The Machine Has No Intentions But Our Own

"A machine is more blameless, more sinless even than any animal. It has no intentions whatsoever but our own.” ― Ursula K. Le Guin, The Lathe of Heaven

A lizard did not choose what its instincts make it do. Evolution did that. Evolution also built the synapses and nerve “machinery” that a lizard uses to execute on its instincts. Humans indeed have chosen how our corporations’ instinctual frameworks govern them though. Starting with Freedman, Meckling and Jensen’s works in the 1970s, we quickly evolved these ideas from just theories, into dogma and corporate instinct. We’ve also presided over evolving corporate execution mechanisms that achieve these instincts from predominantly human labour to machine based labour in service of creating the “simplest, most aggressive, most effective action” vehicles.

Where did Shareholder Value Maximization come from? We’ve always built businesses to make money, but there was always a challenge to align the actions of managers of a company with the actions of the actual owners or shareholders of the company. In a company where the owners aren’t the manager, how do you ensure that the manager undertakes actions that are for the “good of the company” and not just for their own benefit? What even is the good of the company? Is it profit? Reputation? Customer satisfaction? Environmental responsibility? Employee wellbeing? Social responsibility?

You may note that only one of those is calculable and tangible. In our quest to make things neat, tidy and, most importantly, scalable we decided that more money = more good for the company. To ensure management did things that were good for the company then, we’ll pay them in company equity which rises in value the more money that is earned by the company or the greater expectations of future earnings become. The assumption being that managers will also be motivated by their own lizard brain to prioritize more money over any other motivator.

Reputation? If it was bad, the company will earn less, the equity will be less valuable and therefore the manager will earn less.

Customer satisfaction? If customers aren’t satisfied then they will walk away and the company will earn less, the equity will be less valuable and therefore the manager will earn less.

Environmental responsibility? If we’re not being responsible then the planet will explode and business will cease…..and we’ll earn less, the equity will be less valuable and therefore the manager will earn less.

Every major problem can be solved with some logic trail over some indeterminate period of time that ends up with “intangible” problems resulting in less earnings and lower valued equity for the manager. The simple, scalable, catch all solution right? The unstated part of this theory is that the manager as an individual lizard is thinking “money = eat and be safe” and will only undertake actions that make him or her earn more money. Shareholder Value Maximization has been our dominant theory for over 40 years now and with this one theory we’ve neatly lumped our individuals and corporations with a simple instinctual framework; if it doesn’t violate the law and it makes sufficient return to offset the risk, then it is the “right” thing to do.

We told our lizards to create the greatest amount of shareholder value possible in aggregate because we decided that that would lead to the greatest amount of “good”. Then we built them the best, fastest, most efficient machines to allow them to do the best possible job of executing on these instincts. However we forgot two key things:

1. The timeframes for “bad actions” to manifest themselves as low equity prices does not align with the timeframe that actually discourages bad behaviour. In fact it’s often quite the opposite. Consider a product quality decrease that improves margins this quarter and bumps the equity price now, but destroys customer satisfaction over the medium to long term. Now apply those timelines to reputation, or even longer-term environmental issues. Do managers think about the long term when higher share price today equals more money today and the average management tenure is 2-3 years?

2. We’ve been operating under the money = good regime for so long that we’ve forgotten that money doesn’t actually = good. Money is just the best proxy for “good” we’ve had for hundreds of years. Money has always been a simplification because we couldn’t quantify and scalably organize our society or institutions around “happiness” or “wellbeing” or any other intangible quality. This proxy roughly held as long as shareholder value maximization was being carried out predominantly by humans who would inject some well… humanity into their decision making. In egregious cases where a marginal gain in profit was offset by a massive amount of “non-costly” human suffering, human decision makers could make the decision to optimize “happiness” or “wellbeing” even in the face of an opportunity to maximize value for shareholders. Think of these as pressure relief valves. Machines obviously do not have this human framework built in. Maximizing shareholder value means maximizing shareholder value. Period. When we combine the type of reach and calculability that powers the business models of Google and Facebook, with the singlemindedness of automated profit maximization, the money = “good” proxy no longer holds.

Don’t blame the extremely large lizard or its execution machinery, blame the people who gave it its instincts and those who never thought highly enough of it to go back and either reprogram it…. Or give it the ability to reprogram itself.