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We win, you lose: How shareholder value screwed the middle class

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The American Dream changed somehow in the 1970s when real wages for most of us began to stagnate when corrected for inflation and worker age. My best financial year ever was 2000 — 18 years ago — when was yours? This wasn’t a matter of productivity, either: workers were more productive every year, we just stopped being rewarded for it. There are many explanations of how this sad fact came to be and I am sure it’s a problem with several causes. But this column concerns one factor that generally isn’t touched-on by labor economists — Wall Street greed.

Lawyers arguing in court present legal theories—their ideas of how the world and the law intersect, and why this should mean their client is right and the other side is wrong. Proof of one legal theory over another comes in the form of a verdict or court decision. As a culture we have many theories about institutions and behaviors that aren’t so clear-cut in their validity tests (no courtroom, no jury) yet we cling to these theories to feel better about the ways we have chosen to live our lives. In American business, especially, one key theory is that the purpose of corporate enterprise is to “maximize shareholder value.” Some take this even further and claim that such value maximization is the only reason a corporation exists. Watch CNBC or Fox Business News long enough and you’ll begin to believe this is God’s truth, but it’s not. It’s just a theory.

It’s not even a very old theory, in fact, and only dates back to 1976. That’s when Michael Jensen and William Meckling of the University of Rochester published a paper, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure” in The Journal of Financial Economics. Their theory, in a nutshell, was that there was an inherent conflict in business between owners (shareholders) and managers, and that this conflict had to be resolved in favor of the owners, who after all owned the business; and the best way to do that was to find a way to align those interests by linking managerial compensation to owner success. Link executive compensation primarily to the stock price, the economists argued, and this terrible conflict would be resolved, making business somehow, well, better.

This idea appears to be more of a solution in search of a problem. If the CEO is driving the company into bankruptcy or spends too much money on his own perks, for example, the previous theory of business (and the company bylaws) said shareholders could vote the bum out. But that’s so mundane, so imprecise for economists who see a chance to elegantly align interests and make the system work smoothly and automatically. The only problem is the alignment of interests suggested by Jensen and Meckling works just as well—maybe even better—if management just cooks the books and lies. And so shareholder value maximization gave us companies like Enron (Jeffrey Skilling in prison), Tyco International (Dennis Kozlowski in prison), and WorldCom (Bernie Ebbers in prison).

It’s just a theory, remember.

The Jensen and Meckling paper shook the corporate world because it presented a reason to pay executives more—a lot more—if they made the stock rise. Not if they made a better product, cured a disease, or helped defeat a national enemy. All they had to do was make their stock go up. Through the 1960s and 1970s, average CEO compensation in America per dollar of corporate earnings had gone down 33 percent as companies became more efficient at making money. But now there was a (dubious) reason for compensation to go up, up, up, which it has done consistently for 40+ years, until now when we think this is the way the corporate world is supposed to work—even its raison d’etre.

But in that same time real corporate performance has gone down. The average rate of return on invested capital for public companies in the United States is a quarter of what it was in 1965. Sure, productivity has gone up, but that can be done through automation or by beating more work out of employees (more on that later). Jensen and Meckling created the very problem they purported to solve—a problem that really hadn’t existed in the first place.

Maximizing shareholder return dropped the compounded rate of return on the S&P 500 from 7.5 percent annually from 1933-76, to 6.5 percent annually from 1977 to today. That one percent may not look like much, but from the point of view of the lady at the bank the loss of so much compound interest may well have led to our malaise of today. Profits are high—but are they real? Stocks are high—but few investors, managers, or workers are really happy or secure.

Maximizing shareholder return is bad policy both for public companies and for our society in general. That’s what Jack Welch told the Financial Times in 2009, once Welch was safely out of the day-to-day earnings grind at General Electric: “On the face of it,” said Welch, “shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers, and your products. Managers and investors should not set share-price increases as their overarching goal. … Short-term profits should be allied with an increase in the long-term value of a company.”

Tell that to Sam Palmisano at IBM, who, in 2005, and then again in 2010, set corporate goals for earnings-per-share, which is to say he set a target price for IBM stock based on historical price-to-earnings ratios, as one of his signature goals for the company. And he was applauded for it.

“…the dumbest idea in the world,” Jack Welch said. Remember that.

I didn’t come up with this idea that shareholder earnings maximization should not be the prime corporate motivator. It came from Roger Martin, former dean of the Rotman School of Management at the University of Toronto, only 169 miles from Rochester where this nonsense began. Martin’s very good book is Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL. Here’s how Martin put it: “Imagine an NFL coach holding a press conference on Wednesday to announce that he predicts a win by nine points on Sunday, and that bettors should recognize that the current spread of six points is too low. Or picture the team’s quarterback standing up in the post-game press conference and apologizing for having only won by three points when the final betting spread was nine points in his team’s favor. While it’s laughable to imagine coaches or quarterbacks doing so, CEOs are expected to do both of these things.”

Martin contrasts two markets he calls the real market and the expectations market. The real market is where goods and services are produced, bought and sold, which is to say the real world in which most of us live. The expectations market predicts a certain performance and then delivers on it through whatever means necessary. The expectations market is really just gambling.

Once corporate America embraced the idea that all their main purpose was to maximize shareholder value that lead to distortions in nearly every part of nearly every business. Anything that could be seen as a drag on earnings could be cut with impunity. This included employee pay and benefits. So pay stagnated while pensions and health care were cut. This helped the company but hurt the market since every worker is also a consumer. Businesses moved to cheaper places of doing business, sometimes overseas. Research and development was cut and cut again as if there was no longer a connection between developing new technology and company success. There were exceptions of course, but the trend was clear, marginalizing workers, hurting the overall economy and the society it supports. And all for an underlying reason that wasn’t even true.

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141 days ago
I, Cringely nails it. I suspect this is just the tip of the iceberg too.
Bristol, UK

Breaking down the pilot of VERONICA MARS

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Last week I did a live-tweet of the pilot of VERONICA MARS, breaking it down in terms of what's to be learned from it in terms of writing a strong pilot and establishing a show. Soon after I was done, I had two repeated requests from followers: 1) Could I archive the live-tweet on my blog? and 2) Would I do it again?

As to the first question: see below. As to the second, I'm planning on breaking down the ALIAS pilot starting at 7:15pm Pacific time tonight. You should be able to find it streaming on Hulu. You could also purchase it on Amazon or iTunes.

Below is the transcript of my live-tweet. I made a few additions and corrections, but it's otherwise as I tweeted it. If you want to see the original thread, go here.

Part of the reason I'm doing this is I used to have good notes on this pilot for my own ref and I need to reconstruct them. I'm working on a pilot that's similar in some ways so it's helpful for me to take a peek under the hood of shows that are in the same vein.

Opening scene - noirish, seedy motel. Veronica VO. Sets the mood and the tone. Cheery voice with a cynical outlook. Calculus textbook on the seat before we see Veronica is a nice visual way to tip us off that the PI is a teen. Teaser ends with Weevil and the PCH motorcycle gang pulling up. Sets up major part of the show.

2nd scene - high school "If you go here, your parents are millionaires or they work for millionaires." Important line. Veronica gets a Save the cat moment in getting Wallace down from the flagpole.

Next scene, she nails a question in class despite being half asleep. AND she gets to interpret Poe's work as "Life's a bitch, then you die." What does all this have in common? Character.

Next scene: Veronica has a "random" locker search. She's one step ahead of the principal. More establishing bits about her relationship with faculty, and the fact she's tipped off about locker searches.

Now that we have a sense of WHO she is, we get an exposition dump. Her ex was Duncan Kane, who dumped her out of the blue. Key detail for later. The VO is doing a lot of heavy lifting here, but it's entertaining, as when she calls Logan a "psychotic jackass." It's memorable.

Another important bit: Veronica not intimidated by Weevil, even with him backed up by his biker gang. We see all this in less than 7 minutes.

I'm not gonna call out every scene, but it's worth noting we're locked in to V's POV. We don't cut away from her at any point.

Ten minutes in and we get to Veronica's father's PI office. Defense attorney Cliff stops by to drop off a cup of exposition. He mentions that the local strip club has a creative way of keeping their liquor license. Remember that for later.

And then we meet V's dad Keith, just after a meeting with Veronica's ex Duncan's mother, Celeste Kane.  

Act Out on "Dad tried to send her husband to jail for life."

Act two open - Veronica and Keith. We see their dynamic. Important to show how all your main characters relate, at least to the protag.

Case of the week (or so it seems): Veronica follows Jake Kane, Duncan's father. Celeste suspects him of cheating. Backstory about how his company employs the town and how he made half the town rich practically overnight. After that, more flashbacks, and we finally reach the real mythology...

Lily Kane - Veronica's best friend and Jake's daughter - murdered. VO tells us this was a major media case. Keith was Sheriff. Investigated Jake, So the case cost Veronica her friend, and her father his career and reputation. AND it was never solved, despite a lot of public interest and publicity.

Annnd we find out that Logan was Lily's girlfriend. Keith loses his job in the scandal, but his wife leaves. Lotta emotional stakes here.

Basically, Act Two is where Backstory kicks in the door and announces its presence. It's a lot, but it's cleaner for all the intros in Act 1.

Or to put it another way, DON'T DROWN YOUR AUDIENCE IN MYTHOLOGY TOO FAST. If the pilot opened on the Lily Kane stuff we'd be lost
"Want to know how I lost my virginity? So do I?" Well, that's a dark line. V got roofied at a party, woke up without underwear.  Lotta flashbacks, complex timeline. You know what helps? Flashback-Veronica has much longer hair. Look for the visual things like that.

Mystery tally at the end of Act Two: 

1) Who Killed Lily? 
2) Who raped Veronica? 
3) Why did Duncan dump Veronica 

Top of Act 3: Logan taunts Veronica about her mother. We learn she left 8 months ago. Also see Logan and Duncan are buds.

Now we move to Veronica's other case of the week, helping Wallace get the PCH bikers off his ass. It's a vehicle to show the V/W dynamic. Wallace pissed off the bikers by calling the cops on them for shoplifting at the store where he worked. Police took the security tape as evidence.

Another Keith/Veronica scene, shows the kinds of cases that pay the bills (bail jumpers). She brings him up to speed on Jake Kane case. As soon as Keith sees the license plate belonging to someone who was meeting with Jake Kane at a hotel, he says to stay away from the case. Another mini mystery to generate tension.

Payoff to Veronica locker search bit: she plants a bong in Logan's locker so he gets caught. It also sets up a complicated bit I'll recap quickly. Veronica basically uses the bong to set off a smoke alarm in the police evidence locker, gives her the chance to recover the security tape that the PCH gang is mad at Wallace over.

The big note: the case of the week puts all the regular relationship dynamics on display.

ACT THREE OUT - the car VM photographed meeting Jake Kane belongs to Veronica's mom. Leeanne Mars is meeting Jake? But why?

Top of Act Four - Veronica asks Keith why he wants to drop the case. He lies. Provokes bigger question for Veronica and audience - why?

Next: Flashbacks show Veronica tried to report her rape to Sheriff Lamb. He mocked her and blew her off.

There's a bit where Veronica uses the exposition Cliff dropped earlier to set up a humiliation of Lamb in court. It also involves her recovering a videotape that gets the PCH gang off the hook, and in turn gets Wallace out of the doghouse. Basically EVERY. LINE. OF DIALOGUE came together for that moment. Not one wasted scene

Next, Logan shows up for payback, smashes V's headlight. PCH gang shows u for a "She's with us" kind of moment. Humbles Logan. Weevil beats up Logan until Veronica calls him off. So now we see V & Weevil are on the same side. Kinda. Wallace gets an apology from Weevil (somewhat forced) tying that up. 

And from there we go to Veronica back at the PI office. She breaks into her dad's safe and we learn he's never stopped working the Lily Kane case AND the hotel pic V took is in the case file. So Keith never stopped working the case, but V's VO tells us her big question is "why did Dad lie to me?"

Critical point: the big mythos mystery has implications for her current relationships. It's not JUST about who killed Lily, it's about how those revelations still can upend her life after they come out. We're not tuning in just to solve the mystery, we're going to be tracking what the investigation does to the father/daughter relationship over the season. 

It's smart because it makes the show about more than just a puzzle. You need emotional stakes to hang things on so that when that mystery goes away, there's still meat on the bone.

Last scene: Veronica on stakeout again. VO declares she will solve this case and bring this family back together. it's the "I Want."

Not one wasted scene in that pilot. Everything is pushing plot, character or both. multiple subplots AND two ongoing uber-mysteries.

Major relationships established and shown: Veronica/Keith, Veronica/Wallace, Veronica/Weevil, Veronica/Logan.

relationships mostly suggested: V/Lily, V/Logan, V/Mother.

Oh! I forgot that we also set up V/Lamb and V/Cliff. both pretty important. These 45 minutes are JAMMED with character intros. And also notable, only a few of those are meeting for the first time. we're dropped into relationships that feel like they existed for years. One lesson here: KNOW YOUR CHARACTERS. 

Seriously. It helps this is all from V's POV, but the others are pretty well drawn.

Somehow the Veronica Mars pilot juggles being plot-heavy and character-heavy. Sometimes a plot procedural will go with a simpler story just to let the characters breathe while going through it. VM is like "nah," and interweaves three subplots, possibly four.

You could pull the Lily Kane murder stuff out and you'd STILL have enough story for one episode. That's how much is packed into this.
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261 days ago
and ... now I want to watch Veronica Mars over again
Bristol, UK

Online Anonymity, Privacy and Risk Evaluation

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I got into a conversation the other day about why I, as a massive supporter of the right to online privacy, still tended to use my real name online, in places where a more anonymous handle would be more than acceptable.

You’d have thought as somebody quite proficient at OSINT (Open Source, Intelligence,  the art of finding information, particularly relating to people, from public information sources), I’d have taken every opportunity to grab a little anonymity, especially as my real name is almost certainly unique in the world.

It comes down to risk vs reward. Understanding and mitigating the risk is crucial.

If you know my real name (which is pretty obvious from the domain name of this blog) then there is already loads of freely available information out there on me. I bought domain names in the 90s, back when a real postal address was mandatory (they even sent you a physical certificate of ownership) and I used to run a business out of my house, so it was a legal requirement to have my business address on any formal paperwork, so finding my home address is trivial.  I couldn’t find anywhere leaking my date of birth online but I’d bet there is some site I’ve entered it into (back before I thought to lie about it) which now leaks it publicly. Similarly, I get so many requests for genealogy info that I’m sure somewhere discloses my mothers maiden name. There are also documents I wrote at University on what is now called Cyber Security with my name on that I now wish didn’t exist, that highlight my security “white hat” has been bleached over the years.

That information is all out there. The genie is out of the bottle, it’s never going back in. So, you’d think that was ever MORE reason to hide my real name online? Not really and it’s all down to understanding and managing that risk.

If I operate under a pseudonym, I have a new risk. The risk of some detail linking the anonymous me to the real me. I’m going to be in the same physical location as my anonymous self, probably using the same computer, browser and internet connection, I’m going to have similar views, knowledge, understanding, frailties and experiences, the same grammar mistakes, the same typing patterns the same mouse movement patterns.

As mass tracking and analysis of both data and metadata becomes easier and more prevalent, the chances of me accidentally revealing a link between my real self and my anonymous self increases and once somebody makes that link, there is no point being anonymous at all.

What’s more, the ability to operate under a pseudonym means I’m more likely to reveal additional information than I normally would under my real identity (even if only subconsciously), increasing the risk even further. The instant all the content you wished to keep anonymous is linked back to your real identity you’re essentially stood there with a big sign saying “this is the stuff I didn’t want you to know was by me”.

To further evaluate the risk, you also have to understand that data can last forever and who can access this data over time changes. It’s not about who can see your private content now, it’s about who can see it in the future and then associate it back to you.

Back in 2006, I was in Amsterdam mainly to watch Feyenoord vs Blackburn Rovers, but I also visited the Amsterdam Museum (despite the cliche, not all English football fans in Amsterdam just hang out in De Wallen drinking beer and smoking weed) and read a fascinating but terrifying account of the Nazi occupation of Holland in World War 2. The dutch, quite sensibly, had collected everyone’s religion as part of the census, to ensure that in the case of their funeral being organised by the state, an appropriate ceremony was performed. However, after Nazi occupation, this same list has a whole different purpose.

The details you put online are no different. Just because you trust a website to responsibly keep your private data private, what if they are sold, hackedpressured by a nation state or have a rogue or sloppy employee?

I therefore operate under the assumption that EVERYTHING I put online can potentially end up in the wrong hands one day.

That doesn’t mean that I instantly post everything public, just because one day people might see it anyway, but it’s always a thought in the back of my mind when I post.

So, I’ve given up on online privacy? Hell No! It’s important to realise anonymity and privacy are not the same thing and the right to privacy is an important right to have, even if I choose to waive it.

Just because I feel one day, a hack, leak or change of government could see my emails/PMs/Skype calls etc being put in the wrong hands, doesn’t mean that I want to share them with everyone right now.  It’s precisely because anonymity is mere obfuscation that gives people a false sense of security that I think privacy is so very very important.

For example, my twitter account is public, this is my choice and I know anything I post on there can be seen by the entire world in perpetuity, so it tends to be limited mostly to conversations about tech, football or politics. Facebook however, I have configured to be more private,  that doesn’t mean I’ll post anything incriminating or particularly personal, but it will give you more of an insight into my daily comings and going, my social life and particularly upcoming and current events I’m attending. This includes data that may be of some value ahead of time (i.e. to allow you to break into my house, or scam my friends/bank etc into believing I’m stranded abroad without money) but virtually zero value after the fact. Therefore as long as I can trust Facebook to keep that data private for a short period, the risk is much smaller.

But privacy in the modern world is tricky. It’s 16 years since of the launch of PGP and almost 3 years since google announced End to End, but there is still no practical way for me to send an email to any non-technical friends with the belief that nobody other than them will ever be able to read it. End to End (E2E) encrypted messengers like Signal, Telegram, WhatsApp and even Facebook Messenger are great, but do I really trust my phone and computer operating systems enough to  be sure the message wasn’t snooped on when it’s decrypted and even if I did, is it reasonable to expect my mum to install a new messenger app, when it’s unlikely I would ever say anything I’d couldn’t be overheard saying to her in the street?

And what of systems that don’t purport to offer E2E encryption? I love slack, but even if their data is encrypted both in transit and at rest as they claim, they can still be decrypted and subpoenaed. The tech simply isn’t there yet to make privacy EASY and that’s the way both corporations (who sell you data) and government agencies (who use is for surveillance purposes) like it.

Which brings us back to risk vs reward. In much the same way to only truly secure a computer is unplug it and encase in in concrete, the only way to stay truly private online is to never be online, However, if you want the rewards being online brings, the have to accept the risks. But, when you understand the risks, you can start to mitigate them somewhat.

There is always a risk and E2E encrypted chat could still be made public, but it’s certainly less risk than some public forum with an unknown operator who may be doing anything with your data to fund their project, even if you are operating under some veil of anonymity. There is a chance the government’s mass surveillance data could be compromised, but it’s much more likely that dodgy service that provides you with free PPV films and sports will have their subscribers details made public. There is chance your slack logs may be subpoenaed, but there is a greater chance you’ll leave your PC or phone unattended and logged into slack.

Risk vs Reward, but make sure you understand ALL the risks. Not just the immediate ones.

My advice – Choose your tools and sites wisely, choose what you say online and who you say it to wisely and work with people like the Open Rights Group and EFF to ensure your right to privacy is a legally protected right.

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Thanks Mom!

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I started thinking about the history of my first PC recently while reading Fire in the Valley, a book on the history of the PC revolution.

On Christmas in 1995, I unwrapped a shiny new IBM Aptiva. Much to my delight, my mom had gifted me my first PC.

Each time I've thought about my mom making this purchase, it's been thru the lens of someone looking back in time. Reading Fire in the Valley reminded me that I'd never before put myself in my mom's perspective and thought about her making the decision within the context of being a parent without a technical background in 1995.

So, I asked my mom about the purchase. And since it's 2016, I asked over text message. Below is our conversation:


...And this is where we end.

To bring this story full circle, this year for Christmas I bought my mom her first MacBook Pro.

Thanks mom!


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563 days ago
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4 public comments
559 days ago
This is a wonderful story... #fb
West Hartford, CT
562 days ago
Rio de Janeiro, Brasil
564 days ago
So sweet. She bought her kid a computer that she didn't really understand herself, because she thought it would be important later. Awesome.
564 days ago
It's kinda dusty in here
Overland Park, KS

Fixing Problems

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'What was the original problem you were trying to fix?' 'Well, I noticed one of the tools I was using had an inefficiency that was wasting my time.'
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10 public comments
650 days ago
Isn't this just #yakshaving?
657 days ago
The struggle is real
Seattle, WA, USA
658 days ago
This happens to me a lot.
658 days ago
Current status.
Boston, MA
658 days ago
Are your computer problems "for the want of a nail" or "I don't know why she swallowed the fly"?
Earth, Sol system, Western spiral arm
658 days ago
*cough* no comment
Bristol, UK
658 days ago
Hm. I don't actually do this often. But I might have a bit of a penchant for starting over clean.
Los Angeles, California, USA
658 days ago
You remind me of the solution.
What solution?
The solution to the problem?
What problem?
Moses Lake, WA
658 days ago
The problem of Voodoo!
657 days ago
Who do?
657 days ago
You do!
648 days ago
While I imagine anyone who didn't grow up watching Labyrinth is wonder what just happened.. as someone who did grow up watching that movie, this made my day. Thank you!
647 days ago
;-) you're welcome.
658 days ago
'What was the original problem you were trying to fix?' 'Well, I noticed one of the tools I was using had an inefficiency that was wasting my time.'
658 days ago
658 days ago
Contingent Life

blueandbluer: cwolfescribbles: redrodent: fuckyeahcomicsbaby: ...

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A Tale of Nine Lives by Akimiya Jun

I’m not crying, you’re crying!!

Couldn’t find the reblog button though all the tears in my eyes

A someone who lost a well-loved rescue cat to cancer this year, thank you.

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690 days ago
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693 days ago
Sitting next to my 18 year old cat crying now, thanks.
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