5 April 2026

The Seed Corn

by Mark J Menger

The Seed Corn

There is an old agricultural practice, and an old agricultural warning. Seed corn is the portion of a harvest you do not eat — the part you set aside to plant next season. A farmer facing a hard winter might be tempted to eat the seed corn. It solves the immediate problem. It makes this season’s numbers work. And it guarantees that next season’s harvest will not exist.

The practice has a name in organizational life too. It just goes by more respectable terms: margin improvement, cost optimization, capital efficiency. The mechanism is the same. You consume the future to inflate the present.

The Unrecorded Liability

In the previous article, I described financial metrics as lagging indicators — measurements of value after it has already been created. The leading indicators are the conditions that generate value: customer trust, product quality, institutional knowledge, talent density, the capacity for adaptation.

Here is the precise nature of the strategic failure in accounting-led enterprises: they treat leading indicators as inventory available for liquidation.

Customer trust is an asset of real economic value. It determines retention rates, pricing power, the cost of customer acquisition, and the quality of word-of-mouth. When an organization systematically degrades the customer experience — through reduced service quality, product corners cut, commitments not honored — it is liquidating this asset. The asset does not appear on the balance sheet. Therefore the liquidation does not record a liability. Margin improves. The asset disappears. The books look better.

This is not metaphor. It is a precise description of an accounting failure: the systematic under-recording of liabilities created by the degradation of off-balance-sheet assets. The organization is borrowing against its future revenue — customer retention, pricing power, referral — to fund its present margin. The debt is real. It simply isn’t written down anywhere until it manifests as churn, competitive defection, or reputational collapse.

The same mechanism operates across every category of leading indicator. Talent attrition driven by poor management or inadequate investment is the liquidation of institutional knowledge. Technical debt accumulated by skipping maintenance and investment is the liquidation of engineering capacity. Product compromises made to hit cost targets are the liquidation of product integrity.

In each case, the short-term financial picture improves. In each case, the long-term organizational capacity degrades. In each case, the accounting framework records only the improvement.

Why Markets Don’t Catch It in Time

A reasonable objection: surely financial markets, pricing long-run performance, account for this. Sophisticated investors track customer satisfaction, talent retention, product quality. If a company is systematically liquidating its leading indicators, won’t the market price in the damage?

Eventually, yes. The problem is the lag.

Internal incentive structures in most public companies operate on one-to-three year cycles. Bonus targets are set annually. Equity vests over two to four years. CEO tenure in S&P 500 companies has declined to an average of 7.8 years. Market consequences from the degradation of leading indicators arrive on five-to-ten year cycles — sometimes longer.

Research published through the Harvard Law School Forum on Corporate Governance documented the mechanism precisely: earnings per share, which commonly determines executive bonuses and the sizing of stock awards, can be mechanically improved through share buybacks — reducing the denominator without improving the underlying business. Of S&P 500 companies conducting buybacks between 2018 and 2021, 46% used per-share metrics such as EPS in their executive incentive plans, and of these, 76% made no adjustment for the buyback’s mathematical effect on those metrics when determining payouts.

The result is structurally predictable: a CEO on a four-year tenure with EPS-linked compensation has every economic incentive to harvest the leading indicators built up by her predecessors and to optimize the financial metrics that determine her compensation — leaving the resulting liability for her successor. This is not a character failure. It is a structural one. The incentive horizon and the consequence horizon are deliberately misaligned. By the time the market registers the damage, the people who caused it have moved on.

William Lazonick, writing in Harvard Business Review in 2014, documented how this dynamic had restructured American corporate behavior at scale. The shift from a retain-and-reinvest model — where profits were compounded back into organizational capacity — to a downsize-and-distribute model — where profits were extracted through buybacks and dividends — represented, in his analysis, a fundamental reorientation of corporate purpose away from value creation and toward value extraction.

IBM: The Long Erosion

IBM was one of the great research institutions in the history of technology. Its laboratories produced foundational contributions to computer science — the relational database, RISC architecture, the scanning tunneling microscope, advances in cryptography, laser cooling, and the discovery of high-temperature superconductivity. Between 1993 and 2022, IBM researchers received six Nobel Prizes. The depth of institutional knowledge that produced these outcomes was the result of decades of investment in people and in curiosity-driven research.

Over the same period, IBM’s financial engineering became progressively more sophisticated and its business increasingly hollow. Revenue in 2023 was lower in nominal terms than in 2008. The company spent over $100 billion on share buybacks between 2000 and 2020 — capital that did not go into developing the next generation of products or capabilities. The research excellence that warranted the IBM premium was not destroyed by market disruption. It was defunded and dispersed by financial decisions that harvested its value rather than compounding it.

IBM’s engineering and research culture saw what was coming. The organization understood distributed computing, recognized the potential of the internet, pioneered work in artificial intelligence decades before the current wave. The failure was not a failure of foresight. It was a failure of the resource allocation process — a process governed by financial metrics that systematically undervalued long-cycle investments in leading indicators relative to short-cycle improvements in lagging ones.

The Four Channels

The seed corn dynamic operates through four distinct but connected mechanisms.

Time horizon compression. When the primary navigation instrument is a lagging indicator measured quarterly, the organization’s attention concentrates on the quarter. Investments with payoffs beyond the measurement cycle are systematically undervalued — not because decision-makers are irrational, but because the instrument doesn’t measure what those investments produce.

Knowledge destruction. The signals that matter most for organizational health — “this engineer is demoralized and will leave in six months, taking critical knowledge with her”; “this product compromise will erode customer trust in a way that appears in churn data 18 months from now” — cannot survive translation into budget line items. The aggregation process that produces legible financial metrics destroys the texture of information that makes good decisions possible. What cannot be measured is treated as not existing.

Talent and culture self-selection. Organizations that optimize financial metrics over long periods attract and retain people who are comfortable with reductive frameworks and repel people who hold complexity well. This becomes self-reinforcing. The people who could see the failure mode leave or are marginalized. The people who remain genuinely cannot perceive it. From the inside, the framework feels complete.

Externality blindness. The claim that “everything reduces to dollars” is only true if all costs and benefits appear on the organization’s balance sheet. Customer experience, employee wellbeing, social trust, environmental impact — these are real costs and benefits that don’t appear as line items until they manifest catastrophically. Difficulty of measurement is silently promoted to non-existence.

What Seed Corn Consumption Looks Like at the Terminal Stage

Boeing provides the terminal case — the experiment run to its conclusion fast enough to observe clearly.

The decision that brought down the 737 MAX was a cost avoidance decision: a software patch (the MCAS system) instead of a hardware redesign, specifically to avoid the cost of pilot retraining that would have been required if the aircraft had been reclassified. The financial logic was internally consistent. The cost was avoided. The schedule was preserved. The program’s economics survived the quarter.

The engineering logic was catastrophically wrong. The MCAS system’s interaction with pilot response in an emergency was not adequately tested or disclosed. Two aircraft crashed. Three hundred and forty-six people died. Boeing’s market capitalization fell by over $30 billion in the immediate aftermath, and the long-term reputational and operational damage is still being calculated years later.

Peter Robison’s account in Flying Blind makes clear that this was not a single bad decision made in isolation. It was the terminal expression of a decade-long pattern of financial orientation displacing engineering judgment — a pattern in which the people making consequential decisions were progressively more disconnected from the engineering realities those decisions affected.

The seed corn had been eaten. The next season’s harvest did not arrive.

Next: Why accounting-led organizations can’t see this happening — and why that blindness is the more dangerous of the two failures.

References

Robison, Peter. Flying Blind: The 737 MAX Tragedy and the Fall of Boeing. Doubleday, 2021.
Lazonick, William. “Profits Without Prosperity.” Harvard Business Review, September 2014.
Oglesby, Joadi, Ringlee, Lane, and Madu, Marizu. “Share Buybacks and Executive Compensation: Assessing Key Criticisms.” Harvard Law School Forum on Corporate Governance, July 2023.
Shilon, Nitzan. “Pay for Destruction: The Executive Compensation Arrangements That Encourage Value-Decreasing Stock Buybacks.” Columbia Law School Blue Sky Blog, March 2021.

tags: innovation - complexity - history