Public companies and institutional knee-jerkism

· by Steve · Read in about 3 min · (569 Words)

I have to say that I admire companies like iD for staying private despite enormous success. IPO fever in tech companies is almost constant, undoubtedly because VCs love it as an exit strategy, but it’s a sure-fire way to turn a great company with solid direction, principles and a long-term strategy into a nervous, twitchy being with one eye firmly on a quarterly earnings report and ever-eager to scrabble frantically at any short-term technique to shore up a stock price.

Case in point is EA this week. They had a ‘poor’ third quarter, having only made a net income of $116m in 3 months, the poor things. So, in order to appease the mighty and fickle gods NASDAQ and NYSE (tremble at their names), the EA kaballists made the now traditional sacrifice of live employees (300 odd in this case), hoping that the gods’ anger would abate, and that they would not be punished by the great share price graph plummeting from the heavens upon their prostrate forms.

Ok, so they made a little less money than last year - so did most in the industry last time I checked. But they still made a shedload of cash, and they still pretty much own a sizeable portion of the mainstream game business. Seems to me that just axeing an arbitrary number of employees will have little positive effect at all on their bottom line and will just make a bunch of other employees’ lives a hell of a lot tougher for a while, firstly just after the additional resources are gone, and later as they undoubtedly re-hire some other cheaper (read: less experienced) employees in a trickle the market won’t notice. This is bound to knock-on to project timescales and hence cause problems down the line. Ah, but that won’t affect the share price right now, so we won’t worry about it, right?

All this short-termism is a complete waste of time and resources. Ping-ponging between hiring and firing based on a measly 3 months period (minute from a strategic perspective) is just crazy - but you see it all the time in public companies. They have hordes of faceless shareholders to please, and when the market says jump, the company say ‘how high’. At least with a private company your shareholders know you, trust you (hopefully), and will ride out short-term storms with you in the pursuance of a better long-term goal. And I would by no means call this a storm anyway. IPOs sure raise a boatload of cash, but the market is so damn fickle a master, I don’t personally think I could ever work in that sort of environment (not that I’m likely to get the opportunity to anyway). I’m sure companies like EA keep tabs on which employees can be classified as ‘sacrificial’, in reserve for just such occasions as this, but it doesn’t make it any less nonsensical.

I guess I’ve never really liked the stock market anyway. I’m a rational person and it always seems pretty damn irrational to me, driven by conjecture, gut feeling and a ‘sheep’ mentality that seems to be mostly stuck in ‘Chicken Little mode’ (“Earnings fell this quarter? ohmygodohmygodohmygodsellsellsellSELL!”) or ‘Monte Carlo huckster mode’ (“Did you say Internet? Web 2.0? Here, take a hundred million and put it on number 20 for me”). It mostly seems like complete bonkers to me, but I’m a simple man. 😀