4 ms·

> institutional fund is legally required to be a hard-ass What do you mean by this?

by lann 7y ago

sansnomme 7y ago
There are laws/expectations that state a company must optimize for profits (Dodge v Ford). Perhaps this what is meant.
- wtetzner 7y ago
  Is that for all companies, or just publicly traded companies?
- elcritch 7y ago
  It's a common myth, and may be for certain states, but in general it doesn't appear to true in the US [1, 2]. 1: https://www.nytimes.com/roomfordebate/2015/04/16/what-are-corporations-obligations-to-shareholders/corporations-dont-have-to-maximize-profits https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co... 2: https://www.nakedcapitalism.com/2014/05/guess-who-is-responsible-for-the-corporations-exist-to-maximize-shareholder-value-myth.html https://www.nakedcapitalism.com/2014/05/guess-who-is-respons...
- mattkrause 7y ago
  No, that’s a misconception. While Dodge v. Ford does say that companies should be run for the benefit of the shareholders, it gives management a ton of latitude in deciding how to do so. Here’s a quote from the actual text: “[T]he ultimate results of the larger business cannot be certainly estimated. The judges are not business experts. It is recognized that plans must often be made for a long future, for expected competition, for a continuing as well as an immediately profitable venture...” Shlensky v. Wrigley deals with the Chicago Cubs’ refusal to install lighting for nighttime games, due to concerns about how it would affect the game of baseball (which their president believed was “a daytime sport”) and the surrounding neighborhood. Although these are fairly nebulous concerns, the court held they were reasonable business judgements. The decision cites another case, Davis v Louisville Gas and Electric Co, which says “the directors are chosen to pass upon such questions and their judgment unless shown to be tainted with fraud is accepted as final. The judgment the directors of the corporation enjoys the benefit of a presumption that it was formed in good faith, and was designed to promote the best interests of the corporation they serve.” The standard, from In Re Walt Disney, is that business decisions aren’t reviewable unless “the exchange was so one-sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration".
  - jaredklewis 7y ago
    This comment is amazing. I feel like the phrase "companies must maximize shareholder value" is regurgitated dozens of times daily on HN without anyone stopping to think about how meaninglessly broad the statement is. Pretty much the only time that fiduciary duty ever comes up (in the sense that it is constantly discussed online) is cases that run up against the Revlon Rule, where you actually have competing offers to buy a company. But there really aren't very many of those.
herdrick 7y ago
Fiduciary duty.

> institutional fund is legally required to be a hard-ass What do you mean by this?

by lann 7y ago

> institutional fund is legally required to be a hard-ass What do you mean by this?

sansnomme 7y ago

There are laws/expectations that state a company must optimize for profits (Dodge v Ford). Perhaps this what is meant.

wtetzner 7y ago
Is that for all companies, or just publicly traded companies?
elcritch 7y ago
It's a common myth, and may be for certain states, but in general it doesn't appear to true in the US [1, 2]. 1: https://www.nytimes.com/roomfordebate/2015/04/16/what-are-corporations-obligations-to-shareholders/corporations-dont-have-to-maximize-profits https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co... 2: https://www.nakedcapitalism.com/2014/05/guess-who-is-responsible-for-the-corporations-exist-to-maximize-shareholder-value-myth.html https://www.nakedcapitalism.com/2014/05/guess-who-is-respons...
mattkrause 7y ago
No, that’s a misconception. While Dodge v. Ford does say that companies should be run for the benefit of the shareholders, it gives management a ton of latitude in deciding how to do so. Here’s a quote from the actual text: “[T]he ultimate results of the larger business cannot be certainly estimated. The judges are not business experts. It is recognized that plans must often be made for a long future, for expected competition, for a continuing as well as an immediately profitable venture...” Shlensky v. Wrigley deals with the Chicago Cubs’ refusal to install lighting for nighttime games, due to concerns about how it would affect the game of baseball (which their president believed was “a daytime sport”) and the surrounding neighborhood. Although these are fairly nebulous concerns, the court held they were reasonable business judgements. The decision cites another case, Davis v Louisville Gas and Electric Co, which says “the directors are chosen to pass upon such questions and their judgment unless shown to be tainted with fraud is accepted as final. The judgment the directors of the corporation enjoys the benefit of a presumption that it was formed in good faith, and was designed to promote the best interests of the corporation they serve.” The standard, from In Re Walt Disney, is that business decisions aren’t reviewable unless “the exchange was so one-sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration".
- jaredklewis 7y ago
  This comment is amazing. I feel like the phrase "companies must maximize shareholder value" is regurgitated dozens of times daily on HN without anyone stopping to think about how meaninglessly broad the statement is. Pretty much the only time that fiduciary duty ever comes up (in the sense that it is constantly discussed online) is cases that run up against the Revlon Rule, where you actually have competing offers to buy a company. But there really aren't very many of those.

herdrick 7y ago

Fiduciary duty.