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>The legal purpose of a corporation is to generate returns for shareholders. >Goes without saying that corporations should maximize shareholder value using lega

>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
    > B Corporations have no special legal standing You're correct that B Lab's certification has no special legal standing. A "benefit corporation", however, is a recognized legal entity in many US states [1]. Patagonia is both a certified B Lab B Corp and a private benefit corporation. I should have made this point clearer. > No corporation is required to "maximize shareholder value" The rise in benefit corporation legislation was in part caused by the 2010 eBay v. Newmark decision in Delaware, which included the statement, "Promoting, protecting, or pursuing nonstockholder considerations must lead at some point to value for stockholders." [2] Note that this is still a vague statement, not using "profit" or any specific timeframe. I know that this case is still hotly debated, and I don't know enough to comment on all its implications. Outside of a legal framework, it can be argued that all corporate directors that are non-majority owners of their public companies do have a requirement to "maximize shareholder value", or, to radically oversimplify the process, they will be replaced by shareholder vote. So I should drop the "legal" modifier to my comments, and just refer to "obligations" to the shareholders and "action" by the shareholders. Again, I do not know what significance the recent letter has on any of this. [1] https://en.wikipedia.org/wiki/Benefit_corporation https://en.wikipedia.org/wiki/Benefit_corporation [2] https://www.delawarelitigation.com/uploads/file/int51%281%29.pdf https://www.delawarelitigation.com/uploads/file/int51%281%29...
vasilipupkin 7y ago
Well, they could start a non profit with a mission to be self sustaining through business operations. If they didn’t, if they started a regular corporation, we don’t know for sure, but it’s a good guess their goal is to make money.
- vonmoltke 7y ago
  Non-profits come with a whole lot of baggage that some people do not want to do with. Also, only certain types of corporation qualify to be non-profits in the first place.

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
  > B Corporations have no special legal standing You're correct that B Lab's certification has no special legal standing. A "benefit corporation", however, is a recognized legal entity in many US states [1]. Patagonia is both a certified B Lab B Corp and a private benefit corporation. I should have made this point clearer. > No corporation is required to "maximize shareholder value" The rise in benefit corporation legislation was in part caused by the 2010 eBay v. Newmark decision in Delaware, which included the statement, "Promoting, protecting, or pursuing nonstockholder considerations must lead at some point to value for stockholders." [2] Note that this is still a vague statement, not using "profit" or any specific timeframe. I know that this case is still hotly debated, and I don't know enough to comment on all its implications. Outside of a legal framework, it can be argued that all corporate directors that are non-majority owners of their public companies do have a requirement to "maximize shareholder value", or, to radically oversimplify the process, they will be replaced by shareholder vote. So I should drop the "legal" modifier to my comments, and just refer to "obligations" to the shareholders and "action" by the shareholders. Again, I do not know what significance the recent letter has on any of this. [1] https://en.wikipedia.org/wiki/Benefit_corporation https://en.wikipedia.org/wiki/Benefit_corporation [2] https://www.delawarelitigation.com/uploads/file/int51%281%29.pdf https://www.delawarelitigation.com/uploads/file/int51%281%29...

vasilipupkin 7y ago

Well, they could start a non profit with a mission to be self sustaining through business operations. If they didn’t, if they started a regular corporation, we don’t know for sure, but it’s a good guess their goal is to make money.

vonmoltke 7y ago
Non-profits come with a whole lot of baggage that some people do not want to do with. Also, only certain types of corporation qualify to be non-profits in the first place.