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I think the parent meant something closer to legal standing (https://en.wikipedia.org/wiki/Standing_(law) https://en.wikipedia.org/wiki/Standing_(law)) than an

I think the parent meant something closer to legal standing (https://en.wikipedia.org/wiki/Standing_(law) https://en.wikipedia.org/wiki/Standing_(law)) than an obligation. The investors have actions available to it than can punish executives for not pursuing profit opportunities sufficiently aggressively. Many of these don't involve the court, but some may. Conversely, a founder that loses his/her business because investors punished them in this manner has no legal basis to fight to retain the business.

zazen 8y ago
Well, your wikipedia link seems to confirm my layman's understanding of the term "standing", which is that it is about a party's right to participate in a court case. I am no closer to seeing how the English phrase "you aren't prioritizing profit" could "have standing". I think quadrangle is confused in his phrasing, if not in his underlying ideas. Of course investors may do various things. But we're particularly interested in the question of whether the company must legally maximize profit, even if not directed to do so by a majority of shareholders. wool_gather says no, quadrangle says yes, I wonder whether quadrangle in fact knows what he's talking about. You say "Many of these don't involve the court, but some may." But the "some may" is kind of what we're trying to get into: if you like, the question is "can a shareholder successfully sue the company for not maximizing profit, even if a majority of shareholders haven't directed it to do so?". As far as I know, that's equivalent to asking whether the company has a legal duty to maximize profit.
- asntbqjkwbucaa 8y ago
  To have standing you need to show that you are an injured party. I believe the original commenter was saying that not attempting to maximize shareholder value is in some cases an injury that is sufficient for an investor to bring a suit. I don't know whether this is true or not, but I believe that's what they were thinking when they referred to standing. In the case of a fiduciary, investors do have recourse to legal action if the fiduciary fails to put your financial interests first. In general, I agree that a company is not legally obligated to make a profit. For example, there are many little shell companies whose main goal is not to turn a profit but to do something else. There are also B Corporations that have special legal protections for investors pursuing goals that are not strictly financial. So in that sense, wool_gather is correct. A company is not legally obligated to maximize profit. But as a practical matter, if you raise money from professional investors, the strength of agency theory and the norms of ordinary business suggest that you can get into legal or financial trouble if you don't put the financial interests of the investors over nearly all other interests.
  - zazen 8y ago
    > A company is not legally obligated to maximize profit. Well, if we agree on that core point - which I think is all the point that wool_gather was trying to make - then that's great! And I think there's no point in the two of us investing any more time in picking over quadrangle's slightly confused reply. I'm afraid I can't resist pulling on one more little thread, though :-) You've sort of hand-waved "legal or financial trouble" together, but it seems to me that legal consequences are very different from other consequences, in that there has to be a legal basis for legal consequences. "agency theory and the norms of ordinary business" can't condense and resolve themselves into a law: there either is a law on the books or there isn't. I understand that shareholder lawsuits are a thing that can happen under some circumstances. But if the law doesn't make "not maximizing profit" sufficient grounds, then it doesn't, surely?
    - quadrangle 8y ago
      Thanks for the deeper back-and-forth. I did mean "standing" as brought out here. I.e. simply that failure to focus on profit can create a situation where investors can file a suit that won't just be thrown out. I'm saying that there's enough legal premise around the idea that the business is working for profit. The investors buy stock with the premise that the business is aiming to provide a return. If they don't aim for that, they can be accused of not running the business in good faith or of misleading the investors… I'm not saying there's an absolute legal imperative to maximize profit. I'm saying that investors are given enough legal tools in our bureaucratic world that they really can use the legal system along with other tools to bully companies into focusing on proift above other values. A company just saying in court, "X would bring more profit, but that wouldn't be as good for the world" isn't going to get a suit dismissed if the suit is based on a bunch of complex legal allegations about the company misleading investors or I don't know what other wide range of possible legal arguments are available… But for Benefit Corp or similar, investors would have less have legal standing to bring suits based on the companies following the social priorities laid out in their Benefit Corp bylaws etc.
      - zazen 8y ago

zazen 8y ago

Well, your wikipedia link seems to confirm my layman's understanding of the term "standing", which is that it is about a party's right to participate in a court case. I am no closer to seeing how the English phrase "you aren't prioritizing profit" could "have standing". I think quadrangle is confused in his phrasing, if not in his underlying ideas. Of course investors may do various things. But we're particularly interested in the question of whether the company must legally maximize profit, even if not directed to do so by a majority of shareholders. wool_gather says no, quadrangle says yes, I wonder whether quadrangle in fact knows what he's talking about. You say "Many of these don't involve the court, but some may." But the "some may" is kind of what we're trying to get into: if you like, the question is "can a shareholder successfully sue the company for not maximizing profit, even if a majority of shareholders haven't directed it to do so?". As far as I know, that's equivalent to asking whether the company has a legal duty to maximize profit.

asntbqjkwbucaa 8y ago
To have standing you need to show that you are an injured party. I believe the original commenter was saying that not attempting to maximize shareholder value is in some cases an injury that is sufficient for an investor to bring a suit. I don't know whether this is true or not, but I believe that's what they were thinking when they referred to standing. In the case of a fiduciary, investors do have recourse to legal action if the fiduciary fails to put your financial interests first. In general, I agree that a company is not legally obligated to make a profit. For example, there are many little shell companies whose main goal is not to turn a profit but to do something else. There are also B Corporations that have special legal protections for investors pursuing goals that are not strictly financial. So in that sense, wool_gather is correct. A company is not legally obligated to maximize profit. But as a practical matter, if you raise money from professional investors, the strength of agency theory and the norms of ordinary business suggest that you can get into legal or financial trouble if you don't put the financial interests of the investors over nearly all other interests.
- zazen 8y ago
  > A company is not legally obligated to maximize profit. Well, if we agree on that core point - which I think is all the point that wool_gather was trying to make - then that's great! And I think there's no point in the two of us investing any more time in picking over quadrangle's slightly confused reply. I'm afraid I can't resist pulling on one more little thread, though :-) You've sort of hand-waved "legal or financial trouble" together, but it seems to me that legal consequences are very different from other consequences, in that there has to be a legal basis for legal consequences. "agency theory and the norms of ordinary business" can't condense and resolve themselves into a law: there either is a law on the books or there isn't. I understand that shareholder lawsuits are a thing that can happen under some circumstances. But if the law doesn't make "not maximizing profit" sufficient grounds, then it doesn't, surely?
  - quadrangle 8y ago
    Thanks for the deeper back-and-forth. I did mean "standing" as brought out here. I.e. simply that failure to focus on profit can create a situation where investors can file a suit that won't just be thrown out. I'm saying that there's enough legal premise around the idea that the business is working for profit. The investors buy stock with the premise that the business is aiming to provide a return. If they don't aim for that, they can be accused of not running the business in good faith or of misleading the investors… I'm not saying there's an absolute legal imperative to maximize profit. I'm saying that investors are given enough legal tools in our bureaucratic world that they really can use the legal system along with other tools to bully companies into focusing on proift above other values. A company just saying in court, "X would bring more profit, but that wouldn't be as good for the world" isn't going to get a suit dismissed if the suit is based on a bunch of complex legal allegations about the company misleading investors or I don't know what other wide range of possible legal arguments are available… But for Benefit Corp or similar, investors would have less have legal standing to bring suits based on the companies following the social priorities laid out in their Benefit Corp bylaws etc.
    - zazen 8y ago