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Well, the so called Magnificent seven, we talk about him each and every day. Yes, I'm gonna remind you it's Apple, Microsoft, Alphabet, Amazon and Vidio meta platforms. In Tesla as the group, they were up close to seventy percent last year, and then in twenty twenty three up one hundred and seven percent. Yet our next guest writes in his new book that quote the dominance of the seven is likely to be as transitory as that of the large business of early generations.
He offers US Steel, General Motors and IBM as examples of companies who shares investors wants clamored to buy, just like these of the mag seven.
Sir John Ky is a writer, professor, economist, economic consultant, a fellow at Saint John's College, Oxford, and more. He has spent years studying the interplay between business, economics and finance. This is so perfect for our audio. His new book is The Corporation in the twenty first Century Why almost everything we are told about business is wrong, which comes out in the US. Tomorrow's er Kay Joining asked him from London.
Hey, so John, good to have you with us this afternoon, this evening. Thanks for joining us. As you write in the introduction, your target audience is people who would never normally pick up a business book, people who read popular science or history, but might welcome an intellectually serious, even sometimes challenging approach to a subject with whose detail they are unfamiliar. Why go for that target audience right now.
Because there are a lot of people who will intelligent people who have opinions about business that are formed on the basis of very little. And as I say, there are two kinds of business books and bookshops right One of the ones that are five tips is how I run to run my business better on Monday. And the others are how awful capitalism is, and how terrible these tech titans are, and how they ought to be cut
down to size, if not put in jail. And I want to write for intelligent people who take a view somewhere in between the two, or I just want to know about business the way people want to know about history or science.
Well, when you look at business works, you know, sir John, when you look at businesses today, it does feel like increasingly, even though a few years ago it was all about multiple stakeholders, employees, customer companies, so on and so forth, it does feel like it is not necessarily the case, and increasingly it's about profitability and the c suite. Many would say this is that fair, and I mean would be right.
Yeah, well it would be partly right. And the truth is that business is about creer eating great businesses and we were striking example of that at the moment. We have many, but one that is absolutely on your lips at the moment is Boeing. And in the second half of the twentieth century, people at Boeing built a great business, the world's dominant aviation producer, and they were clear that that was what they were doing. Bill Hallen, who was CEO of Boeing for some time, said we were here
to live, eat and breathe the world about aeronautics. That was what his Boeing was about, and it built planes that came to dominate the world. Then in turn of the twentieth century there was a takeover or a merger rather, which was effectively a cultural although not a financial takeover by MacDonald Douglas of Boeing and Harvest. So In Cipher, who was CEO of became CEO of Boeing. He had
been a McDonald douglas executive. He became CEO of Boeing and he said, people say this is a great engineering company. It is, but people invest in a company because they want to make money. And we know the things that followed from that, the seven three seven Max which ended in disaster, and now we have this pars of astronauts are stranded in the International Space Station waiting for Elon Musk ironically to come and rescue them. So John set
up of great business. They did. Then they emphasized sharehold of value and they destroyed in the aird not only the business but the shareholder value.
Well, it sounds like that's a case of incentives not necessarily being aligned here. And I know as an economist you study incentives. Are the incentives of the structure that we have that exists today, are they misaligned? Because companies are rewarded for what they're able to do on the top line and what they're able to do on the bottom line, that's what they're rewarded for. Is that the wrong thing for them to be rewarded for.
They're not really rewarded on what they do on the top line. They're rewarded on a basis of some three year metrics and what happens to the stock price. They're not rewarded for creating shareholder value in the long run, which is what these twentieth century Boeing executives actually did. The way you create shareholder value actually is you build a great business, and if you build a great business, sharehold sharehold of value follows from that. It's that way round.
I was interested that one of the reviewers of my book was someone who had been an English Test international cricketer, and he drew my attention to the by football coach Bill Walsh that says the score takes care of itself, and that's the message. If you build a great business, shareholder value follows from that. Maybe the guys who took over Boeing in the twenty first century created shareholder value.
They certainly paid it quite a lot back to shareholders in the twenty tens, but they did a damage irrevocably. I suspect the reputation of the.
Business, Sir John's part of the problem. You know, my husband, I talk about this all the time, is that we don't make a lot of stuff anymore. We're such a service led economy, and I don't know if that has changed the dynamics within companies and leaders and so on and so forth, And I'm just curious. I'd love to have you weigh in on that. Is that part of the problem.
It certainly has happened, but I don't think it's part of the problem. And it's almost the opposite of their problem, because it used to be that businesses were created by capitalists, by rich men who spent some of their fortunes on building seal mills and textile plants and so on, and employed typically rather unskilled workers to work in them. The great businesses now are groups of highly qualified, technically proficient people, and the business of running the business is to put
together the right combinations of people. So we've had that change, which has happened so that the means of production are
now the people, not the plant. But on the other side of that, we've had, basically since the nineteen seventies, the growth of this idea that the purpose of a company is to make money for shareholders, the shareholder value CREED and these two things have been pulling in opposite directions in ways which I think, in the end dam to the legitimacy of the whole market economy as we've known it.
So what is the purpose of a company?
The purpose of a company is to satisfy a whole range of stakeholders. The reason we allow companies to exist is that they do a lot of things we want done, to produce a great product, to give people satisfying jobs, to make money for shareholders. It isn't any one of these things. And if you try to make any emphasize any one of these things, you do so at the
expense of totality. And the people who break built great businesses, whether we're talking about Sloan at General Motors, whether we're talking about Alan Others at Boeing, or whether we're talking about the people who built the Magnificent Seven, the tech companies we all talk about now, they didn't set out I want to make as much money as possible I want to make They certainly didn't say it's set out to say I want to make a lot of money
for shareholders. They said I want to build a great business, and they did, and the course of doing that, they made a lot of money for shareholders. And that's the way around it is the sure the score takes care of itself.
So let's go back to the Magnificent Seven into the way that we open this, because you do argue in the introduction of the book that the mag seven, even though people are clamoring to buy the shares of those companies, they're going to be just as transient as some of those large businesses of earlier generations.
Why is that, Well, they may even be more transient because there's strength lies in their people rather than their plant, whereas a Carnegie or Ford or General Motives it was a plant that determined the business. These dominance is are always almost always transient. Thirty years ago, when people understood that information technology was going to be a big thing, it was IBM, who as sure as they bought, they made that the most valuable company in the world. Now,
Facebook and Meta are top of many people's lists. I know that Facebook. My grandchildren now think that's something for people of my age that's not.
Something we maybe not Instagram and that's and WhatsApp, and that's what has been their saving grace.
Right well, And there's an issue there that we need to talk about which is the nature of antitrust policy. And we allowed mistakenly, in my view, companies like Meta to take over Instagram and WhatsApp, whereas the whole strength of the market economy comes from people to new things to take the place of the things that went before. Actually, Facebook took over from MySpace, which was the predecessor of Facebook and providing the kind of space services that Facebook does.
People have forgotten about MySpace now. Interestingly MySpace and I talked to executives there as to why things had gone wrong. They said because it was bought by News Corp and read group of murder who were mainly interested in creating shareholder value.
That's interesting.
So, John, one thing I want to ask you is if you know your title is why almost everything we are told about business is wrong. So if that's the case, I am wondering in terms of academic research consultants that abound in terms of you know, trying to figure out or try to tell or do tell companies what to do. If we were getting it wrong, what's the outcome of that? And if we don't get it right, if we don't maybe perhaps change the academic research about how we think
about companies. If we don't do that, what's the outcome.
I think the outcome is that we get things wrong in a pretty fundamental way. And in the first half of the twentieth century, people saw themselves as trying to create a profession of management, which was a respected profession like law or medicine or the priesthood or whatever. When people were called to do that and derived a lot of the satisfaction of their job, not just from what they were paid, but from the feeling that they were
doing contributing something worthwhile to society. We've lost a lot of that, and I think it's made business a good deal worse as a result. And we can see the kind of loss of legitimacy followed. The murder of Brian Thompson three or four weeks ago is a pretty good example of that. The fact that almost forty percent of respondents to a pole suggested that that murder was at
least partly justified. It seems to me a terrible commentary on the way business is now regarded among a large section of the population, particularly the young population.
Is that a commentary on business or is it a commentary on the structure of healthcare in the United States, which is a result of decisions that politicians have made.
It's a combination of both. I mean that health care. Healthcare is the forefront of that because again, go back to into the twentieth century and you see how healthcare created antibiotics and vaccines and other drugs that saved lives and made a great deal of money for the companies that produced them. We've now moved from a health to a healthcare sector that is largely people see it as being rather there to make as much money from us
as possible from our need from healthcare. And that's why people seem to approve of the murder of Thompson, who fifty years ago would have been appalled by it, as they should be.
So where do we go or again, I want to kind of dig to, you know, the repercussions, and I do actually think about how politics fits into all of this of a society that doesn't feel like they're represented anymore. I mean, if you've got you know, I think this is from your own website, you know, the widening gap between executives and employees is destabilizing our societies. Facebook and Google have more customers than any companies in history, but
are widely reviled. So I do wonder, I don't know, is there a realization and and we come out on a different side, a different view of the relationship between employee and employer, Like where does this all go in your view? Or how does it? What's the dark scenario?
Yeah, go ahead.
We've had a culture change in the last fifty years in the wrong direction. I described how in the first half of the twentieth century through to nineteen seventies and eighties, we had the idea that we were trying to create a professional management and people who were employed in large companies were there to create great businesses. The shareholder value idea that businesses are just about making money has got in the way of that now. And this is not
to say businesses are not there to make money. They are there to make money, but they're not just there to make money. And if they're just there to make money, they're not that successful even at making money. I think Percerns famously had about a sign saying we make nothing but money, and it's interesting that they ended up not making any of that. Is there a.
Company and we're just got about a minute or so that you look at and say, Okay, they've got to kind of right the relationship between employer and employee. That maybe is a model for the way forward.
Perhaps I think there's not a model in that sense because people cannot talk the right rhetoric. But if I go back to the twentieth century, if I go back to General Motors and IBM and as they were in the years we've talked about the people who were working in them, the people who were running them, the people who worked for them, knew that they were there to create businesses, great businesses, and if you create great businesses,
you make a lot of money for stockholders. That's the way round it is, and that's the most important point to get across.
So then what was the result of their down Why did they have a downfall? What happened?
I think it was a set of social changes that happened as a result of the nineteen sixties. We can I talk about this at some length in the book money Can't Buy Me Love, Can't buy you Love, which was the great be Beatles song of the sixties. And then I say, well, perhaps it can. And that's about the academic work that followed from that. It's easy to date it to Freedman's article in nineteen seventy it said the social responsibility of a company is to maximize it profits.
Perhaps more significant was the Powell Memorandum, written by Lewis Powell, who became a Supreme Court judge, which tried to persuade business that the way they made themselves more legitimate was to sponsor the right kind of academic research. And they're
very successful in that. And the Cato Institute and Theage Heritage Foundation, the Business Roundtable or was set up in the nineteen seventies in response to this kind of thing, and we can see that in the end it hasn't made business more legitimate, it's being made it less.
So think about Peter Goodman's book, right, we were talking about this.
In the world ran out of everything.
Right, in the role of consultants, many things at play, but you know, everybody outsourcing looking to kind of do things in a more efficient way, or so in the supply chains that moved outside the United States.
And the Business Roundtable back in twenty nineteen with that letter that you know, that statement of purpose of a corporation that tried to sort of redefine the purpose.
Of a company that was what six years ago at this point.
Well, sir John K, you gave us a lot to think about, so appreciate your time and good luck with the book. Really appreciate it.
Things measure to joak to you.
The new book, The Corporation in the twenty first Century, Why almost everything we are told about business is wrong, comes out in the United States tomorrow