The New York Times published an article recently telling of the woes encountered by an ex-employee of Amazon.com (AMZN +0.34%). While some statements have been issued refuting those claims, it leads one to question: which side to stand on from an investment perspective. Should investors be concerned about the future of this company, or will this article simply be a blip on the investment radar?
A full transcript follows the video.
Gaby Lapera: Corporate culture. This is Industry Focus.
Hello, everyone. Welcome to Industry Focus, financials edition. My name is Gaby Lapera and John Maxfield is on the phone. This week, we're talking about corporate culture as inspired by that New York Times article from a couple weeks ago. We got a little distracted last week with that little market correction business that happened, but we're right back on track with some exciting stuff this week.
I don't know if you've read this article, but if you have, you'll remember that it talked a lot about the corporate culture at Amazon and how it's really hard driving, long hours, and unrealistic expectations. There are horrible stories in there about people getting laid off because they weren't producing as much because they were diagnosed with cancer and other stories to that effect.
My question is, what do you think about this? Do you think this is true?
John Maxfield: Here's the deal: The article comes out in The New York Times that basically slams Amazon on its culture. The issue is that the authors of The New York Times piece are making that Amazon drives its employees too hard. It puts its corporate objectives -- profitability and growth -- above the happiness of the employees. In the wake of that, there are a bunch of articles that have come out that have said that these things were inaccurate.
Jeff Bezos personally refuted it in an article. Another employee of Amazon refuted a lot of the points in an article, but then a lot of other ex-employees of Amazon came out and said that these things were consistent with their experience. The question is: Is this actually a problem at Amazon, in terms of this culture?
This is what I would say: We come at this from an editorial standpoint. We publish work, we write about stuff, we investigate companies, and do research analysis on them. The question is: When you have an article like this, about a company, how should an investor approach that? How should an investor tease out the information, particularly when you have stuff form opposite sides? In my opinion, that is a really interesting thing for investors to think about.
Lapera: Absolutely. I think, for investors it's something that they need to think about whether or not they care about this. Some people don't care at all. They only care whether or not the company is going to be profitable. On the other side of that, you have people who think if a company treats their workers a certain way, perhaps they'll increase productivity, which will drive revenue.
I think that's what you're seeing when you look at companies like Google or Apple, who are famous for all their perks. Perks like laundry on campus and gyms and subsidized food, and rooms full of playball pits. I don't know if that's actually a thing, but it might be.
Maxfield: Whatever that is, I don't know what that is, but I want to be at that company.
Lapera: That sounds wonderful, right? It gets to the question of whether or not this is really common in the corporate world. Is it better to incentivize your workers or terrorize them in order to get them to produce better?
Maxfield: I think it's a really good question. This isn't your typical company. This is Amazon.com. Just to put this into context, just this year Amazon passed Wal-Mart to be the biggest retail company in the United States by market cap. It's not the biggest in terms of revenue; Wal-Mart is still much larger in that regard, but think about that.
Think about what you would need your employees to do in order to go up against an industry stalwart. We're talking about one of the biggest, best run, most efficient, most experienced companies in the entire world. Amazon goes up against it, and they're beating it. The question is now: is it pushing its employees too hard to do so? From the back and forth of these articles, it's really hard to tell whether it is or isn't.
What I would say is, coming at this from a writer's perspective, there's only one way this type of article could come about. These are writers for The New York Times and they are very smart people. These are exceptionally good, investigative journalists, exceptionally good writers, and they're incredibly intelligent people. What can happen, though, is you can follow the story too far and that can impair your objectivity.
At some point, everyone has a complaint about their employer. If you just focus on complaints -- even at The Motley Fool, which is regularly on top of the employers in terms of employee satisfaction year after year -- but even we would have employees that would have some type of complaint about The Motley Fool.
Lapera: Oh, yeah! Go to Glassdoor.com. There's definitely a few complaints on there. Most of them are positive, but everyone isn't always 100% suited to their workplace.
Maxfield: Right. Behavioral finance calls that representative bias, or availability bias. If you just focus on that, then you're obviously going to be able to paint a really gloomy picture. As the [...] showed, there is certainly another side to this story here.
Lapera: I think something to consider based on another of the articles I read in connection to this Amazon piece is another tech worker, who I believe worked for Microsoft and Google, said that long hours was not something that was exceptional to Amazon. That's something that happens in all the tech companies.
I think it's also important to remember that crazy hours and the insane drive to produce isn't solely limited to the tech industry. Financial institutions are renowned for really long hours and super high expectations. I think the role that corporate culture plays in financial institutions might be a bit different than in tech companies.
Maxfield: I agree. Culture is an incredibly important thing. In my opinion, what is so important about it is, if you have a model that is working, you need that model to make it from one generation of leaders to the next generation of leaders, and so on. So how do you bridge each of those gaps? It's my opinion that culture is the way to do it.
The real struggle for financial institutions in particular is balancing the objective of driving revenue growth, which is done by making loans. You could make loans every day as long as you set the interest rate low enough and you reduce your credit policies. You can drive revenue until the cows come home. If you do that, then the problem is, when the credit cycle turns down, you're going to have a lot of loan losses and that could put your bank at risk of failure.
So you have to balance that with really robust risk management. I think of it as a barbell. On one side, you have robust revenue growth. On the other side, you have robust risk management. Those two things are inconsistent with each other and balancing those is where culture comes into play. To ensure that a bank of other financial institution can make it through multiple cycles, you have to make sure you have that culture that is balancing those two things to bridge those gaps between various generations of leaders.
Lapera: You think the way they do this is through their long hours?
Maxfield: That's a component of culture. In the financial institutions in particular the problem is that you have your revenue growth, your revenue drivers, and they're making all this money for the firm. When everything is going well in the economy -- they're making more and more money -- they gain prominence in their firm and make it to the top. Then what happens is, if they gain too much prominence and are put above their risk managers, that's when you have problems.
Your culture has got to be able to keep your risk manager at the top of the hierarchy. That seems easy in theory, but as we've seen time and time again through histories, and cycles, and banking cycles, and panics, that is much easier said than done.
Lapera: I think it might be because we have access to the Internet and information is so much more available, but there have been a few deaths in the banking industry recently. I don't know if it's in response to this, or if it was a general decision to institute these policies, but Goldman Sachs, for example, told their interns that they couldn't be in the office between midnight and 7:00 a.m. They needed to go home for at least one weekend every month. It might be more, but that's crazy.
When most people are eight, they don't think, "I'm going to go to college and get a white collar job and work 100 hours a week." People don't think that growing up.
Maxfield: I will say this: I'm not sure that's true. In some portions of the country, there may be some validity to that, but I grew up in an agricultural community and if you look at the United States on a map, a lot of this country is agricultural. Even in this modern day and age. When you grow up in that type of community, all you know is work from morning until night. That's how you define your life, that's where you derive your pride from; so 100 hour weeks in that type of world, I'm certainly very familiar.
Another world that's familiar with that is in law. You hear these horror stories about these law firms where they have to bill 2,000 hours per year. If you break that down, that means you've got to be working 80, 90, 100 hours per week to get that type of billable hours on an annual basis.
You look at doctors, top doctors are the same way. One of our colleagues, Morgan Housel, said it best: "If you want to succeed, it's fundamentally about whether you're willing to sit in a chair for long enough hours during each day in order to do that." The hard work thing is one thing, but to mistreat employees is an entirely different thing in and of itself.
Lapera: Do you think that these employees are more effective because they're working 80 or 90 hours per week?
Maxfield: I think the studies are pretty clear that once you pass a certain point -- I don't know what that point is, exactly -- your productivity certainly goes down on an hour-by-hour basis. A lot of it is showing your employer that you're committed to the common cause, and just being present is one way I think a lot of people do that in a lot of different industries.
Lapera: I guess that's true. I think I'm approaching this more from the perspective -- I don't know if you've read this article that's been floating around. Back in the 1950s, they thought that by now we would surely only have 15-hour work weeks and the national question would be: "What do we do with all this extra free time we have?"
Since then, the workweek has only gotten longer for most people. I don't know. I think maybe there's a balance in there that's not happening yet. At the same time, if they really need to work all those hours, then that may be the way it has to be.
Maxfield: Here's the other thing: If you look at the United States in particular, the United States has a culture. If you go all the way back to the beginning of our republic, it has been about growth, working hard, making money, making it to the top, taking advantage of the fact that the United States has upward, social mobility -- although people are now arguing that those opportunities are diminishing nowadays. I don't know if that's true or not, but a big part of the American culture is this drive to push and excel and defeat the competition. A lot of times that just takes a lot of hours committed to whatever it is you're doing.
Lapera: I remember seeing a study a few years ago that showed how, on average, Americans worked somewhere around 300 hours more per year than most of their European counterparts. That's a lot more hours.
Maxfield: Look at the difference. Granted, we also have a really good real estate in the United States. We have a lot of natural resources that have helped our ascent. That's actually a really fascinating question. If you look at the two cultures in that regard, and you look at how the United States has ascended, and on a relative basis Europe has descended, it's a really interesting anecdote.
Lapera: That's true. I think if you compare us to Scandinavian countries, I've seen studies that show they're happier, and they also work less hours. They have less money, but they also have more time for important things like friends and family.
Maxfield: That's true, but they're also not the global superpower.
Lapera: That's true.
Maxfield: There are huge benefits that go along with that.
Lapera: That's absolutely true. In summation of everything, you need to decide for yourself as an investor: Does corporate culture matter to you? Do you think having this hard-charging culture is going to make the company better or not? Then look at it and take it into account when you're deciding what company to invest in long term.
Maxfield: I would agree with that. The other thing I would take away from all this is, when you're an investor and you're sitting there and you have all these different news stories with conflicting information, you have to figure out how you're going to handle all that information. I don't think there's an easy formula to figure that out, but certainly thinking about that, and thinking about the fact that anytime you're making a decision as an investor, you're going to be confronted with conflicting evidence.
Coming to terms with that and being comfortable with the decisions that come out of that process are really pivotal to beating the market and having success as an individual investor.
Lapera: Absolutely. Thank you very much for joining us this week. Have a great day!
