Accounting profits VS Economic profits
In the beginning of learning economics, a disturbing problem is to figure out why is that perfect competitive firms reach zero profit. A lot of freshmen would ask that what on earth is the purpose of earning zero profit. In terms of that, I would have to introduce two concepts, accounting profits and economic profits.
In fact, in economics we do not care much about accounting costs. When it comes to costs, it is always referring to opportunity costs. Roughly speaking, the opportunity costs indicate the costs that you do A instead of doing B. For instance, you decide to sleep during 2 to 3 o’clock in the afternoon rather than to read. Then the knowledge you would get from the hour you would have been reading is the opportunity costs of your one-hour sleep. The same theory happens to a firm. If a firm is equipped with sufficient infrastructure, in order to reach zero economic profit, how will the manager act for producing?
In each corporation, there must be irreconcilable conflicts between the board of directors and managers. Simply because managers are targeting for short term profits and interests for themselves while members of the board are more interested in long term returns. Managers would go out of their way to keep accounting profits higher, therefore, they can earn much more. If there are any better opposition, they would decide on job-hopping. Managers are merely operators of company while the board of directors OWN the company. Consequently, boards are looking forward to a stronger firm in long run. They may take risks sacrificing a little accounting profits to reach better economic profits.
Under normal conditions, a chief executive officer (CEO) is the authorized person who is HIRED to manage the firm and would act for most business occasions. So CEO is one of the managers. And it is beneficial for a company to check balance between managers and boards. As a result, things are probably messed up when CEO and the founder of the company would be the same individual. The balance would possibly be broken up and the CEO would have to make choices by his or her own. This is unprofessional.
Speaking of “professional”, I tend to wonder if there is some difference between “vocational” and “professional”. The former one, “vocational” is likely to refer to “qualified”. it’s like you make efforts to obtain a certificate and it is a proof of your ability or talent. No matter what your occupation is, the ability is with you. For example, if one qualified person can be a competent manager in Apple, he or she may be perfect for a manager’s position in NBA. On the other hand, “professional” tends to be like “passionate”. Sometimes passion can enable individuals to act lively at the outset while it cannot last long enough for the entire career. When leaders cannot cooling down, they may not be able to show their expertise in various fields. Admittedly, it is not always a good thing to get emotional easily.
It reminds me of Luo Yonghao. By the time I know him, he had been “cooling down”. Luo Yonghao owns all of the characteristics of a entrepreneur and I truly admire that. Long before, he was somewhat eccentric and would be an eyesore among those so-called industrialists and numerous netizens. Later on, when his company Smartisan Technology gradually made a figure in the market, Luo Yonghao was almost overwhelmed by criticism and mocking. He fought back publicly and undoubtedly, at that time, a relatively small company had no great reputation or confidence. Passion was all he had owned. But now, he is acting much more like a “vocational” leader. And the company is getting more confident than ever before.
