One thing about the Southwest airlines logistics disaster is how it has the same cause as the threatened railroad strike and low domestic oil production and the lack of semiconductor manufacturing:
U.S. companies had more than enough money to fix it in advance, but they chose to goose their valuations with investor windfalls like stock buybacks.
The question is why our tax laws don't discourage that.
@maxkennerly and this isn't just a hypothetical. Stock buybacks only became a thing in the early '80s. Go back prior to that. They were non-existent. They're unnecessary and purely a byproduct of federal tax law.
Equity investors can look for companies that pay a dividend if they want direct cash payments for their investment.
Plundering is the trending business model.
@skydog except the domestic semiconductor and oil industries in fact spent hundreds of billions on buybacks and dividends over the past decade
that's not losing to offshore competition, it's choosing not to invest
@maxkennerly
It's so much worse than you know. They're not even doing real stock buybacks, they're doing something called "sterilization." Ben Hunt sums up the result:
"I believe that there has been a truly astronomical transfer of wealth – well more than a trillion dollars – over the past ten years from shareholders of publicly traded companies to managers of publicly traded companies. Not founders, not entrepreneurs, not risk-takers … managers."
It's beyond infuriating.
A SCOTUS decision some years ago (before Trump, IIRC) held that publicly-held companies' ONLY duty is to their shareholders. Not customers, not vendors, not employees.... just shareholders.
It was a totally dingbat decision, right up there with Citizens United, in the damage it's caused. Also right up there with the 19th Century SCOTUS decision which declared corporations as "legal persons."
You're right! I know (or thought I knew) I had read about a more recent case in which SCOTUS upheld the shareholders-uber-alles reasoning, but now I can't find any decision that is on point.
What I did find was an article from 2019 wherein The Business Roundtable staked a claim that corporations MUST be socially responsible. But that was before Covid upended everything; not sure if their project is still active.
@CaseyL @maxkennerly The reason I say it's not crazy is that as I read it, it just says that you can't use long term shareholder interest as a justification for accepting a lower buyout price when a company is going private.
Which, eh. To the extent that it implicitly asserts shareholder rather than STAKEholder primacy, I hate it, but it is at least narrow as written.
I was thinking of two main prongs: using "shareholder value" to do a hostile takeover/LBO; and corporations refusing to take part in or even acknowledge the interests of the community around them. I.e, corporations used to be major donors to things like museums, hospitals, schools, and other "local assets." I don't know if they still are.
Many lawsuits are in process against Musk over taking Twitter private - but not SFAIK any former shareholders, who made $$$$.
@maxkennerly
"same cause as the threatened railroad strike"
You should be more specific. What would the railroads have "fixed" with their profits? Southwest airlines did not have a problem with sick-days...
@tomgrzybow gosh maybe hire more people so workers can get sick days off?
take your "I'm very stupid" trolling elsewhere
I am quite stupid, but not a troll. By what mechanism can the railroads possibly hire more workers when the shareholders and the BOD is against just that?
"are against just that."
_And_ are _supported_ by Congress and the President of the United States?
@maxkennerly I’m a US citizen currently living in Armenia. A Brit who owns a small business here told me that the business pays a tax on the dividends it pays out.* The receiver of the dividend does not. This struck me as an incredibly powerful way to incentivize reinvestment.
*The system is likely more complicated than this. It was a casual conversation.
@maxkennerly @kornbluh I used to work in aviation. Even in the best of times, airlines are barely profitable - see chart linked. https://archive.ph/KqZ5R
And they lost a lot of money during the pandemic. So if they put off the large capital and operational expense of moving to a new scheduling system, I understand why.
Of course the outcome of that gamble was not fun for anyone involved. But the idea that the airlines are rolling in money, or that they over-reward their shareholders, does not seem to be in keeping with the facts.
More to the point, I'm not sure the stock market is going to reward Southwest for what happened. The reputational hit alone is going to be significant. This will damage both the airline and its shareholders.
As for regulation, the idea that aviation - an industry dominated by regulation - needs more, is at best problematic. You only need to see how sternly the Dept of Transportation reacted to this to know how tightly controlled this space is.
More regulation would likely lead to even more unintended consequences, most of which would impact consumers.
@fallingbeam
They were profitable enough to do $5.6 Billion in stock buybacks in the 3 years prior to the pandemic, and were doing well enough afterwards that they became the first airline to reinstate dividends. All while knowing that their IT and infrastructure from the 1990s was a house of cards, but not bothering to invest the money to fix it because it would've counted against their short term bottom line.
@fallingbeam @Incognitim @kornbluh @maxkennerly Also, while Southwest undoubtedly lost a lot of money during the pandemic, their CEO compensation numbers from 2019 and 2020 reflect the priorities that Max originally cited.
Like PG&E paying outrageous CEO packages while failing to do mandatory forest maintenance around their power lines in California, causing devastating wildfires year after year: it’s short term individual gain not long term collective.
The behavior you describe leads to executives and wealthy investors making huge sums of money. Our laws are designed to be bent in a way that promotes anything that allows wealth accumulation by the already wealthy. It’s no secret.
Why does that happen? Because we have the best government money can buy. And it isn’t cheap to buy into it.
@RudyRusso go look up how much u.s. semiconductor companies spent over the past 20 years on buybacks versus capital expenditures
hint: it's about equal
Yes, Apple’s back end systems have been a nightmare for years. I’ve seen weird issues I presume arise from algorithmic matching across disparate databases.
It’s a career ending problem to address. Cook would have to drive it.
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