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> and even legally required to do so if they are to meet their obligations to maximize shareholder value. This is a solid comment overall, but I really wish th

> and even legally required to do so if they are to meet their obligations to maximize shareholder value. This is a solid comment overall, but I really wish this particular widespread canard would die already. It's flatly untrue, the kind of myth that lives on because there are so many people who aren't capable of processing the benefits and costs of corporations and treat them as one-dimensional boogeymen out of a children's bedtime story. (to be clear, that doesn't appear to be the case for you).

rsj_hn 7y ago
It is not a canard. The purpose of a corporation is going to be specified in the corporate charter, and while some corporations are non-profits or have explicit charitable requirements, most have a charter that focuses on maximizing shareholder earnings. Almost no company has a charter that focuses on maximizing taxes paid. That charter is a binding contract that governs the behavior of the officers of the company and shareholders, when they buy shares of a company, do so with their rights and the obligations of officers encoded in that charter. They are not buying blind -- they are buying into that charter. That is a contract that they expect to be followed. The idea that a corporation can do whatever it wants and ignore shareholders is a fashionable myth in some lefty circles and has absolutely no basis in reality or corporate law. If you want to found a corporation whose charter is to help the poor, or to provide high paying secure jobs to workers, you can certainly do that, but then it goes in the charter and if a corporate officer were to start turning the company into a for profit venture she could get sued by the shareholders just as an officer turning a for profit company into a non-profit can get sued. In addition to the legal obligation of abiding by the charter (in the sense that it is a contract and you can get sued for breaching it), most corporate charters are structured in such a way as to allow shareholders certain operational control: to replace board members who they don't believe are acting in their (the shareholder) interest, require shareholder approval for major things like executive pay, issuance of corporate debt, issuance of more stock, etc. This is another way that corporate officers are bound to serve shareholder interests and again these rights are all promised to the shareholder in the charter before they purchase stock, so that a shareholder knows what they are buying and what rights they have. In addition to the daily operational controls that shareholders exercise, the charter also specifies what is necessary to change it -- usually a shareholder majority of some kind. This means if you displease the shareholders, they will sell your stock, lowering your stock price, allowing a hostile shareholder to buy up the company and throw management out and also rewrite the charter. Maybe even take the company private so they become the sole owner of the entire company. All of that is hanging, like a Damocles sword, over management, forcing management to cater to shareholder preferences. If you don't like the current shareholder focus -- and there is a case to be made that we are too focused on the shareholder -- then you can go company by company and propose a vote to amend the current charter, assuming you can get the shareholders to agree -- but what you can't do is pretend that the vast majority of corporate charters aren't structured in such a way as to force corporate officers to maximize shareholder value. They are.
- comex 7y ago
  You moved the goalposts. Corporate officers may indeed be motivated to maximize profits by the threat of being thrown out by shareholders. But they are not legally required to do so, or at least they have no meaningful risk of losing a lawsuit over it; the business judgment rule creates a presumption that they are acting in the corporation’s best interests, a presumption which is hard to overcome. The main exception is if they sacrifice the corporation’s interests for personal financial gain (self-dealing), but that’s not what’s being discussed here.
  - rsj_hn 7y ago
    As I pointed out, if they violate the charter, which explicitly says that shareholder returns is the purpose of the corporation, then they are liable to be sued by either shareholders or state’s attorneys. That charter is a legally binding obligation. The requirement to disburse profits, have shareholders approve executive pay, etc which is also in the charter also becomes a legal obligation. It’s not a question of preferences but rather contracts that are heavily regulated. https://smallbusiness.chron.com/consequences-violating-corporate-bylaws-74780.html https://smallbusiness.chron.com/consequences-violating-corpo... “ State laws require the board of directors to act in the best interest of the corporation and its shareholders. Part of that responsibility is managing the affairs of the business according to certain legal standards. Once a director takes a seat on the board, he has various duties as the representative of the shareholders that the law places upon him, such as the duty of care and loyalty, that determine if he's doing his job properly. Even if your small corporation has few shareholders and all of them also sit on the board of directors, the shareholders in their capacity as directors must take action and make decisions that comply with the law and the corporation's governing documents, including the bylaws.”
    - trepanne 7y ago
      Corporate charters don't generally include clauses requiring that profits be maximized, profits be disbursed, and executive pay be approved by shareholders. Rather they tend to include maximally expansive language such as "all business activities legal in the state of XXX". It's a placeholder, delegating responsibility to the directors to the greatest extent permitted by law. This is the standard, for good reason. Are the charitable donations of the Fortune 500 evidence of widespread violation of fiduciary duties?

rsj_hn 7y ago

It is not a canard. The purpose of a corporation is going to be specified in the corporate charter, and while some corporations are non-profits or have explicit charitable requirements, most have a charter that focuses on maximizing shareholder earnings. Almost no company has a charter that focuses on maximizing taxes paid. That charter is a binding contract that governs the behavior of the officers of the company and shareholders, when they buy shares of a company, do so with their rights and the obligations of officers encoded in that charter. They are not buying blind -- they are buying into that charter. That is a contract that they expect to be followed. The idea that a corporation can do whatever it wants and ignore shareholders is a fashionable myth in some lefty circles and has absolutely no basis in reality or corporate law. If you want to found a corporation whose charter is to help the poor, or to provide high paying secure jobs to workers, you can certainly do that, but then it goes in the charter and if a corporate officer were to start turning the company into a for profit venture she could get sued by the shareholders just as an officer turning a for profit company into a non-profit can get sued. In addition to the legal obligation of abiding by the charter (in the sense that it is a contract and you can get sued for breaching it), most corporate charters are structured in such a way as to allow shareholders certain operational control: to replace board members who they don't believe are acting in their (the shareholder) interest, require shareholder approval for major things like executive pay, issuance of corporate debt, issuance of more stock, etc. This is another way that corporate officers are bound to serve shareholder interests and again these rights are all promised to the shareholder in the charter before they purchase stock, so that a shareholder knows what they are buying and what rights they have. In addition to the daily operational controls that shareholders exercise, the charter also specifies what is necessary to change it -- usually a shareholder majority of some kind. This means if you displease the shareholders, they will sell your stock, lowering your stock price, allowing a hostile shareholder to buy up the company and throw management out and also rewrite the charter. Maybe even take the company private so they become the sole owner of the entire company. All of that is hanging, like a Damocles sword, over management, forcing management to cater to shareholder preferences. If you don't like the current shareholder focus -- and there is a case to be made that we are too focused on the shareholder -- then you can go company by company and propose a vote to amend the current charter, assuming you can get the shareholders to agree -- but what you can't do is pretend that the vast majority of corporate charters aren't structured in such a way as to force corporate officers to maximize shareholder value. They are.

comex 7y ago
You moved the goalposts. Corporate officers may indeed be motivated to maximize profits by the threat of being thrown out by shareholders. But they are not legally required to do so, or at least they have no meaningful risk of losing a lawsuit over it; the business judgment rule creates a presumption that they are acting in the corporation’s best interests, a presumption which is hard to overcome. The main exception is if they sacrifice the corporation’s interests for personal financial gain (self-dealing), but that’s not what’s being discussed here.
- rsj_hn 7y ago
  As I pointed out, if they violate the charter, which explicitly says that shareholder returns is the purpose of the corporation, then they are liable to be sued by either shareholders or state’s attorneys. That charter is a legally binding obligation. The requirement to disburse profits, have shareholders approve executive pay, etc which is also in the charter also becomes a legal obligation. It’s not a question of preferences but rather contracts that are heavily regulated. https://smallbusiness.chron.com/consequences-violating-corporate-bylaws-74780.html https://smallbusiness.chron.com/consequences-violating-corpo... “ State laws require the board of directors to act in the best interest of the corporation and its shareholders. Part of that responsibility is managing the affairs of the business according to certain legal standards. Once a director takes a seat on the board, he has various duties as the representative of the shareholders that the law places upon him, such as the duty of care and loyalty, that determine if he's doing his job properly. Even if your small corporation has few shareholders and all of them also sit on the board of directors, the shareholders in their capacity as directors must take action and make decisions that comply with the law and the corporation's governing documents, including the bylaws.”
  - trepanne 7y ago
    Corporate charters don't generally include clauses requiring that profits be maximized, profits be disbursed, and executive pay be approved by shareholders. Rather they tend to include maximally expansive language such as "all business activities legal in the state of XXX". It's a placeholder, delegating responsibility to the directors to the greatest extent permitted by law. This is the standard, for good reason. Are the charitable donations of the Fortune 500 evidence of widespread violation of fiduciary duties?