4 ms·

Soviet Union had show trials and U.S. has show letters. The legal purpose of a corporation is to generate returns for shareholders. If training employees and h

Soviet Union had show trials and U.S. has show letters. The legal purpose of a corporation is to generate returns for shareholders. If training employees and helping customers advances that goal, then corporations should do it. Otherwise - no. Goes without saying that corporations should maximize shareholder value using legal means only.

Ididntdothis 7y ago
As far as I know the purpose of a corporation is to conduct lawful business. I don’t believe the law says anything about shareholder returns.
- vikramkr 7y ago
  The law definitely doesn't, otherwise it would be illegal to do things like donate to charity as a corporation. If all shareholders get together and vote unanimously to take all the money in the corporation and give it away, then they can totally do that. If the law mandated maximizing shareholder returns then shareholders would no longer be free to instruct the entity they own to do what they want it to if it conflicts with increasing profits
  - vasilipupkin 7y ago
    Ok, you are nitpicking. The legal purpose is to advance the interests of shareholders. Sure, shareholders can give away all the money and earn zero returns ( presumably they would register a non profit if they wanted to do that ) but it would be illegal to do something that shareholders didn’t agree to. Did shareholders of the signatories agree to forego profits in order to make customers happy ? Of course not.
    - vikramkr 7y ago
      I'm not nitpicking, and the legal purpose of a company is not to deliver shareholder returns. IIRC, most company incorporation specify the legal purpose of the corporation to be to do the business that the corporation is made to do. Here's the excerpt from my certificate of incorporation: "The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. " And the same agreement vests in the officers the ability to do whatever is necessary to further that purpose. You obviously can't go against the results of a direct shareholder vote but officers have enormous leeway. If they decide to forgo profits in order to make customers happy, whether or not that is meant to drive long term growth, that is completely legal as long as there are no conflicts of interest.
      - vasilipupkin 7y ago
        You are nitpicking. The shareholders own the corporation. I concede that the purpose isn’t returns but the purpose is to further shareholders interests. The purpose isn’t in any way, shape or form to further employees interests.
        deleted 7y ago
        [deleted]
my_username_is_ 7y ago
>The legal purpose of a corporation is to generate returns for shareholders. >Goes without saying that corporations should maximize shareholder value using legal means only. But why? This line of thinking typically assumes that people start companies strictly to make money--an assumption that I see as patently false. There are plenty of for-profit social enterprises (which is to say nothing of non-profits). For example, Patagonia recently changed their mission statement "We’re in business to save our home planet" [1]. To think that they continue to exist just because Yvon Chouinard doesn't have enough cash in the bank is laughable. [1] https://www.patagonia.com/company-info.html https://www.patagonia.com/company-info.html
- aodin 7y ago
  Patagonia is also a B Corp [1], and it has a legal obligation to the mission statement that you've mentioned, not just maximizing shareholder value. I think the parent comment is just snidely remarking that the C Corps that have signed the letter are still required to maximize shareholder value, or they will face legal action. I am uncertain how this letter changes the established case law regarding C Corps. [1] https://www.patagonia.com/b-lab.html https://www.patagonia.com/b-lab.html
  - vonmoltke 7y ago
    > C Corps that have signed the letter are still required to maximize shareholder value, or they will face legal action No corporation is required to "maximize shareholder value". In fact, they cannot be because there is no possible legal standard for what constitutes "maximizing value". B Corporations have no special legal standing. It's just a certification created by a group that tries to push corporations towards responsibility (or, more cynically, provides virtue-signalling-as-a-service). Any corporation can adopt any or all of the principles set out for B Corporations, if the changes to their charter and by-laws are approved. It is the existence of such requirements in the corporate governance documents that provides the legal requirement, not a private certification.
    - aodin 7y ago
joshuamorton 7y ago
> The legal purpose of a corporation is to generate returns for shareholders. This is legally incorrect. It's a meme that should die. This idea is based on the assumption that not acting to maximize shareholder value is defrauding investors. But this isn't at all true. Corporations are free to do whatever they want, as long as they're transparent about doing so. Or to make the same point in the opposite direction: companies must act ethically, because not doing so ends up being securities fraud[0]. Since stock price is in a large part based on perception, things that negatively affect perception that aren't disclosed could be (and are) construed as defrauding investors. [0]: https://www.bloomberg.com/opinion/articles/2019-06-26/everything-everywhere-is-securities-fraud https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...
- vasilipupkin 7y ago
  No, if it’s secutities fraud it’s illegal. Unethical and illegal are not the same thing. A corporation cannot do what it wants, but it can do what shareholders want.
  - joshuamorton 7y ago
    > No, if it’s secutities fraud it’s illegal. Right, and acting unethically can be securities fraud. Hence illegal. Even if the unethical thing is on its own not illegal, and in pursuit of higher short term profits. >A corporation cannot do what it wants, but it can do what shareholders want. Yes it can, as long as it makes sure to inform shareholders of what it intends to do. As long as shareholders have information with which to make an informed decision, it doesn't matter what that information is.
    - vasilipupkin 7y ago
      You made the claim that corporations must act ethically or its securities fraud. That claim is not correct. Some unethical behavior can indeed be illegal but unethical in itself doesn’t automatically break the law. As for information, management of the corporation works for the shareholders. If the shareholders don’t like management decisions,they can replace management. So, ultimately the corporation is an entity designed to advance the interests of shareholders.

Ididntdothis 7y ago

As far as I know the purpose of a corporation is to conduct lawful business. I don’t believe the law says anything about shareholder returns.

vikramkr 7y ago
The law definitely doesn't, otherwise it would be illegal to do things like donate to charity as a corporation. If all shareholders get together and vote unanimously to take all the money in the corporation and give it away, then they can totally do that. If the law mandated maximizing shareholder returns then shareholders would no longer be free to instruct the entity they own to do what they want it to if it conflicts with increasing profits
- vasilipupkin 7y ago
  Ok, you are nitpicking. The legal purpose is to advance the interests of shareholders. Sure, shareholders can give away all the money and earn zero returns ( presumably they would register a non profit if they wanted to do that ) but it would be illegal to do something that shareholders didn’t agree to. Did shareholders of the signatories agree to forego profits in order to make customers happy ? Of course not.
  - vikramkr 7y ago
    I'm not nitpicking, and the legal purpose of a company is not to deliver shareholder returns. IIRC, most company incorporation specify the legal purpose of the corporation to be to do the business that the corporation is made to do. Here's the excerpt from my certificate of incorporation: "The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. " And the same agreement vests in the officers the ability to do whatever is necessary to further that purpose. You obviously can't go against the results of a direct shareholder vote but officers have enormous leeway. If they decide to forgo profits in order to make customers happy, whether or not that is meant to drive long term growth, that is completely legal as long as there are no conflicts of interest.
    - vasilipupkin 7y ago
      You are nitpicking. The shareholders own the corporation. I concede that the purpose isn’t returns but the purpose is to further shareholders interests. The purpose isn’t in any way, shape or form to further employees interests.
      - deleted 7y ago
        [deleted]

my_username_is_ 7y ago

>The legal purpose of a corporation is to generate returns for shareholders. >Goes without saying that corporations should maximize shareholder value using legal means only. But why? This line of thinking typically assumes that people start companies strictly to make money--an assumption that I see as patently false. There are plenty of for-profit social enterprises (which is to say nothing of non-profits). For example, Patagonia recently changed their mission statement "We’re in business to save our home planet" [1]. To think that they continue to exist just because Yvon Chouinard doesn't have enough cash in the bank is laughable. [1] https://www.patagonia.com/company-info.html https://www.patagonia.com/company-info.html

aodin 7y ago
Patagonia is also a B Corp [1], and it has a legal obligation to the mission statement that you've mentioned, not just maximizing shareholder value. I think the parent comment is just snidely remarking that the C Corps that have signed the letter are still required to maximize shareholder value, or they will face legal action. I am uncertain how this letter changes the established case law regarding C Corps. [1] https://www.patagonia.com/b-lab.html https://www.patagonia.com/b-lab.html
- vonmoltke 7y ago
  > C Corps that have signed the letter are still required to maximize shareholder value, or they will face legal action No corporation is required to "maximize shareholder value". In fact, they cannot be because there is no possible legal standard for what constitutes "maximizing value". B Corporations have no special legal standing. It's just a certification created by a group that tries to push corporations towards responsibility (or, more cynically, provides virtue-signalling-as-a-service). Any corporation can adopt any or all of the principles set out for B Corporations, if the changes to their charter and by-laws are approved. It is the existence of such requirements in the corporate governance documents that provides the legal requirement, not a private certification.
  - aodin 7y ago

joshuamorton 7y ago

> The legal purpose of a corporation is to generate returns for shareholders. This is legally incorrect. It's a meme that should die. This idea is based on the assumption that not acting to maximize shareholder value is defrauding investors. But this isn't at all true. Corporations are free to do whatever they want, as long as they're transparent about doing so. Or to make the same point in the opposite direction: companies must act ethically, because not doing so ends up being securities fraud[0]. Since stock price is in a large part based on perception, things that negatively affect perception that aren't disclosed could be (and are) construed as defrauding investors. [0]: https://www.bloomberg.com/opinion/articles/2019-06-26/everything-everywhere-is-securities-fraud https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...

vasilipupkin 7y ago
No, if it’s secutities fraud it’s illegal. Unethical and illegal are not the same thing. A corporation cannot do what it wants, but it can do what shareholders want.
- joshuamorton 7y ago
  > No, if it’s secutities fraud it’s illegal. Right, and acting unethically can be securities fraud. Hence illegal. Even if the unethical thing is on its own not illegal, and in pursuit of higher short term profits. >A corporation cannot do what it wants, but it can do what shareholders want. Yes it can, as long as it makes sure to inform shareholders of what it intends to do. As long as shareholders have information with which to make an informed decision, it doesn't matter what that information is.
  - vasilipupkin 7y ago
    You made the claim that corporations must act ethically or its securities fraud. That claim is not correct. Some unethical behavior can indeed be illegal but unethical in itself doesn’t automatically break the law. As for information, management of the corporation works for the shareholders. If the shareholders don’t like management decisions,they can replace management. So, ultimately the corporation is an entity designed to advance the interests of shareholders.