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Thursday, February 5, 2015

STAKEHOLDERS OVER EFFICIENCY AND PROFITS? FAMOUS CEOs SEEM QUITE CONFUSED ABOUT THEIR JOBS.

So today, Forbes editors published a work by a guy named Steve Denning titled Salesforce CEO Slams 'The World's Dumbest Idea': Maximizing Shareholder Value. In the work, Denning commits the fallacy of appeal to authority many times first by quoting popular CEOs who have expressed their silly beliefs in public and then by citing an impractical, academician theorist.



The CEOs quoted who include Jack Welsh (ex-GE), Jack Ma (Alibaba), John Mackey (Whole Foods), Mark Zuckerberg (Facebook) and others who reveal themselves to be quite wrong precisely because they don't know what the word value means. Value is a ratio that expresses a rate of exchange.

When one of those things is cash or credit denominated in cash, all should know that ratio by another name. All should know it as price.

When Denning writes, "led firms to pursue the extraction of value, rather than the creation of value" it seems clear that Denning himself is confused about what what value means. In short, no one nor any firm can extract exchange. Exchange arises because each of two parties believes he is getting the better end of the deal.

Likewise, no individual by himself nor any firm by itself can create value. Value requires two parties as all trade does. Value arises from exchange.

The purpose of a firm is to survive to perpetuate trade. Firms survive by at least breaking even.

The entirety of trade, also known as commerce or buying and selling, ties up with two words — property and profit. Without profit from effort, anyone would lack buying power to buy anything else. Without property, no one can trade.

At less than break even, anyone would stop trying to produce property. No one works at a loss.

Though most think of property as things possessed, property always has meant the right of ownership and never the thing owned. Only when property gets created can trade arise between two persons.

The name for property put to making stuff is called capital. The name for property put to purchase and sale for cash and credit is wealth.

Profit is the name of sales at prices set by winning bidders less the outlay spent to acquire property for those sales. Profit signals potential return to increasing capitalization to gain efficiency and thus higher profit, lest competitors come to the party with better capitalization.

So in the end, CEOs must be stewards of their firms' capital, which is property put to making stuff, so they can consistently produce wealth, which is property at the moment of actual purchase and sale, to perpetuate trade in pursuit of profit.

Should profit arise, firms then can return shares of that profit to shareholders in the form of dividends, which is the only reason why investors hold stocks — for the income. Stocks represent ownership in the capital structure of any firm.

Speculators buy or sell stock either going long or short because speculators play on price movements of stocks. Far too many conflate speculators with investors.

All proper, positive action by individuals or representatives of individuals, such as corporations, is enlightened self-interest. Only by acting for oneself in recognition of doing right by others can anyone thrive in the long-run.

For-profit corporations don't exist for philanthropy or do-gooder meddling or any other sentimental foolery expressed by some CEOs. The clue to anyone who needs it is right there — for-profit.

As well, corporations don't exist for the false concept of "stakeholders". Corporations don't exist for employees nor citizens and especially not legislators and their agencies of government.

Corporations exist for producing property to trade in pursuit of profit on behalf of shareholders. Corporations exist to work for the same reason every individual works — producing property, which is work sold to an employer or customer in pursuit of profit, which is income less outlays.

I invite those seeking a better understanding of trade and business to start here WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE right here on Bizarro Theater.