We are all public company CEOs

One prominent critique of public markets is that they incentivize short-run thinking at the expense of long-run thinking. Since public company executives feel bound by quarterly expectations, they pursue incremental bets with immediate payoffs: minor product enhancements, cost-cutting strategies, “something-something-generative-AI,” etc. Anything risky, bold, or transformative gets shelved — or worse, is assigned to a “tiger team” whose proudest moment will be presenting their ideas at a company All Hands before being quietly disbanded. 

For some businesses, all of this is fine. There are only so many ways to run a grocery store, so becoming incrementally more efficient is all you can hope for. Nothing will change the reality that it’s a competitive, low-margin business — not even “something-something-generative-AI.” (Sorry, Albertsons.)

But not all industries are created equal.

For example, pretend you are the CEO of a hypothetical maker of commercial passenger aircraft. Your company was once the pride of American engineering, capable of producing ambitious new designs that transported more people more efficiently all across the globe. Unfortunately, your company has fallen on tough times. It can’t even build planes capable of doing the only thing planes are absolutely required to do: Fly.

Who or what could explain such a dramatic and completely hypothetical downfall? Certainly, it would be an oversimplification to blame it all on short-sighted executives who barely understood their business and attempted to cut costs but ended up cutting corners instead — oh, wait, sorry, it’s not an oversimplification:

Many of the problems with Boeing jets since the deadly crashes can be traced back to a production system adopted by Boeing and its aerospace rivals before Hart-Smith’s paper, [which argued against excessive outsourcing]. Dozens of factories build key pieces of 737 and 787 jets before they are assembled by Boeing. One of them is a sprawling fuselage plant in Wichita, Kan., that Boeing owned until 2005. 

At the time, then-Boeing executive Alan Mulally said selling the factory to a private equity firm would let Boeing focus on final assembly, where it could add the most value to its airplanes.

Ah, yes, private equity — that great economizer of American industry.

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The essential thing people don’t internalize enough about companies is that they are exercises in building organizational capacity. When a software engineer implements a new library, an analyst launches a dashboard, or an operations manager formalizes some process, capacity is built. At some point, it becomes easy — so easy — to take the human beings who actually built that capacity for granted. After all, if an executive lays them off, no one notices! The other employees continue to leverage the library and dashboard. The company follows the same process it always has. Although the people are gone, the capacity remains, at least temporarily (hence why companies like Elon Musk’s X can continue running in a degraded form, even after suffering debilitating cuts).

Even culture can be capacity, and as anyone lucky enough to work with remarkable colleagues knows, culture is often carried by a handful of exceptional people.

What happens to your plane maker when new executives assume control and sideline those exceptional people to instill an ethos of cost-cutting? What happens when your new culture must choose between safety and expediency when solving thorny technical challenges against the excessively tight timelines dictated by the public markets? What happens when the organizational capacity you took for granted finally fades?

Disaster.

Designing and manufacturing planes is perhaps humanity’s most extreme case of needing to rely on the admittedly mysterious forces of organizational capacity. Developing a new plane — or even a remixed version of an already successful one — is so rare and complicated that whenever it happens, you’re effectively relying on the implicit and explicit knowledge of generations of engineering practice. The knowledge of how to do it can’t be found in a Stanford GSB case study; it’s embodied in an organization’s people, processes, and relationships. Given that unavoidable reality, one should be wary of messing with it.

And, yet, without thoughtful management (preferably from an engineering rather than business background), that’s what public markets could incentivize: the degradation of hard-won capacity for a few basis points of margin. Money in the short run for calamity in the long run.

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My point here isn’t simply to take potshots at Boeing (although I admit it’s up my alley). I want to suggest something far more uncomfortable: Increasingly, many of us lead our private lives the same way Boeing (and other companies) run their businesses. Rather than build and nourish our capacity for thriving by investing in strong relationships and healthy habits, we turn to the reliable but fleeting dopamine hits that the tech platforms are always ready to dole out. We are excessively short-run-oriented.

Worse, we can’t even blame the genuinely onerous constraints of the public markets for our failings. We just can’t stay off our phones.

Derek Thompson of The Atlantic wrote a fantastic piece about the changing ways Americans spend their time. The whole thing is worth reading, but TL;DR: We hang out in person less than we used to. This decline has been particularly extreme for young people, who once did nothing besides hang out. (Thompson lists several reasons for this decline, but come on, you already know the big one.)

Now, one could argue — indeed, some prominent venture capitalists with a vested interest in perpetuating the status quo have argued — that this is fine. Why should we care that people spend all their time passively consuming content rather than hanging out or building community? “The real world isn’t as compelling as you think,” such a person might say.

Which… Fine: Everyone talks their book (especially the professional X users known as “venture capitalists”). Still, it’s difficult to avoid the conclusion that as good as technology gets, we remain corporeal beings who derive deep contentment from experiencing the corporeal forms of others. The fact that signifiers of mental distress are increasing across the board (especially among the young people for whom these time-use trends are so dramatic) certainly hints at that fact.

The principal problem here is analogous to that of our airplane manufacturing executive. Cost-cutting is a guaranteed boon to earnings-per-share, but investing in the capacity to launch a new plane is risky. Similarly, our dopamine will reliably spike when we look at our phones, while the payoff associated with hanging out IRL is speculative. The real world isn’t personalized to our tastes. It’s high-friction and disappointing. It involves sitting in traffic and spending money and even meeting people we might not vibe with.

Moreover, the dopamine hit from Instagram/TikTok/X happens now, whereas the real magic of relationships is how they grow over time, shaping and reshaping their participants in the process. The vertigo I experience when my kids play with the kids of my high school friends is beautiful and moving. Still, it wasn’t something I anticipated I would cherish on the nights we lit bonfires on the beaches of Half Moon Bay, sipping the whiskey we prayed our parents wouldn’t notice was missing.

“Hold on,” you’re now saying, “it’s not like I never see my friends. They were over for dinner last month! Or was it the month before? Anyway, we’ve built that relationship capacity! It’s not going anywhere, is it?”

Is it?

I get this is heavy-handed. Am I really comparing America’s inability to build planes to our changing preferences for how we spend time? I mean, yes. But just like Boeing operates in an economic environment that seems fundamentally at odds with fulfilling its purpose, we live in a cultural and technological environment that seems at odds with fulfilling ours. The most obvious short-run signals — stock prices, dopamine levels — mislead, impairing our view of the optimal long-run path. We can wait for a new regulatory regime to address both problems, but for now, the only way forward is disciplined management.

Building a life is like designing a plane, not managing a grocery store. (Sorry, Albertsons.)