Wall Street: Too much sway over the tech sector?

Wall Street: Too much sway over the tech sector?

Summary: Every technology company has three main constituencies: Employees, customers and shareholders. Does that last category overwhelm the first two?


Every technology company has three main constituencies: Employees, customers and shareholders. Does that last category overwhelm the first two? Should it?

These questions are worth asking--at least when it comes to putting technology companies in context. Vinnie Mirchandani and I had this back and forth about Wall Street's influence over technology companies at SAP Sapphire this week.

Vinnie made the following points:

  • Technology companies cater to Wall Street interests too much often at the expense of good strategy.
  • Isn't what a company does for customers and developers more important than shareholder interests?
  • What's wrong with being a mid-size technology company if customers and employees are happy and the products--software, hardware, services--fit a need? There's nothing wrong with it, but Wall Street would lead folks to believe that any company that isn't acquired by Oracle isn't worth existing.
  • And why are we listening to Wall Street at all given that analysts, investment bankers and other financial wonks can't even manage their own businesses (subslime, credit swaps, write-offs galore)?

Vinnie's points make a ton of sense and as a card carrying capitalist pig it was a point of view that took a little time to sink in. But he's right. This Wall Street influence thing is a conversation worth happening.

Let's view some recent news events and downplay Wall Street to see how things may look differently.

  • Microsoft-Yahoo. The ultimate Wall Street story here. Microsoft bids for Yahoo, which plays hard to get. Microsoft walks and takes its $45 billion and goes home. Yahoo is doomed right? If you're a shareholder you're a little bent over this Microsoft thing. However, customers don't see any difference. I'm still happy with Yahoo services. And it's quite possible that employees didn't want to be a part of Microsoft.
  • AMD. Analysts were clamoring for more detail and were even pitching a breakup ahead of the company's shareholder meeting. Wall Street got none of those items. AMD is a prove it company, but you can't ignore the customer angle. Customers like having AMD around as a counterweight to Intel. AMD fills a need. It's a different perspective from what you'll get from Wall Street's view.
  • Amazon. This year Amazon has been in Wall Street's good graces. But for the last two years, Wall Street has been annoyed with Amazon's capital spending, which was needed to build out Amazon Web Services. There are very few folks that would argue that AWS wasn't worth the effort today.

Every once in a while happy employees, shareholders and customers line up in a virtuous cycle like Google and Apple are seeing, but those three constituents are out of synch more than you'd think. The key is to not let Wall Street dominate your view.


Topics: Amazon, Apple, Cloud, Google, Intel, Microsoft, Oracle

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  • Yes but

    This is a constant refrain. The short termism we see dominates the way tech companies behave.. It's dark side is what happens when companies get over awed eg i2. I'm glad so many of the newbies are not looking for exits to Wall Street but are staying private - but - I'd like to see better disclosure.
  • Ask Yang at Yahoo.

    He and the board are currently being sued for passing the huge premium and the subsequent drop in stock prices. The argument is breach of fiduciary duty to stockholders.

    Yang didn't cave to Wall Street and it will probably cost him his position plus big bucks.

    But this is Capitalism at its finest. If a company wants to go public then it is the public they must answer to.
  • True of business generally

    Since the 1980s, the common doctrine has been that corporations exist solely to enrich their stockholders, never mind the fact that were it not for customers providing the money (hopefully on something worth buying) and employees doing the work, there would be no profits for shareholders. in reality, corporations work best when the interests of all constituencies (investors, customers, employees, vendors, etc) are met. If all prosper, then the company does well. If any prosper at the expense of the others, the company suffers. If only the owners prosper, then it's not a business, but a racket.
    John L. Ries
    • And a corollary would be...

      Any company that does well enough for their owners to prosper will prosper even more if they make a little extra effort to take care of their employees. Happy employees generally make happy customers, and happy customers make more of you know what. For the first time in my life, I am fortunate enough to work for one of those companies.

      If you want an example of a company that has pooped on their employees and customers for the past 5 or 6 years, just take a look at Sprint and their recent customer hemorrhage.
  • The problem is, sometimes, short term, you can raise the stock price

    and that is all the stockholders care about, since they think they can just sell the stock and move on. So we get those conflicts between what is good for the company long run, and what is good for a stockholder that wants to sell his stock RIGHT NOW.
    • This is one of the good things about Google, they have the stock structured

      so that the founders, I think including Eric, have two thirds of the VOTING shares, so, they can focus like a laser beam on what is best for Google long term and now worry about short term stock prices. If you spend all your effort on keeping short term stock prices as high as possible you do not have time to run the company, and also end up doing things that are bad for the long term viability of the company.
  • RE: Wall Street: Too much sway over the tech sector?

    I'd love to hear how you explain to your children that you are a "card carrying capitalist pig."
    • Actions - not words

      are the best explanation..... just keep bringing home the bacon :)
  • RE: Wall Street: Too much sway over the tech sector?

    Where has our good sense gone? We've somehow come to believe that shareholders should suffer through years of negative shareholder returns while employees should receive raises every year. We talk about ill-defined concepts like "stakeholders" to justify hanging on to tired old management "strategies".

    Yahoo fits perfectly here. If Yahoo has anything resembling a strategy, someone should let the public know. We might note parenthetically that "hoping the advertising market improves" is not a strategy.

    • Investment in a company...

      Any investment in any company is equal to an investment in a poker game, or any other game of chance to be found at any major casino. It is playing the lottery. It is buying your cards and hoping you'll have a chance to scream "bingo" in the near future.

      Buying stock is lending money. If you can't afford to lose it, don't do it.

      Investors take the same risks the owner of a private company does. Customers come first - without them, you have not business. Employees come second - without them, you cannot service the customer, and have no business. The health of the company comes third - pretty self explanatory. And, bringing up a distant last is the owner, or investors.

      Putting the owners or investors first, or even second, is a guaranteed method of creating greater losses, if not complete insolvency and liquidation.

      Modern investors are among the top five things gone terribly wrong in the U.S. today. This isn't "Wall Street", and you're not Gordon Gekko, and greed isn't good. Get over it. You chose to dance, now whine when the piper demands his due.
      Dr. John
  • RE: Wall Street: Too much sway over the tech sector?

    Sell your stock and move on. If you aren't
    making the profit you want, leave to find
    someone else. Share ownership is nothing more
    than legalized gambling, and as with any
    gamble, there are winners and loosers. If you
    expect an employee to work for free, and
    without a raise to pay you a penny, you are the

    The last company I worked for focused on the
    share price as the owners began to reach
    retirement. Sloughed off several thousand
    workers in the effort. Stock went up. Morale
    went down, productivity went down, quality went
    down, company stock now worth 25% of what it
    was 5 years ago. But the retired owners are
    happy and so are the shareholders that bailed.
    Current shareholders hope it will improve.
    Maybe, but when you loose focus on your bottom
    line to only please Wall St, you loose focus on
    your customer base and employees to the
    detriment of everyone.

    All publically held companies will do exactly what
    Wall Street tells them to. Even if it doesn't make

    i.e. AT&T split into three companies when Michael
    Armstrong was the CEO. They ended up buying their
    wireless company again for the second time.
    All because of Wall Street.

    How stupid was that?
  • Wall Street is all about the short term, not the long term

    It's has been written about in many business publications and well known to many the large acquisition never work. NEVER! Yet some major Yahoo investment shareholders only want to cash out.

    I watch Amazon take a beating for investing in AWS and I'm kinda surprise anybody in techdom has noticed. Thanks Larry. Yet Amazon last quarter earnings showed a growing business segment.

    Good companies are management for the long haul, not to Wall Street myopic thinking.
  • RE: Wall Street, Too much sway over the tech sector

    IMHO, Wall Street has too much sway over publicly held corporations period.

    The expectations of long term investors are very different from short term investors, whose primary interest is maximum increase of the stock. After all, they want their [b]QUICK BUCK NOW!!!![/b]

    Long term investors know that business goes through cycles; and for every good cycle, there will be the appropriate downturn.

    Wall Street caters to stockholders who want to ride the wave [b]UP[/b] and then jump off as it crests. They could care less that for every winner there is also a loser.

    Wall Street is also fixated on the premise that stocks only [b]go up!!![/b] History has shown that stock prices [b]CAN[/b] go down.

    To be the CEO of [b]a publicly held corporation,[/b] you have to serve so many masters; with conflicting and counterproductive agendas; and Wall Street ANALysts are constantly carping about performance.

    Thus, Wall Street ANALyst comments often cause investors to act like a bunch of "scared sheep"; jumping in and out of investments because of fear.

    Think about this - who makes any money, regardless of which way the price of a stock travels?

    Answer: [b]Wall Street!!![/b]

    Who do you think has a vested interest in seeing constant churn in the stock market (as expressed by high trade volumes)??

    Answer: [b]Wall Street!!![/b]

    Another issue with many companies is [b]highly leveraged deals.[/b] The premise there is that increasing revenues and profits will pay down the debt load. But, pray tell, happens when the economy takes a sh*t. You have that crushing debt load, and the "time honored" way to cut costs is to cut [b]people,[/b] and generally those at the bottom get it first. Wall Street ANALysts start carping about the company's sagging stock price, putting pressure on the CEO.

    Rarely do you hear of a CEO taking a pay cut when things are bad. CEOs and their board of directors have, in many cases, a too cozy relationship; where the board makes sure that the CEO has his [b]Golden Parachute.[/b]

    Now, if I remember the periodic table of elements correctly, isn't Gold atomic number 79, and Lead atomic number 82. That [b]Gold Parachute[/b] could end up being an incompetent CEOs "lead weight".
  • RE: Wall Street: Too much sway over the tech sector?

    I''m retired now, but I have worked for one really well managed company (privately held) and a number of mediocre to terrible managements in the public held companies. Included in the 50 year (40 years professional credentialed) career were a number of "government" jobs. My personal conclusion is that both our management and government are totally corrupted. The rule is - mess the customer first, your workers second, your share holders last - and always have a titanium parachute. Our economy and representative government are in extreme distress - and of questionable surviability.
  • RE: Wall Street: Too much sway over the tech sector?

    Capitalism 101; the reason there are shareholders. Do any of you get what a shareholder is? S/he is an owner of the company. The reason companies go public is because they need money from SHAREHOLDERS! Without investors, companies don't grow. Realize that WALL STREET as you've referred to it is made up of Traders (short term buyer/sellers), Investors (folks who buy stock so they make money as the company grows, and ANALysts (guys who decide how well the company should be doing). Traders do screw things up, not only for the company, but for investors as well. ANALysts seem to have the power of life and death over a companies future. God help you if you don't meet expectations. Bottom line - investors do expect to make money by putting their money where their mouth is. Without investors, there are no employees, no products, and therefore no customers. Remember babies and bathwater, and which goes out.