2020 Amazon Letter to Shareholders

Published on 2021, Apr 15

A critical (somewhat scathing, somewhat philosophical) review of the 2020 Amazon letter to shareholders.


Here is the 2020 Amazon letter to shareholders. It is a public document, and I am reading and criticizing it as a member of the public.

Excerpts

It is not long. You should read the whole thing. For context, I am going to quote some excerpts here. I’ve helpfully color-coded them with my opinions: I don’t really care about blues, greens are good, yellows are troubling, and reds are bad.

Last year, we hired 500,000 employees and now directly employ 1.3 million people around the world.

Along the way, we’ve created $1.6 trillion of wealth for shareowners. Who are they? Your Chair is one, and my Amazon shares have made me wealthy. But more than 7/8ths of the shares, representing $1.4 trillion of wealth creation, are owned by others.

Our net income in 2020 was $21.3 billion. If, instead of being a publicly traded company with thousands of owners, Amazon were a sole proprietorship with a single owner, that’s how much the owner would have earned in 2020.

How about employees? This is also a reasonably easy value creation question to answer because we can look at compensation expense. What is an expense for a company is income for employees. In 2020, employees earned $80 billion, plus another $11 billion to include benefits and various payroll taxes, for a total of $91 billion.

Does your Chair take comfort in the outcome of the recent union vote in Bessemer? No, he doesn’t. I think we need to do a better job for our employees. While the voting results were lopsided and our direct relationship with employees is strong, it’s clear to me that we need a better vision for how we create value for employees – a vision for their success.

If you read some of the news reports, you might think we have no care for employees. In those reports, our employees are sometimes accused of being desperate souls and treated as robots. That’s not accurate. They’re sophisticated and thoughtful people who have options for where to work.

Employees are able to take informal breaks throughout their shifts to stretch, get water, use the rest room, or talk to a manager, all without impacting their performance. These informal work breaks are in addition to the 30-minute lunch and 30-minute break built into their normal schedule.

In an earlier draft of this letter, I started this section with arguments and examples designed to demonstrate that human-induced climate change is real. But, bluntly, I think we can stop saying that now. You don’t have to say that photosynthesis is real, or make the case that gravity is real, or that water boils at 100 degrees Celsius at sea level. These things are simply true, as is the reality of climate change.

We have 62 utility-scale wind and solar projects and 125 solar rooftops on fulfillment and sort centers around the globe. These projects have the capacity to generate over 6.9 gigawatts and deliver more than 20 million megawatt-hours of energy annually.

This phenomenon happens at all scale levels. Democracies are not normal. Tyranny is the historical norm. If we stopped doing all of the continuous hard work that is needed to maintain our distinctiveness in that regard, we would quickly come into equilibrium with tyranny.

Analysis

Note that Mr. Bezos shows a company net income of $20bn after expenses, and then mentions off-hand that if he were the sole proprietor, he would have been the sole recipient of the excess lucre. He contrasts this with Amazon’s status as a publicly-traded company, which directs the net income to shareholders. He also previously mentioned that he is a relative minority shareholder, at “less than ⅛”, or… $200bn.

This is a callback to the prior acknowledgement that he has personally become obscenely wealthy from Amazon, but that he is not the only beneficiary. However, he does not write that his net worth in 2020 increased by …$75bn. But the thrust of the paragraph is that he has provided for his audience, owners of $AMZN stock, $20.3bn, distributed proportionally.

Pause. Watch this.

If the embedded video doesn’t load, it’s PhilosophyTube’s video Jordan Peterson’s Ideology. The relevant part is 12:54–14:25, about the implicit assumptions and explicit exclusions present in any given message.

The concepts of being aware of the messages not sent, and asking which messages and why they weren’t sent, are rather useful analytical tools. Applied here: what didn’t Mr. Bezos say in his commentary on Amazon’s wealth distribution? Why do you think he didn’t say that? What goal, group, purpose, or person do you think might be served by him not saying it?

Stop reading. Go back up to the quotes, or the article itself. In fact, here’s the section I want you to reread in full:

How much value did we create for shareowners in 2020? This is a relatively easy question to answer because accounting systems are set up to answer it. Our net income in 2020 was $21.3 billion. If, instead of being a publicly traded company with thousands of owners, Amazon were a sole proprietorship with a single owner, that’s how much the owner would have earned in 2020.

How about employees? This is also a reasonably easy value creation question to answer because we can look at compensation expense. What is an expense for a company is income for employees. In 2020, employees earned $80 billion, plus another $11 billion to include benefits and various payroll taxes, for a total of $91 billion.

I didn’t mark it with my bias this time. But in these paragraphs, what did Mr. Bezos not say? There are a lot of things he didn’t say. You’ve probably got an answer. I have one. You probably have a reasonable idea of what it is.


⸘What if Amazon were an employee-owned coöperative, Jeffrey‽

$20,300,000,000 of net revenue, with 1,300,000 employees. Don’t break out your calculator. At a flat distribution, that’s $16,384 dollars brought into Amazon by each employee-year of labor that was not spent on Amazon’s liabilities or expenses.

This is net revenue, not gross. This is revenue remaining after all liabilites are secured and expenses paid. You can argue that shares are capital loans, and that shareholders should be paid back for their time. That’s fine. Loans are liabilities; they get paid out of gross revenue. I’m not opposed to microfinancing, even for megacorporations.

But Mr. Bezos notes two things in this letter he’s writing to an audience of people who hold a claim on all that surplus income:

  • they are receiving value from the company’s collective labor
  • they have the power to vote, or not vote, on the directions the company takes

Let’s pivot from that second one. Towards the end, Mr. Bezos states that democracies are abnormal and tyrannies the norm, and that without vigilance and effort, “we” would come into equilibrium with tyranny.

But who is the group to which “we” refers, here? It’s not employees; Amazon has a feudal/tyrannic structure just like nearly every other corporation. It’s not the shareholders; you do not have the same weight of voice at board votes as Mr. Bezos. If a democracy is a system where one member has one vote, then Amazon is not a democracy to anyone except shares.

I’m not going to dwell extensively on any other parts of the letter here; the distribution of money and power are the primary points I wanted to make. But it’s important to be aware of this context whenever Amazon talks about things like workspace conditions or worker pay.

Amazon collected enough money in 2020 to pay every single employee an additional $16,384. They chose not to do that. That’s $16,384 per employee-year that didn’t need to be made. It could have been reduced work. It could have been higher pay. It could have been more employees sharing the same workload so each carries less. But it wasn’t. Whenever you hear about Amazon not being able to do something for working conditions because it’s too expensive, remember that. Ask if it really costs $16,384 per employee-year. Does Amazon not have the money, or is it just unwilling to use the money it has.