While completely true..........the simplistic factor continues. Companies fail for many different reasons but it's agreed that the lack of profit seals their fate. The real question is why the company failed to produce the profits required to remain in business.

All large businesses are very complicated entities and decisions that are made today have an impact five years down the road. Poor management in terms of product mix, marketing and excessive productions costs will certainly doom a company.

Companies exist all the time with goals that are separate from maximizing profits. They remain successful despite relatively meager returns over the years. I'm quite sure such companies could maximize profits in the short term at the expense of some other goals if they chose to do so.

This is a factually incorrect statement. While it may be factual for some companies, for the majority, the statement is false.

^^^ No argument here with any of that.

My central point was that companies that don't turn a profit die. Successful companies are the ones who maximize profits most efficiently. Unsuccessful ones, don't. Sometimes failure is quick and sometimes gradual with causes as numerous as there are opportunities.

Giving huge bonuses to undeserving senior officers and/or board members, giving great wads of money to charitable or political entities, etc are all signs (to me) of a company that is sick.

B

This would be a good example of a company that is not maximizing profits. If the company was in existence solely to maximize profits for their shareholders, this behavior would be non-existent.

The fact that it's pervasive would tend to let a person conclude that there's many companies that do not maximize profits..........yet they continue to survive just fine.

I've got some examples of major Wall street firms that spend more money than you can possibly imagine on total BS...........and the bonuses that are handed out are absolutely stunning. This certainly doesn't maximize profits............but you haven't heard of Merrill or Morgan Stanley or Goldman Sachs going under.........have you?

I agree. We live in a capitalistic society which it to say that the essential purpose of our society is to produce a profit. The net result of that pursuit is the life we and others in this society live with slight colorations by other factors such as religion, history etc. Now one can ask whether the well being of the majority of people are optimally served by a society who's sole motivating factor is the pursuit of profit.

I would first argue that the net result of capitalism is the consolidation of political power into the hands of a subset of overall society. This simply follows from the notion that capitalism consolidates wealth and wealth equates to political power.

This leads to the next question which is whether the well being of society at large is consistant with the interests of the controlling subset.

You maybe right.

Comparing free market capitalism with every other economic system in the history of the planet, we learn that more people have acquired more wealth and a higher standard of living under this system than any other.

This doesn't prove it is the best possible system. It is simply evidence in support of the argument that no other system yet devised has lifted so many people so quickly.

B

All of this discussion of profit begs the question: Where does the profit go?

My retirement.

B

Congratulations! With my Tahoe averaging 11.5 mpg, I expect a rather fine bottle of single malt sent my way when the time comes...

When you introduce the human element, everything changes (which is why totally free markets and economic theory that relies on removing people from the evaluation are useless).
The fact that most companies do not accomplish the goal of maximizing profit doesn't mean they don't strive for it in an ideal way. The people involved in the real get in the way.
And, since you introduce the element of human beings, one could argue that it is a requirement to offer these obscenities to upper management, thus these bonuses fall under the maximizing part - maximized with the bonus constraints.

If you were to allow companies to operate outside the law, would all of them murder their competition? No. Would some of them? Absolutely.

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1984 300TD

Well... ....a more complete way to look at this is that one has to clearly establish the definition of "maximizing profits." Goldman paying the total dollar amount in year-end bonuses that they have (I am too lazy to look it up at the moment) certainly does not maximize profits in that fiscal year in question.

However, I would contend that Goldman's role is to maximize profits over a period of time, and I'd further argue that time is in perpetuity. Therefore in order to maximize profit over time, those bonus payouts further this goal by attracting and retaining talent. In other words it costs far less to reward top talent than to "churn and burn."

Goldman hardly maximizes its profits..........short or long term. They take excellent care of their employees with bonuses that are beyond extravagant.

You can conclude that this maximized their profits in the long term if you wish..........I don't. Goldman could pay 1/2 the amount of bonus and nobody would leave the company.

Gotta disagree with you there. The risk to the firm in paying half the bonus is too great. They MIGHT be able to retain top talent with smaller bonuses, but they might NOT - too big of a risk to future earnings.

Furthermore I do not believe that the bonuses are extravagant. Who is to say what is extravagant? Clearly the board and shareholders don't think so.

And THAT's all that matters when it comes to compensation. They are the owners and stakeholders. It's their money.

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Thank You!
Fred
2009 ML350
2004 SL600
2004 SL500
1996 SL600
2002 SLK32
2005 CLK320 cabrio
2003 ML350
1997 C280 Sport

..........and your source for this tidbit would be..........????


The shareholders of HD were absolutely outraged at the amount paid to Nardelli upon his departure..........many shareholders are not pleased with the bonuses.