That's NOT Just The Way It Is

by SandWyrm

Spag I think, speaks for a lot of regular folks when he says that Big Businesses are all the same. It's a fatalistic view, and one that also excuses GW's (and Disney's, and Microsoft's, and Apple's) bad and/or stupid behaviors. But it's just that. Bad/stupid behavior. Which is made worse by the incentives companies have to make bad decisions when they're publicly traded.

Here's what Spag said in the comments to my last post:

"It will never change. Companies go public to survive, to grow, to ensure long term investments from others. Regardless of how you or I or even Sandwyrm feel that is the way it is."

First off, if you're joining us and you don't understand what a Public Company is, read my last post on the subject first. It will get you up to speed so that you will understand what I'm talking about.

Now, a comparison from my own experience within a large private company vs. a large public company in the education industry. In the past, I've taught classes as a salaried employee of 2 different technical colleges. Both are for-profit companies with schools in just about every major US city. One of those (ITT Tech) was publicly owned, and the other (Art Institutes) had been public at one time, but was then bought out by a group of investors and taken private.

The difference was like night and day.

Not the same place I used to work.

At ITT, we were drowning in goals. We had to attract X number of students. The next quarter, it would be X + (X/4), with no regard to our teaching capacity or the needs of the local community. Or to the ability of the students we recruited to actually finish a 2 or 4 year program. Either mentally or financially. To pass the entrance exam, you needed to score 18% or better. Yep. Just 18%. One of our recruiters actually went to schools for the mentally handicapped to get students so he could meet his numbers and get paid. They were nightmares in the classes, but nobody except the students and teachers cared about the disruptions they caused.

Everyone, from the department heads on up would have arbitrary recruitment and retainment goals to meet. After I left the company, my former Dean (best boss I ever had) was fired for not meeting them. It had nothing to do with his ability as an educator. He simply didn't meet the numbers.

In fact, whenever he had to enforce any sort of academic standards, it risked hurting his numbers if a student got butt-hurt and left. Plagarism? Copying another student's work? Slap on the wrist. Expulsion was unthinkable. Attendance was a joke. You could blow off half of the quarter and still demand a chance to do the work.

We would get new equipment from corporate and it wouldn't work. New computer systems and software would be rolled out and not work either. All of our books were outsourced to India and NEVER ONCE checked for accuracy before being distributed. As teachers, we would follow the required outline of the books but never reference them in our lessons because they were complete garbage that would only confuse the students. But the students still had to pay for them.

An entire online education program was launched without any testing whatsoever beforehand. But our students were required to use it because all of the overlapping physical classes were eliminated. So we, at the local level, had to compensate by holding "tutoring" classes and setting up a full time tech-support person in the library (with no additional funding) to help students who couldn't figure out the system or enter their work into it because of all the bugs.

Now, why did all of this happen? Because the management at ITT was focused on it's stock numbers to the exclusion of all else. To keep the market happy, growth had to be X this quarter. Which meant that revenue had to be Y. Which meant that we needed Z students. The numbers could never be allowed to drop or stagnate. We had to show steady growth from quarter to quarter. Even if that growth was largely meaningless.

Books cost money to write, print, and distribute, so they were outsourced to India to cut costs. Nobody at corporate checked them. Quality was immaterial. Costs went down and the numbers looked good, so who cares? It took years to get corporate to use an American company instead. The quality improved, but not hugely. It just wasn't that important to corporate.

Ditto with the new computer systems. Cheaper on paper. No oversight. Gotta keep an eye on those numbers...

Online Education? SURE! I mean, we won't test it first, or make it voluntary before axing our traditional classes, but it's something we can crow about to prospective students and the market. Full steam ahead! Look at those numbers!

Numbers! Numbers! Numbers! Gotta get the numbers up!

Then I left ITT (which is a story of corporate fail unto itself). Later, I got a job with The Art Institutes. Which, here in Indy, is literally right across the highway from ITT. In some of the most unique buildings in town.

Indy's 'Pyramids'. They're kind of cool, but noisy in the rain.

So I got hired at AI Indy (not publicly traded), and...

No Numbers!

They were never once mentioned. I mean, I'm sure that the Dean and the college administrators had goals, including numbers, from corporate. But they never once got mentioned to the instructors or even the department heads. Our staff meetings concentrated on such strange, unusual subjects as:

• Company Policies and Procedures
• How To Teach Better
• Discipline Procedures
• Attendance & Work Policies
• Solutions To Specific Problems We Were Having
• Future Plans For The College (new programs, expansions, etc.)

We would get new equipment or software and... it would work! Instead of dodgy Indian textbooks, we had suggested lists of standard books from high-quality US publishers to use. If we didn't like those we were free to choose our own books. We were even free to construct our own class curriculum if we wanted to and our supervisors approved.

Standards were upheld. Students were allowed to fail if they didn't perform. I had a couple of classes where I failed half of the students and nobody above me blinked an eye, or sat down to discuss 'realities' with me. Attendance policies had teeth. Copying and plagiarism were taken seriously as offenses, even when they could have been easily swept under the rug because only a couple of people knew what had happened.

Visits from corporate were lighthearted and useful, instead of of demoralizing. We actually looked forward to them.

Now, was AI perfect? Heck no. It was still a for-profit education corp with certain problems that all such corps share. There were plenty of warts. Such as spending far more on recruiting students than actually teaching them. Or when my classes were interrupted so that someone could 'talk to' a student that hadn't made a required tuition payment.

But there wasn't the same day-to-day obsession with numbers that plagued ITT when I was there. Corporate was instead focused on what was really important to the long-term health of the business they were in. Next quarter's numbers didn't matter as much as next year's, or the next decade's. Instead, they concentrated on strategies, making sure stuff worked, addressing problems with processes, upholding the school's reputation, and making sure that we were free to do our jobs and help students succeed.

You could see the difference in the Staff's morale, and more importantly, the quality of the student work. Both companies displayed their student work everywhere. But while ITT's displays were awful, amateurish,  and depressing, the work we saw at AI from our students was pretty damned outstanding in comparison.

Yeah, But That's Just One Company!

ITT may have been a particularly bad case of stupid/distracted management. But it's not the only one. Or the worst. I've worked for companies during the tech boom where REALLY stupid things were done simply because the management wanted so badly to go public and become overnight millionaires. Usually that meant that someone wiser and craftier ended up with their company instead.

Why did Microsoft (a public company) try to buy Yahoo a couple of years ago? Yahoo had nothing they needed in terms of technology or services. Buying them wouldn't do anything to help MS compete with Google in search or anything else. Yet Balmer was eager to buy them. Why? Because he was desperate to do something that would goose the stock price. MS had nothing to excite the market with in terms of product, so he was ready to waste Microsoft's cash on an acquisition that would make headlines. Dumb, and driven by an obsession with numbers that help Balmer personally, but not the business.

Or, why did Apple (a public company) recently release a sub-par iOS update? Or 2 sub-par OSX updates? Well, it was to goose their numbers. Apple was sheltered from the stupid obsession with numbers for a long time because Steve Jobs didn't care very much about the market. He was a founder of the company and his desire to make great products and build a legacy were more important to him than the next quarter's numbers, or much of anything else. He got away with it because he kept producing hits that caused the stock price to keep climbing.

Then he got sick and his influence waned. Apple suddenly switched to more regular scheduled updates to it's products (keep the numbers smoother), and the schedule became more important than the product.  Then he died and quality got knocked down a few more rungs on the ladder of corporate goals. Now Apple is scrambling internally to push it back up. But they're fighting their incentives to be numbers-focused instead of product-focused. Because they're a public company that has to balance their market image in addition to their day-to-day business, and Jobs isn't there to magically wave away market realities anymore.

It Doesn't Have To Be This Way

Corporations Don't Have To Go Public. There's other ways to generate cash for new projects without shackling yourself to the whims of the stock market and it's short-term thinking. Some are old, like bank loans. Some are new, like venture capital funds. Where you can control who gets your stock in exchange for cash, and avoid the chaos of the open market.

In fact, going Public is getting less and less popular.

From this article in The Economist:

The number of public companies has fallen dramatically over the past decade—by 38% in America since 1997 and 48% in Britain. The number of initial public offerings (IPOs) in America has declined from an average of 311 a year in 1980-2000 to 99 a year in 2001-11. Small companies, those with annual sales of less than $50m before their IPOs—have been hardest hit. In 1980-2000 an average of 165 small companies undertook IPOs in America each year. In 2001-09 that number fell to 30. Facebook will probably give the IPO market a temporary boost—several other companies are queuing up to follow its lead—but they will do little to offset the long-term decline.

And...

Corporate chiefs complain that the combination of fussy regulators and demanding money managers makes it impossible to focus on long-term growth. Shareholders are also angry. Their interests seldom seem to be properly aligned at public companies with those of the managers, who often waste squillions on empire-building and sumptuous perks. Shareholders are typically too dispersed to monitor the men on the spot. Attempts to solve the problem by giving managers shares have largely failed.

Public Corporations are just one way to structure a business and raise capital. But the rise of investment funds, the one-click attention span of the internet investor, and the downsides of granting stock options to corporate officers (to avoid high tax rates on their salaries) is making it a much less desirable corporate form than it used to be. 

Some famous/big PRIVATE corporations:

• Lucasfilm (before Disney bought it last week for $4.5 Billion)
• Nationwide Mutual Insurance
• Ernst & Young
• PriceWaterhouseCoopers
• Mars Inc. (The Chocolate Company)
• Bechtel Corp. (largest engineering company in the US)
• Chrysler (now in their 31rst consecutive month of sales growth since going private)
• Koch Industries (Quilted Northern, Angel Soft, Brawny paper towels, various sub-companies)
• Cargill
• AMC Entertainment (Theaters)

All of these companies absolutely dwarf GW in sales, profits, growth, and by every other measure. Yet they can make their business decisions independent of whatever the market in general, or any particular investment fund manager, may think. Letting them focus on the long-term goals of the business instead of the short-term whims of the market.

But Isn't Battlefront Becoming Evil Now Too?

Oh please. They made one stupid decision about non-BF models in their directly-sponsored tourneys, listened to the outcry, and then backed half-way down in response. The owner of the company responded personally. Did Kirby or Wells ever apologize to us about Finecast? Or the Australia embargo? Or price increases? GW's stupid decisions are more common than BF's by at least a couple of orders of magnitude. Like ITT, their obsession with market numbers has led them to stupidities like the one-man stores and cutting dev resources for new rules and models.

Battlefront's game is still far better designed than 40K, gets regular updates, has a supported (albeit imperfect) tournament system, and they release cool new stuff EVERY FRIGGIN WEEK! Just like GW used to back in the good old days. Except that they aren't as greedy as GW was, even back in the early/mid 90's when GW was the most professional game company out there by far. Would GW ever have handed out free rulebooks for a new edition? Heck no!

And if I don't like BF's models? (which mostly, I don't) I can still buy models from anyone else I want to, and use them as much as I like in any tourney that BF isn't directly sponsoring. But by their new 51% rule, even my new early war army, with it's 14 plastic Zveda tanks and armored cars, would be perfectly legal. Since I'm still using 18 BF models in the army. Didn't plan it that way, it just happened.

Even Privateer, which gets crap about being a mini-GW, is obviously not as stupid or short-sighted as GW. Their game is still growing in players as GW's shrinks.

So don't just say "That's just how it is!". Because it isn't. Companies choose to go public, or not. The consequences of which will dictate their freedom of action for years to come. Don't let them off the hook for their stupid, greedy decisions. Because there are alternatives out there.

Expect Better.