5 ms·

This is as good a time as ever to point out that it’s a misconception that companies are somehow legally bound to maximize shareholder value at all costs. Only

This is as good a time as ever to point out that it’s a misconception that companies are somehow legally bound to maximize shareholder value at all costs. Only some juridiction actually have any law to (broadly) that effect. In practice, corporate officers have extremely wide latitude to decide what’s in the long-term interest of the company. That’s why companies can support charities, or not engage in warfare, or innovate in recycling, or taking the lead in privacy, or leave China due to censorship without any legal risk. One can argue that such efforts are in the shareholders‘ interest for PR reasons, but then one has essentially given up the argument, because anything can be framed as an excersize in PR. I have also witnessed countless acts of charity that never became public, such as donating leftover goods or keeping employees in personal crises on the payroll. The only successful challenge along this line of argumentation I am aware of is Craigslist, and that required the founder to explicitly state their intentions to harm the company for rather esthetic considerations. A shareholder-above-anything philosophy is also just not good policy. While capitalism has been a stellar success in harnessing selfishness for the common good, that is not evidence to suggest attempts to go beyond-and-above what’s legally required are actively harmful. Capitalism works well because bottom-up decision-making works best. Centrally (top-down) enforcing selfishness is bound to be just as detrimental as Moscow deciding what to plant this spring.

paulgb 8y ago
Yes, we would be better off if this misconception went away! I’d also add that the courts would generally be a bad mechanism for deciding all but the most egregious breaches of shareholder trust -- embezzlement and such -- due to the subjective nature. If shareholders merely believe that firm leadership’s decisions are bad for the company, they can reflect that in their annual votes.
cge 8y ago
>The only successful challenge along this line of argumentation I am aware of is Craigslist, and that required the founder to explicitly state their intentions to harm the company for rather esthetic considerations. The original case that is usually cited about this "maximize shareholder value at all costs" concept was Dodge v. Ford Motor Co, in which the argument was that Ford was trying to turn the company, at least temporarily, into a non-profit, and avoid giving any profits to shareholders, arguably in order to make the positions of significant minority shareholders (eg, the Dodges) worthless and deprive them of capital to start a competing company. There's a significant difference between maximizing shareholder value at all costs, and intentionally trying to obliterate shareholder value in order to harm the shareholders.
Frost1x 8y ago
While I agree with much of what you said, I don't think we can drop the notion that PR related activity is in shareholders' best interest and use of that ambiguity of motive as a basis that corporations aren't typically acting in their shareholder's best interests. We can look at historical evidence to see how PR activity is typically used in cases we have evidence (the tobacco industry comes to mind, there's many more). While as an exercise, measuring intention is nearly impossible since determining motive is highly subjective, unless we can read minds (or internal emails/paper trials which are often guarded or intentionally avoided), we can at least look at public evidence and trends that we're aware of. In today's economy, perceived value reigns supreme over functional and monetary value, and utility takes a back seat. Manipulating perception is highly impactful on most fronts of increasing revenue. Advertising, marketing, branding, the amount of psychology utilized, data mining and tracking (for targeted marketing), etc.--most all of this effort is about manipulating perceived value to consumers by painting an idealized image of a product/service (propaganda)--and it works. Part of that perceived value manipulation is also painting a picture to the public that your company is "great." I've taken quite a few marketing surveys and you'll find quite a few questions about if you think a company is "good" or "bad." What your opinions are about the company (your perception), very emotionally tied questions. If you look at historical evidence, you'll see misinformation campaigns everywhere: from the tobacco industry to bottling industries to fossil fuel industries to the lead industries.... all these sort of campaigns have been about shifting public perception in the interest of the business, and therefore, the shareholders. It's not in societies interest (unless you support social darwinism) that we have rampant lung cancer or other cancers caused by lead contact. It's not in the world or societies interest that we pretend global warming isn't an issue when the scientific consensus, the method leading to humanities greatest leaps and discoveries, tells us otherwise. PR activity exists almost for the sole purpose of keeping the general public and your consumers happy (they also provide product/service information, when it's in their business interest). While not all PR activites are as calculated, most all efforts are to protect and foster growth of a business, and therefore most activity is for the shareholders. If a PR group's activity or business marketing campaign does the opposite and harms revenue, you'll find a lot of those people will lose their jobs. That's quite telling of the motive, at least for me.
craftyguy 8y ago
They aren't legally bound to maximize profits, but they are extremely motivated to.
- jlarocco 8y ago
  The part you're leaving out is that it's the shareholders who instigate that motivation. If enough shareholders want the company to do something else instead, then there's absolutely nothing wrong with that. The underlying problem is that almost everybody buys stock as an investment, not to take active roles in running companies or make political statements.
  - craftyguy 8y ago
    Well, yea, that was kind of implied...

paulgb 8y ago

Yes, we would be better off if this misconception went away! I’d also add that the courts would generally be a bad mechanism for deciding all but the most egregious breaches of shareholder trust -- embezzlement and such -- due to the subjective nature. If shareholders merely believe that firm leadership’s decisions are bad for the company, they can reflect that in their annual votes.

cge 8y ago

>The only successful challenge along this line of argumentation I am aware of is Craigslist, and that required the founder to explicitly state their intentions to harm the company for rather esthetic considerations. The original case that is usually cited about this "maximize shareholder value at all costs" concept was Dodge v. Ford Motor Co, in which the argument was that Ford was trying to turn the company, at least temporarily, into a non-profit, and avoid giving any profits to shareholders, arguably in order to make the positions of significant minority shareholders (eg, the Dodges) worthless and deprive them of capital to start a competing company. There's a significant difference between maximizing shareholder value at all costs, and intentionally trying to obliterate shareholder value in order to harm the shareholders.

Frost1x 8y ago

While I agree with much of what you said, I don't think we can drop the notion that PR related activity is in shareholders' best interest and use of that ambiguity of motive as a basis that corporations aren't typically acting in their shareholder's best interests. We can look at historical evidence to see how PR activity is typically used in cases we have evidence (the tobacco industry comes to mind, there's many more). While as an exercise, measuring intention is nearly impossible since determining motive is highly subjective, unless we can read minds (or internal emails/paper trials which are often guarded or intentionally avoided), we can at least look at public evidence and trends that we're aware of. In today's economy, perceived value reigns supreme over functional and monetary value, and utility takes a back seat. Manipulating perception is highly impactful on most fronts of increasing revenue. Advertising, marketing, branding, the amount of psychology utilized, data mining and tracking (for targeted marketing), etc.--most all of this effort is about manipulating perceived value to consumers by painting an idealized image of a product/service (propaganda)--and it works. Part of that perceived value manipulation is also painting a picture to the public that your company is "great." I've taken quite a few marketing surveys and you'll find quite a few questions about if you think a company is "good" or "bad." What your opinions are about the company (your perception), very emotionally tied questions. If you look at historical evidence, you'll see misinformation campaigns everywhere: from the tobacco industry to bottling industries to fossil fuel industries to the lead industries.... all these sort of campaigns have been about shifting public perception in the interest of the business, and therefore, the shareholders. It's not in societies interest (unless you support social darwinism) that we have rampant lung cancer or other cancers caused by lead contact. It's not in the world or societies interest that we pretend global warming isn't an issue when the scientific consensus, the method leading to humanities greatest leaps and discoveries, tells us otherwise. PR activity exists almost for the sole purpose of keeping the general public and your consumers happy (they also provide product/service information, when it's in their business interest). While not all PR activites are as calculated, most all efforts are to protect and foster growth of a business, and therefore most activity is for the shareholders. If a PR group's activity or business marketing campaign does the opposite and harms revenue, you'll find a lot of those people will lose their jobs. That's quite telling of the motive, at least for me.

craftyguy 8y ago

They aren't legally bound to maximize profits, but they are extremely motivated to.

jlarocco 8y ago
The part you're leaving out is that it's the shareholders who instigate that motivation. If enough shareholders want the company to do something else instead, then there's absolutely nothing wrong with that. The underlying problem is that almost everybody buys stock as an investment, not to take active roles in running companies or make political statements.
- craftyguy 8y ago
  Well, yea, that was kind of implied...