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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 i

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
    Yes, this seems to be broadly true. TIL about benefit corporations. I deeply apologize for my repeated rudeness towards your original post.
- asntbqjkwbucaa 8y ago
  Well I think taken literally, "not maximizing profit" can't possibly be sufficient grounds for an action. Nobody really has any idea of whether any particular strategy is profit-maximizing, so it's hard to believe a company can be sued for not following a profit-maximizing strategy. But shareholders can sue over alleged harm to a corporation. I'm not a lawyer, so I really have no idea what the standard is here. But purely speculatively, I suppose someone could be sued for repeatedly missing obvious profit opportunities because the executives objected to them on ethical or other grounds. I get the impression, though, that shareholders are more likely to sue for committing an active blunder (like selling off a division for an insanely low price) rather than for missing an opportunity. There's a list of some famous shareholder actions here: https://www.dandodiary.com/2014/12/articles/shareholders-derivative-litigation/largest-derivative-lawsuit-settlements/ https://www.dandodiary.com/2014/12/articles/shareholders-der... More charitably, I think what people like quadrangle are really meaning to say is that there is a significant legal framework that very strongly incentivizes and is inspired by the idea that the first obligation of a corporation is to maximize profit. And if that was the point, then I think that's pretty close to the truth. Sure, you won't be arrested for not maximizing profit, but remaining in business without attempting to put profit first is sufficiently hard that it typically requires special legal protections (as in B corporations).
  - zazen 8y ago
    Ah, I finally begin to see what you mean. Sorry if I've been a bit boneheaded in this thread. I finally started googling instead of speculating, and I found this thread: https://www.reddit.com/r/law/comments/3pv8bh/is_it_really_true_that_corporations_are_legally/ https://www.reddit.com/r/law/comments/3pv8bh/is_it_really_tr... which seems to confirm your ideas about the significance of benefit corporations. It looks like the key legal case happened surprisingly recently - 2010. Apologies again: you were right and I was blinkeredly literal.

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
  Yes, this seems to be broadly true. TIL about benefit corporations. I deeply apologize for my repeated rudeness towards your original post.
asntbqjkwbucaa 8y ago
Well I think taken literally, "not maximizing profit" can't possibly be sufficient grounds for an action. Nobody really has any idea of whether any particular strategy is profit-maximizing, so it's hard to believe a company can be sued for not following a profit-maximizing strategy. But shareholders can sue over alleged harm to a corporation. I'm not a lawyer, so I really have no idea what the standard is here. But purely speculatively, I suppose someone could be sued for repeatedly missing obvious profit opportunities because the executives objected to them on ethical or other grounds. I get the impression, though, that shareholders are more likely to sue for committing an active blunder (like selling off a division for an insanely low price) rather than for missing an opportunity. There's a list of some famous shareholder actions here: https://www.dandodiary.com/2014/12/articles/shareholders-derivative-litigation/largest-derivative-lawsuit-settlements/ https://www.dandodiary.com/2014/12/articles/shareholders-der... More charitably, I think what people like quadrangle are really meaning to say is that there is a significant legal framework that very strongly incentivizes and is inspired by the idea that the first obligation of a corporation is to maximize profit. And if that was the point, then I think that's pretty close to the truth. Sure, you won't be arrested for not maximizing profit, but remaining in business without attempting to put profit first is sufficiently hard that it typically requires special legal protections (as in B corporations).
- zazen 8y ago
  Ah, I finally begin to see what you mean. Sorry if I've been a bit boneheaded in this thread. I finally started googling instead of speculating, and I found this thread: https://www.reddit.com/r/law/comments/3pv8bh/is_it_really_true_that_corporations_are_legally/ https://www.reddit.com/r/law/comments/3pv8bh/is_it_really_tr... which seems to confirm your ideas about the significance of benefit corporations. It looks like the key legal case happened surprisingly recently - 2010. Apologies again: you were right and I was blinkeredly literal.