What's funny is this issue came up in the recent science vs science fiction debates in Dover, PA, Cobb County, GA, and the state of Kansas. Some of the arguments against teaching science in school have been to the effect of "Human Beings couldn't have been created through random genetic mutations" and "I can't believe in an existence that has no purpose". Unfortunately, even if the Truth is that God (or the Flying Spaghetti Monster) created us, there's no reason to believe He did it on purpose, any more than Gary Cismesia hit the goalpost on purpose in Florida State's loss to Penn State. You could just be the funny-looking result of a batch of DNA brew God mixed up while he was distracted by the latest Desperate Housewives. Oops. Would it really be a comfort to learn you were just a reject in a long line of rejects in God's quest to build Natalie Portman?
Anyway, people are good at that sort of self-doubting and need for outside affirmation. But apparently we have no such qualifications for the things that we create. Who asks, "Why do toaster ovens exist?" Who asks, "Why does IBM exist?" If we really must ask these Why questions, should we at least ask them about the items and institutions that we at least have a little control over? For example, it's been long said by greedy short-term stockholders that corporations exist for the benefit of their shareowners. Their entire purpose is to create value for the people who purchase shares of their stock. But is that really true?
Name one successful public company that started out life as a public company. Name one successful company that started out in a situation in which the original owner(s) were not also employees. What's my point? The reason these companies exist could not possibly be to enrich stockholders, when there were no stockholders at the moment of the company's creation. Let's look at UPS for example. In 1907, Jim Casey borrowed $100 from a friend and became the first employee of a company that delivered messages and parcels around Seattle, Washington. 98 years later, that company has expanded into a global giant with over 400,000 employees moving over 3.6 billion packages a year (2002) to over 200 countries. Today, UPS is a publicly traded company on the New York Stock Exchange and a member of the S&P 500 worth over $83 billion. Why does this company exist? What is its raison d'etre? Ask its largest institutional shareholders and they might say it's them. If you could ask Jim Casey, however, he would tell you it was him. And his brother and his partners. They wanted to make a living and they saw an opportunity to do so by forming their own company. You could say that one of the initial reasons for existing was for its employees' sake. Also for its owners' sake, since they were the same people. And for the sake of its customers, without whom there would be no UPS. But basically it exists because Jim Casey needed a job.
IBM has a similar history. In 1888, Dr. Alexander Dey invented the first dial recorder (whatever the hell that is). His business formed one of the three initial building blocks of IBM. This business existed because Dey wanted to earn money by building and selling his gizmadoodle machines. His company existed to earn its employees money. Which is funny, because last week (free login), IBM announced that it was ending its pension program. I'm sad to see pensions go. I firmly believe they are a great tool to retain qualified workers throughout their career. However, it's this money quote that really gets to me:
Companies with pensions are facing tough competition from newer firms and from global companies that aren't saddled with that cost, said Richard Brownlee, professor of business administration at the University of Virginia. When pensions were being formed in the middle of the last century, he said, "we didn't expect the kind of global competition we see now."
So basically, pensions are now considered a "cost" that is saddling US business. That may be, but pensions are really a part of compensation. What IBM and this guy Brownlee are saying is that American workers make too much to compete globally. And they have a point. But what is dishonest and destructive about attacking pensions this way is that instead of admitting to people that their compensation is dropping, they are taking away money that employees won't see for another 10 or 20 or 30 years. If IBM took $50/month out of an employee's paycheck, there would be some serious morale problems for the company. But if it can sneak that same money out of the retirement plans without anyone really noticing the difference in their paychecks, well, all the better. The other downside is that pensions really are an effective compensation tool. 401k's are portable. And yet companies can't seem to figure out why their best employees leave for other companies each year. When you give every incentive to leave and none to stay, people are going to leave. Pension plans give an incentive to stay. In order to sneak money back out of compensation, these companies are mortgaging their futures. They are creating a system by which they have to rebid annually for talent, driving up compensation costs, training costs, and recruiting costs.
Of course, IBM's puppetmasters aren't concerned. As soon as the stock price lifts a little from this new infusion of cash, they're going to sell. They won't be around in 10 or 20 or 30 years when IBM is crashing and burning from a lack of talented employees. So what is the reason for IBM's existence today? To satisfy day-traders and short-term stockholders? Or some combination of the logical descendents of the founder (employees), customers, and long-term owners? From where I'm sitting, the day-traders are eating everyone else's lunch. Sorry Dr. Dey.