Like, Company A posts 5 Billion in profits. But if they post 4.9 billion in profits next year it’s a serious failing on the company’s part, so they layoff 20% of their employees to ensure profits. Am I reading this wrong?
In: Economics
Company A has a board of directors and they are looking to hire a new CEO for the company. There are two good candidates for the position so they interview them.
Candidate 1 says they will keep the company running smoothly, no changes, just keep making money. Candidate 2 says they will make some changes and increase the amount of money the company is making.
The board hires Candidate 2, because why hire someone who is going to make the same money when there is someone who can make them more money? A decision is made and Candidate 2 becomes CEO.
Now that they are CEO they have to live up to that promise. They got hired because they said they would make the company more money, so they start pushing the company hard to earn more money. Increased sales, decreased costs, or both.
If the CEO succeeds they get to keep their job, if they fail they are fired and the process starts over again from the top.
The push for more and more money comes from a series of individual pressures. The stockholders want a return, the board is there to ensure that return, they hire a CEO to make that happen, the CEO has to make it happen.
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