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The thing people mess up the most is that the CEO isn't competing with them for their salary, the CEO is competing against other CEOs. A bad CEO can absolutely destroy a company, so a company will pay as much as it can afford to have a good one.
The usual response is that in the cases where the CEO is bad, their quality of life won't really fall like a worker's quality of life falls if a worker fucks up and is fired.
This is irrelevant; both the worker's and the CEO's quality of life once fired is beyond the control of the company.
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It rarely falls below what the worker would have had if the company was successful.
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One question would be how related not paying a lot to the CEO is to the CEO destroying the company. I mean, there have been CEOs which have made disastrous business decisions, but are their cases where we can say "if only the company had been willing to pay 100M$/year instead of settling for the kind of incompetent fool you will attract if you offer only 50M$/year"?
It's not like a CEO just comes in and develops absolute mandate of heaven control, though. Most of the rest of the internal bureaucracy/information-sourcing infrastructure will remain the same which is ultimately what drives the CEO's actions.
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Yeah, but if you were to have to explain to someone why CEOs compete for 7-8 digit salaries while "normal people" compete for 5-6 digit salaries, even if you accounted for time spent in education and risk taken, it would be hard to make it seem fair. And if you told them that in the end, everyone ends up with more if they just shut up about fairness and let the market do its thing, it'll be hard to convince them it's not self-interested rich capitalist propaganda (or bootlicking), because, again, of how unfair it seems.
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What's your opinion on the CEOs that seem to continuously get hired after driving companies into the ground?
I can't tell if there's some massive moral hazard involved, or just plain incompetence on the part of the board.
Maybe the CEO is a specialist in managing decline.
A regular CEO might be able to extract $10B profit from a declining company, but he can extract $15B before it dies. If I were on the board of a declining company, I would surely want to hire this guy.
There are some quite specialized CEOs. John J. Ray III is the grim reaper for dying companies. He extracts what value is left and pays creditors as best he can. He did this for Enron and FTX. Not that Starbucks is in such dire situations, but their CEO may indeed be tasked with managing and slowing decline, trying to preserve what he can.
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Many possibilities.
Maybe driving the company into the ground was the goal, they're raiding it for its assets.
The CEO has off-the-scales charm and is able to snooker a board into hiring him despite his poor track record.
The board isn't offering enough and is only able to attract bottom tier candidates for this kind of role.
The board is corrupt and is getting some personal benefit.
Okay, but that's worse. You do get how that's worse, right?
Why? If I buy a junker of a car in order to scrap it for parts, who has a right to complain? The CEO works for the shareholders, not the employees, and the shareholders are under no obligation to lose money on a failing company as some act of charity to the workers.
If a company isn't worth the sum of its parts, and there doesn't appear to be much low-hanging fruit to pick in an effort to turn things around, hiring a CEO for the express purpose of liquidating its assets in a way that protects the interests of the shareholders is 100% the right call. When someone dies, you don't blame the executor of their will.
If somebody gets murdered, with intent, then you actually do start looking extremely closely at the people who get to profit massively from their death. When the executor of a murder victim's will stands to gain vast sums of money from their will, people will absolutely and instinctively blame said executor - and in this specific case they're actually correct to do so given that the company was driven to the ground on purpose.
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I'm still wrestling with this one personally.
Sometimes you see CEOs that roll into a company, drive it completely into the dirt, but in a way where all the board members get filthy rich. Weird structured mergers that saddle the brand with insane amounts of debt, and then it declares bankruptcy and then the board makes a killing selling it piecemeal. There is a suspicion this is what Intel's board/CEO are planning on doing. Just rip the company to shreds and make themselves filthy rich selling the x86 license, the fabs, the business to business contracts to the highest bidder.
You see this constantly with Indian CEOs and their ruthless value extraction. Every year, Microsoft for example, gets exponentially worse. Every year they shitcan more Americans, hire more H1Bs, treat customers more adversarial while offering a worse product. But profits go up, share holders are happy, so every year it continues. At least on paper. It's almost impossible for me to reckon that this can continue forever. That they aren't eating their seed corn in some fundamental way. That at some point the tech debt they continually accumulate won't cause the Microsoft ecosystem to be such a risk to run, that there is an institutional push to abandon it.
But I suppose the phrase "There is a lot of ruin in a nation" goes for trillion dollar companies too. There is a lot of value left to extract, and a lot of enshittification yet to pursue with a trillion dollar market cap. But I'm sure they'll find some way to convert all $1,000,000,000,000 into H1B Visas.
The hard part, though, is that if that is true, if you know for certain that they are eating their seed corn, then my friend you have tremendous alpha and should put all your money betting on Microsoft going belly up.
These risks are not separate from the valuation, they are priced in. And while I also really, really dislike the direction Microsoft has taken, they are making a killing on cloud licenses, especially Office 365. Pretty much every company I work with and for has to pay a monthly per employee tax to Microsoft.
Surely even if this is true, predicting when this will happen is still incredibly difficult?
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I don’t think that’s true, or at least not necessarily true. Microsoft has a huge advantage in “lock in”, meaning that you run into a lot of problems if a company decides to go with other software platforms. The files they depend on to run their business are made in Microsoft products and thus in many cases, unless the company had the foresight to enforce a rule that ensures that they didn’t all save all their stuff in formats that only Microsoft can use, switching to something else imposes a burden. That’s before considering the learning curve for switching to a new company. It’s enough of a PITA that most don’t switch unless the software is really bad.
This is more or less my sticking point. It's almost unimaginable that Microsoft products could get so terrible, companies change their entire workflow to avoid them.
But only almost. Like, surely if it were regularly eating their data, or causing massive lawsuits against them, they'd change infrastructure, right?
Or does Microsoft start bringing other companies down with them? And only after that do new companies just avoid them from the start to fill the gaps? Does the next trillion dollar company that hasn't been founded yet avoid Microsoft and all their products entirely?
And I mean, if that's the case we're looking at what, a 40 year timeline? I might be dead by then?
I think there is a tipping point where the cost of migration and training and related expenses would be worth it just to get a better production environment. But the cost of switching is high so the cost of continuing to work in the Microsoft environment has to be high than that.
It’s the stupid recall equation from fight club. The probability of a failure from using the product times the projected loss from that failure < cost of replacing the product = we don’t replace it.
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If there were an open ended mechanism to short a stock that didn't require exquisite timing, I'd think about it. But the market can remain irrational longer than you can remain solvent.
Yep, and this mechanism should be "I'll call up my bank and take Microsoft out of my personal index." Sadly, while this does exist, it's not really percolated down to a consumer product yet.
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It's just politics on a very small scale. In theory the shareholders should keep them in check, but unless someone has majority ownership, it's a lot harder for them to coordinate than it is for the board.
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