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In the UK a director's responsibilities are set out in the Companies Act: A director of a company must act in the way he considers, in good faith, would be mos

by Marazan 10y ago

In the UK a director's responsibilities are set out in the Companies Act: A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a)the likely consequences of any decision in the long term, (b)the interests of the company's employees, (c)the need to foster the company's business relationships with suppliers, customers and others, (d)the impact of the company's operations on the community and the environment, (e)the desirability of the company maintaining a reputation for high standards of business conduct, and (f)the need to act fairly as between members of the company. And that's pretty much it. This gives directors massive wide ranging latitude to act. Delaware's duties are similar, they give the directors huge latitude - companies are not legally mandated to e amoral profit machines.

whack 10y ago
There are legal professors who disagree with you. "Most large businesses buy their corporate charters from the state of Delaware. And the law of Delaware is clear about corporate purpose. The chief justice of the Delaware Supreme Court, Leo Strine, put it simply in a recent law review article: “Directors must make stockholder welfare their sole end.” In cases where directors have acknowledged sacrificing shareholder interests for other groups, Delaware courts have found those directors violated their fiduciary duties." http://www.nytimes.com/roomfordebate/2015/04/16/what-are-corporations-obligations-to-shareholders/its-law-but-it-shouldnt-be http://www.nytimes.com/roomfordebate/2015/04/16/what-are-cor... I've also read articles by "authors" arguing otherwise, so maybe the answer isn't all that clear. But my tendency is to believe what a legal professor says, and the above paragraph sounds pretty convincing.
- azernik 10y ago
  This is not a disagreement between a law professor and a layman commenter; it is a disagreement between UK and Delaware law on corporations. You're making it sound like the former.
  - whack 10y ago
    The commenter was implying that what he said about the situation in UK, applies strongly to Delaware as well. "Delaware's duties are similar, they give the directors huge latitude"
    - Marazan 10y ago
      _would be most likely to promote the success of the company for the benefit of its members as a whole,_ In the UK law is basically exactly the same as the Delaware law. As long as the directors are acting in good faith they can do pretty much what they like. It is up to the shareholders to show bad faith/gross negligence on behalf of the directors
- deleted 10y ago
  [deleted]
- Marazan 10y ago
  You would be very surprised at what constitutes the welfare of shareholders. Shareholders have sued corporations for failing to take advantage of tax avoidance strategies (i.e. the plaintiffs contended that the company paid too much tax thus diminishing the amount available to the shareholders). The palintiffs lost - I'm at my wrong computer so I don't have the cite handy. As long as the directors can show they have made a "good faith" attempt to manage to the benefit of the shareholders then they are covered.
- TheCoelacanth 10y ago
  > In cases where directors have acknowledged sacrificing shareholder interests for other groups This part is key. When the directors actually admit that they are harming shareholder interests, they are opening themselves to a lawsuit. When they make a plausible claim that their actions are in the shareholders' interest, even if some of the shareholders disagree, they are fine. Courts do not second-guess business judgement. To overrule the directors in court, shareholders have to show that the directors are acting in bad faith, not just that the actions will seemingly harm the company.
tracker1 10y ago
Thank you for pointing this out... I would think the long term stability and/or growth of the company should be the paramount concern... that would include the employees and community(ies) that a company has presence or operates in. Beyond that growth for investors would naturally follow, but maximizing short term profits is short sighted to say the least. Just my pov though.

by Marazan 10y ago

whack 10y ago

There are legal professors who disagree with you. "Most large businesses buy their corporate charters from the state of Delaware. And the law of Delaware is clear about corporate purpose. The chief justice of the Delaware Supreme Court, Leo Strine, put it simply in a recent law review article: “Directors must make stockholder welfare their sole end.” In cases where directors have acknowledged sacrificing shareholder interests for other groups, Delaware courts have found those directors violated their fiduciary duties." http://www.nytimes.com/roomfordebate/2015/04/16/what-are-corporations-obligations-to-shareholders/its-law-but-it-shouldnt-be http://www.nytimes.com/roomfordebate/2015/04/16/what-are-cor... I've also read articles by "authors" arguing otherwise, so maybe the answer isn't all that clear. But my tendency is to believe what a legal professor says, and the above paragraph sounds pretty convincing.

azernik 10y ago
This is not a disagreement between a law professor and a layman commenter; it is a disagreement between UK and Delaware law on corporations. You're making it sound like the former.
- whack 10y ago
  The commenter was implying that what he said about the situation in UK, applies strongly to Delaware as well. "Delaware's duties are similar, they give the directors huge latitude"
  - Marazan 10y ago
    _would be most likely to promote the success of the company for the benefit of its members as a whole,_ In the UK law is basically exactly the same as the Delaware law. As long as the directors are acting in good faith they can do pretty much what they like. It is up to the shareholders to show bad faith/gross negligence on behalf of the directors
deleted 10y ago
[deleted]
Marazan 10y ago
You would be very surprised at what constitutes the welfare of shareholders. Shareholders have sued corporations for failing to take advantage of tax avoidance strategies (i.e. the plaintiffs contended that the company paid too much tax thus diminishing the amount available to the shareholders). The palintiffs lost - I'm at my wrong computer so I don't have the cite handy. As long as the directors can show they have made a "good faith" attempt to manage to the benefit of the shareholders then they are covered.
TheCoelacanth 10y ago
> In cases where directors have acknowledged sacrificing shareholder interests for other groups This part is key. When the directors actually admit that they are harming shareholder interests, they are opening themselves to a lawsuit. When they make a plausible claim that their actions are in the shareholders' interest, even if some of the shareholders disagree, they are fine. Courts do not second-guess business judgement. To overrule the directors in court, shareholders have to show that the directors are acting in bad faith, not just that the actions will seemingly harm the company.

tracker1 10y ago

Thank you for pointing this out... I would think the long term stability and/or growth of the company should be the paramount concern... that would include the employees and community(ies) that a company has presence or operates in. Beyond that growth for investors would naturally follow, but maximizing short term profits is short sighted to say the least. Just my pov though.