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> 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

> 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.
    - joshuamorton 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. Not exactly no, I made the claim that a lot of unethical, but not directly illegal, behavior has been successfully called securities fraud. > So, ultimately the corporation is an entity designed to advance the interests of shareholders. Which is not the same as "generating returns for shareholders". Of course this also gets even more confusing with voting/non-voting shares, where for the majority of shareholders, your interests don't matter at all.
      - vasilipupkin 7y ago
        We can dance around semantics, the point is corporations cannot do things that shareholders collectively find as bad for them. For example, corporations cannot benefit employees at the expense of shareholders. If management decided to write a big fat check to employees and shareholders didn’t agree, they can call an emergency meeting cancel the check, fire management and appoint new management.
        vonmoltke 7y ago
        > they can call an emergency meeting cancel the check No, they can't. If management took an action that is within their power to take it cannot be reversed at shareholder whim. They can certainly throw out the current management and install new management who will attempt to reverse what the old management did, but what is done is done.

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.
  - joshuamorton 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. Not exactly no, I made the claim that a lot of unethical, but not directly illegal, behavior has been successfully called securities fraud. > So, ultimately the corporation is an entity designed to advance the interests of shareholders. Which is not the same as "generating returns for shareholders". Of course this also gets even more confusing with voting/non-voting shares, where for the majority of shareholders, your interests don't matter at all.
    - vasilipupkin 7y ago
      We can dance around semantics, the point is corporations cannot do things that shareholders collectively find as bad for them. For example, corporations cannot benefit employees at the expense of shareholders. If management decided to write a big fat check to employees and shareholders didn’t agree, they can call an emergency meeting cancel the check, fire management and appoint new management.
      - vonmoltke 7y ago
        > they can call an emergency meeting cancel the check No, they can't. If management took an action that is within their power to take it cannot be reversed at shareholder whim. They can certainly throw out the current management and install new management who will attempt to reverse what the old management did, but what is done is done.