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That's not entirely true. He has duties to run the company in with good faith and care, but not necessarily to maximize shareholder value.
by xkjkls 9y ago
That's not entirely true. He has duties to run the company in with good faith and care, but not necessarily to maximize shareholder value.
- garmaine 9y ago‘Good faith and care’ is typically understood by US courts to have a strong emphasis on ROI. But you’re right, it is a little bit of gray area, and can be made purposefully more complicated when, e.g., the prospectus puts other duties first. Google’s “we’re not a typical company and we don’t intend to become one” is a famous example. For benefit corporations are the extreme example of this.
- xkjkls 9y agoAlmost all lawsuits regarding the good faith clause involve some sort of corrupt practice that enriched the executives at the expense of the shareholders (in fact, Tesla is currently involved in a similar lawsuit regarding its purchase of Solar City). It would be near impossible to prove bad faith in choosing one business strategy vs. another if there wasn't some corrupt intent or incentive.
- garmaine 9y agoIf Tim Cook donated Apple’s cash reserves entirely to charity, or made decisions purposefully wrecking the finances of the company for the lulz, I guarantee there would be a successful shareholder lawsuits. This just doesn’t happen as often. But here have been claims of material harm due to gross negligence before. There are aspects of th Enron case that come to mind, and BP’s shareholder lawsuit after the deepwater horizon disaster.
- xkjkls 9y agoApple donating huge amounts to cash to charity would be an... interesting... lawsuit. I agree that they would definitely get sued over it, but I don't believe that they outcome of that lawsuit is necessarily cut and dry. And the cases you bring up for fraud/negligence are very different, and pretty obviously not covered under running an enterprise in good faith.