will appreciate your concern and explanation.

 

Lest we forget the main purpose of a business is to earn money not maximize employment. 

 

Right. Money is the most important thing in the world.

[wachtwoord]

 

Lest we forget the main purpose of a business is to earn money not maximize employment. 

 

Right. Money is the most important thing in the world.

 

In business it's the only thing.

[APG12]

This is basically the nature of capitalism. In the short-term a lot of individual workers are harmed, but it's best for the overall economy and the greater population over the longer term.

 

This is generally the pro-free market response to challenges like this, and you can see how it is ineffective because it rests on the premise that the end goal of business is the well-being of everyone else. And so you get responses like this:

 

Perhaps you should talk to these individual workers directly and explain to them how their job loss is for greater good. I am sure they will appreciate your concern and explanation.

 

In reality, everyone in a market is pursuing the betterment of their own lives, from consumers buying an iPhone to employees working for a living to 3G firing workers. In Aristotle's view this is a completely moral activity because the end goal of morality for an individual is not to sacrifice for others but to achieve flourishing and happiness. And it's no surprise that when you leave people free to pursue their life and happiness, you get a lot of happiness.

 

IMO, the way to approach the workers is to tell them that this is no longer a win-win transaction. If they have any decency they won't regard shareholders as their servants. They should recognize that it is in their own interest to remove themselves from a lose-win situation, and for the sake of their own self-esteem, they should look to move into a situation where they are taking care of and supporting their own life at the expense of no one else.

 

I don't see any difference between this and a personal relationship. If you find out your significant other is no longer receiving value from your relationship, it's fine to be upset. But it's not fine to claim a right to their love and chain them to you. A win-lose business relationship doesn't make any more sense for either party than a win-lose personal relationship does.

[Jurgis]

I don't see any difference between this and a personal relationship. If you find out your significant other is no longer receiving value from your relationship, it's fine to be upset. But it's not fine to claim a right to their love and chain them to you. A win-lose business relationship doesn't make any more sense for either party than a win-lose personal relationship does.

 

Ah, it's just like the personal relationship. In feudal times. Now I get it. You are the rich husband, your wife has no rights. You think she's not getting any younger, so you kick her out of the house without a cent. It's fine for her to be upset, but it's not fine to claim a right to your love and chain you to her. Obviously once you kick her out of your house without a cent, she will do just fine.

 

::)

 

Let's stop pretending that business-employee relationship is a relationship of equals. It's not. Unless you are Bill Gross. And even then you have to sue for your $300M bonus.  :P

 

the end goal of morality for an individual is not to sacrifice for others but to achieve flourishing and happiness

 

even if that happiness is predicated on the suffering of others?  :o

 

The end goal of morality for an individual is to achieve flourishing and happiness by bettering this planet and helping others to achieve that.

 

[giofranchi]

Ah, it's just like the personal relationship. In feudal times. Now I get it. You are the rich husband, your wife has no rights. You think she's not getting any younger, so you kick her out of the house without a cent. It's fine for her to be upset, but it's not fine to claim a right to your love and chain you to her. Obviously once you kick her out of your house without a cent, she will do just fine.

 

I don’t understand if you are serious or only trying to be sarcastic… but clearly, if after two decades of marriage (or two minutes for that matter!) you still love your wife only because of her looks… she really must have chosen her husband unwisely… misery is guaranteed anyway.

 

Cheers,

 

Gio

 

[APG12]

Ah, it's just like the personal relationship. In feudal times. Now I get it. You are the rich husband, your wife has no rights. You think she's not getting any younger, so you kick her out of the house without a cent. It's fine for her to be upset, but it's not fine to claim a right to your love and chain you to her. Obviously once you kick her out of your house without a cent, she will do just fine.

 

::)

 

Let's stop pretending that business-employee relationship is a relationship of equals. It's not. Unless you are Bill Gross. And even then you have to sue for your $300M bonus.  :P

 

I don't think you made an honest attempt to understand what I am saying given that I was clearly not talking about a marriage where there is a contract in place nor was I talking about employment where there is a contract in place. Breaking a contract requires mediation such that there is a just outcome. Employment is absolutely a relationship of equals in that there is a negotiation between employee and employer in order to come to a win-win agreement. Both parties have an equal right to disassociate themselves from the other. Employers need employees just as much as employees need employers. Why else would they pay them?

 

even if that happiness is predicated on the suffering of others?  :o

 

The end goal of morality for an individual is to achieve flourishing and happiness by bettering this planet and helping others to achieve that.

 

 

No, there seems to be a misunderstanding here. The options aren't, hurt yourself for others or hurt others for yourself. Where does a person who trades fit in? A win-win DOES help others and doesn't come at the expense of either party. That is the proper way to engage in human relationships- neither party sacrificing for the other. Again, having a bunch of people sacrificing themselves for you isn't a path to happiness. Do you think criminals sit down and say, 'I'm going to live 80 years, what's the best way to live a full, happy life? I know, I'll lie cheat and steal.'? No, the correct way is to trade with others to the benefit of both parties.

[Jurgis]

Employment is absolutely a relationship of equals.

 

No, it's not.

 

There are places (some European countries) where through government regulation it is close to that.

There are industries where employees can make huge demands on employers due to shortage of qualified work (high tech).

 

But in most places and industries the business holds the upper hand.

 

even if that happiness is predicated on the suffering of others?  :o

 

The end goal of morality for an individual is to achieve flourishing and happiness by bettering this planet and helping others to achieve that.

 

 

No, there seems to be a misunderstanding here. The options aren't, hurt yourself for others or hurt others for yourself. Where does a person who trades fit in? A win-win DOES help others and doesn't come at the expense of either party. That is the proper way to engage in human relationships- neither party sacrificing for the other. Again, having a bunch of people sacrificing themselves for you isn't a path to happiness. Do you think criminals sit down and say, 'I'm going to live 80 years, what's the best way to live a full, happy life? I know, I'll lie cheat and steal.'? No, the correct way is to trade with others to the benefit of both parties.

 

I agree that win-win is the way to go. I suspect that your win-win is very different from my win-win as evidenced by your examples of employer laying off employees being a win-win.

[rkbabang]

This is basically the nature of capitalism. In the short-term a lot of individual workers are harmed, but it's best for the overall economy and the greater population over the longer term.

 

This is generally the pro-free market response to challenges like this, and you can see how it is ineffective because it rests on the premise that the end goal of business is the well-being of everyone else. And so you get responses like this:

 

Perhaps you should talk to these individual workers directly and explain to them how their job loss is for greater good. I am sure they will appreciate your concern and explanation.

 

In reality, everyone in a market is pursuing the betterment of their own lives, from consumers buying an iPhone to employees working for a living to 3G firing workers. In Aristotle's view this is a completely moral activity because the end goal of morality for an individual is not to sacrifice for others but to achieve flourishing and happiness. And it's no surprise that when you leave people free to pursue their life and happiness, you get a lot of happiness.

 

IMO, the way to approach the workers is to tell them that this is no longer a win-win transaction. If they have any decency they won't regard shareholders as their servants. They should recognize that it is in their own interest to remove themselves from a lose-win situation, and for the sake of their own self-esteem, they should look to move into a situation where they are taking care of and supporting their own life at the expense of no one else.

 

I don't see any difference between this and a personal relationship. If you find out your significant other is no longer receiving value from your relationship, it's fine to be upset. But it's not fine to claim a right to their love and chain them to you. A win-lose business relationship doesn't make any more sense for either party than a win-lose personal relationship does.

 

+1.  Well said.  How many people are "stuck" in win-loose relationships of both types where they themselves are on the loosing end, but don't get out because they are afraid of change.  You can imagine that it is even harder when you are in a win-loose relationship and you are on the win side to terminate the arrangement.

 

[Travis Wiedower]

This is basically the nature of capitalism. In the short-term a lot of individual workers are harmed, but it's best for the overall economy and the greater population over the longer term.

 

Oh the certainty of the greater good. How wonderful.

 

Perhaps you should talk to these individual workers directly and explain to them how their job loss is for greater good. I am sure they will appreciate your concern and explanation.

 

Of course the majority of them won't. That has absolutely nothing to do with my point though. If you prefer inefficient companies with larger work forces over efficient companies with smaller work forces, that's fine. I do not. The Carl Icahns of the world should keep on keeping on in my opinion.

 

The end goal of morality for an individual is to achieve flourishing and happiness by bettering this planet and helping others to achieve that.

 

Yes, but bettering the planet as a whole doesn't always mean bettering a small subset of peoples' lives. Basically everything has negative consequences. Bill Gates is widely regarded as having a positive influence on the healthcare and livelihood of Africans, but I've read recently about some negative consequences of the changes he's made. Those individuals may not be happy with what he's done, but I'm confident his overall influence has been massively positive for that continent.

[Jurgis]

If you prefer inefficient companies with larger work forces over efficient companies with smaller work forces, that's fine. I do not.

 

I prefer companies that figure out how to use their workforce for growth and improvement of the company instead of taking an axe and acting as if that's some kind of smart move.

 

Great leadership and management is not about firing a bunch of employees because a part of business is "inefficient". Great leadership is finding a way to transform that part of the business while engaging and retraining employees for the benefit of employees, customers and shareholders.

[rkbabang]

If you prefer inefficient companies with larger work forces over efficient companies with smaller work forces, that's fine. I do not.

 

I prefer companies that figure out how to use their workforce for growth and improvement of the company instead of taking an axe and acting as if that's some kind of smart move.

 

Great leadership and management is not about firing a bunch of employees because a part of business is "inefficient". Great leadership is finding a way to transform that part of the business while engaging and retraining employees for the benefit of employees, customers and shareholders.

 

Say you start your own company and you find out that you need 10 employees.  Would it be to anyone's benefit for you to hire 1000 employees and "figure out how to use your workforce for growth and improvement of the company"?  No, unless you really do have a viable plan to need that many people in short order it is only a win-win situation if you hire only exactly the amount of people that you need.

 

Now picture you own a company and due to market changes over the years you find yourself in a situation where you need 10 employees, but you have 1000.  Isn't it the same situation?  Unless you really do have a viable plan to need that many people in short order it is only a win-win situation if you only keep exactly the number of people which you actually need.

 

 

[Jurgis]

it is only a win-win situation if you only keep exactly the number of people which you actually need.

 

You guys have really weird definitions of win-win situations.

I hope I never have to do a deal with youse. ;) :P

 

And, no, I disagree. If you hired 1000 employees, you should have looked into the future and planned for it. So the fact that you suddenly don't need 900, speaks poorly of you. Even though you conveniently exercise your power and fire them.

[Mephistopheles]

it is only a win-win situation if you only keep exactly the number of people which you actually need.

 

You guys have really weird definitions of win-win situations.

I hope I never have to do a deal with youse. ;) :P

 

And, no, I disagree. If you hired 1000 employees, you should have looked into the future and planned for it. So the fact that you suddenly don't need 900, speaks poorly of you. Even though you conveniently exercise your power and fire them.

 

Yes, the fact that you overhired by 10x speaks poorly of your business decision, as it is obviously a mistake. And so the right move would be to correct your mistake rather than continue with it. Much like a worker may take a job that he/she doesn't want, and has every right to quit.

 

I prefer companies that figure out how to use their workforce for growth and improvement of the company instead of taking an axe and acting as if that's some kind of smart move.

 

Great leadership and management is not about firing a bunch of employees because a part of business is "inefficient". Great leadership is finding a way to transform that part of the business while engaging and retraining employees for the benefit of employees, customers and shareholders.

 

Great leadership and management is about recognizing the company's limitations, and that transformation or growth at all costs may not work. If you think that's wrong, I have some SHLD shares that I want to sell you.

 

Freeing up resources is a good thing. I'm surprised someone on a value investment message board favors employing people when it's uneconomical.

 

A great Charlie Munger quote from the last Berkshire meeting (I'm paraphrasing): "If companies didn't hire and fire people, we'd all still be on the farm."

[Jurgis]

Yes, the fact that you overhired by 10x speaks poorly of your business decision, as it is obviously a mistake. And so the right move would be to correct your mistake rather than continue with it.

 

Ah yes. So you screwed up and you solve this by making others suffer. Great example how the employer-employee relationship is "equal". Lolz.

 

I'm surprised someone on a value investment message board favors employing people when it's uneconomical.

 

The fact that you don't see other solutions except the easy one does not mean others can't.

 

A great Charlie Munger quote from the last Berkshire meeting (I'm paraphrasing): "If companies didn't hire and fire people, we'd all still be on the farm."

 

So you taking out Munger trump card?

 

OK, I'll beat you with Buffett who does not close underperforming businesses and fire people from them.

 

That's one of the reasons I invest in BRK.

 

So there.

[Tim Eriksen]

Give it up guys, Jurgis is not going to get it.

[Jurgis]

Give it up guys, Jurgis is not going to get it.

 

There's nothing to get. The board is populated by 0.1% of smartest people who only take the point of view of the business owner or investor and who can easily find other jobs even if they have to find a new job.

 

How many of the posters above experienced being kicked out of the job and having very limited chances to find a new one in foreseeable future while having to feed their family. How many lived hand to mouth?

 

So, yes, there's nothing to get that I have sympathy for the workers and not for business owners or managers who are in the position of power and use it as they see fit.

 

I hope that at least some people will think about what I say and perhaps next time they may try to find other solutions rather than the easy one. And I write only because of that hope.

 

Take care

[APG12]

Give it up guys, Jurgis is not going to get it.

 

I think the interesting question is, why? The pro-free market side has been under the illusion that we merely have to explain the economic arguments better, and if people just understood the economic arguments, they'd all be on the side of freedom and capitalism. The fact is, capitalists won the economic argument decades ago. China has merely started to allow economic freedom and more people have risen out of poverty in the last 30 years than in the history of the world. The disagreement is about morality which is far more fundamental. Just look at the Jurgis's post, it has nothing to do with economics and everything to do with what is moral:

 

How many of the posters above experienced being kicked out of the job and having very limited chances to find a new one in foreseeable future while having to feed their family. How many lived hand to mouth?

 

So, yes, there's nothing to get that I have sympathy for the workers and not for business owners or managers who are in the position of power and use it as they see fit.

 

I hope that at least some people will think about what I say and perhaps next time they may try to find other solutions rather than the easy one. And I write only because of that hope.

 

In other words, there are employees who NEED something and as business owners who HAVE something, it is shareholder's moral obligation to sacrifice for the needy. Everyone knows that sacrifice to others is the essence of morality, right? Look at the enlightenment period. There is a reintroduction of reason and Aristotelian eudaemonism (the ethics of individual happiness/flourishing) through Aquinas which culminates in the founding of America. The declaration of independence doesn't say, everyone has a right to pursue the good of the community, or to pursue their brother's health care. It says everyone has a right to the pursuit of their own life- which means their own values- and a right to the pursuit of their own happiness.

 

Contrast that with, from each according to their abilities to each according to their need. State control systems like communism and fascism are built on the idea that sacrifice of the individual is virtuous. Sacrifice to the proletariat or sacrifice to the fuehrer or sacrifice to your neighbor, etc. Statism and freedom come from two totally different moral systems.

[kevin4u2]

Give it up guys, Jurgis is not going to get it.

 

Lets allow Milton Friedman have a try with Jurgis.

 

 

I'm not buying his philosophy of selflessness for one second.  He claims the moral high ground but his philosophy at its root is morally bankrupt.  I would like to know why he feels that he (or employees) have a mortgage on another persons life (and resources)?  Why are business owners responsible for meeting their own needs while others are not responsible for meeting theirs?  So, besides meeting the needs of employees, is it also our responsibility to meet the needs of everyone we know?  Are business owners responsible for meeting their own needs or or is this someone else’s responsibility? What are the responsibilities of others, if any, in this regard?  Who decides between those who get their needs met and those who have to do the providing? 

 

Jurgis, just like the pope, promote their philosophy because they believe nirvana is found through self sabotage and self sacrifice.  In the pope's case he promotes it because that is how his needs are met.  The pope would have to get a real job if he couldn't convince millions to sacrifice for him. 

 

Whenever someone (or country, or religion, or friend, or employee) expects you to sacrifice for them, just smile and realize you are looking at the truly selfish person.  When you say no, the next thing out of their mouth will be, "Don't be so selfish"...  Truly ironic and twisted logic. 

[Mephistopheles]

 

 

Ah yes. So you screwed up and you solve this by making others suffer. Great example how the employer-employee relationship is "equal". Lolz.

 

 

So you taking out Munger trump card?

 

OK, I'll beat you with Buffett who does not close underperforming businesses and fire people from them.

 

That's one of the reasons I invest in BRK.

 

So there.

 

1. How do others suffer when they shouldn't have had the job in the first place? They benefited by getting paid to do work that didn't create value, how is that suffering? Better then never having the job at all.

 

2. In case you didn't know, Berkshire used to be a textile mill...which Buffett closed...and people lost their jobs. People also lost jobs when Dexter shoes was shut down. Also, Buffett partnered with 3G to take over Heinz Kraft who have laid of many people. Berkshire also laid off people in it's housing businesses during the financial crisis. To suggest Buffett is against firing people is laughable.

 

The fact that Buffett doesn't close the few underperforming businesses that it owns has a lot to do with reputation in order to get other businesses to more willfully sell out to them. It has nothing to do with not wanting to fire people and everything to do with creating the best long term value for Berkshire shareholders. I.e. keeping a small underperforming business like Buffalo News is a small price to pay to preserve a reputation of a friendly owner. I'm sure they've laid of people over the years though. Having said that, Buffett has very much stated that were a company start to lose money permanently, they'd shut it down (textiles).

 

The fact of the matter is that most of Berkshire's businesses are excellent, so Buffett rarely needs to lay off people if ever.

 

This is all Economics 101 or Berkshire 101. I get the feeling you're trolling.

 

P.s. If you want to talk about Buffett's opinion, I suggest you read the transcript from the last meeting. Him and Munger were in agreement over this. Perhaps you need to reconsider your stake in Berkshire...

[Pelagic]

It's interesting how we're all products of our time. The argument that labor has little power over business owners with whom it negotiates seems straightforward enough and resonates well with most people today. In the current economic climate we all know someone who has been laid off in the past few years or may have even had it happen ourselves. Events like the financial crisis, the great depression etc. tend to stick in our collective memory and reinforce the idea that labor exists at the whim of business owners. I'd argue that we're blinded by the memory of these events making it hard to see the times when labor, not business owners, was in the driver's seat. Labor shortages during WWII for instance played a major role in bringing women into the workforce and throughout the 1950s the growing economic climate put skilled labor in high demand. Even today, skilled or specialized labor in many industries can command a premium having multiple companies vying for a single individual. My point is simply that it is wrong to assume that labor is always subservient to business owners. Our goal should not be employment for the sake of employment but rather to reach a point where labor is scarce because the engine of our economy is firing on all cylinders powered by a multitude of efficient companies a goal which I believe Icahn and others like him share.