4 ms·

IMO, this potentially opens up Facebook Inc. to securities fraud lawsuits. Corporate executives by default have a fiduciary duty to maximize shareholder returns

IMO, this potentially opens up Facebook Inc. to securities fraud lawsuits. Corporate executives by default have a fiduciary duty to maximize shareholder returns. They don't have to abide by this, but if they take material action towards other goals, then they must clearly disclose it in public communications. (E.g. a non-profit company can't pretend that it's not to potential investors.) It's pretty hard to justify how banning Trump benefits shareholders. Without a doubt, his precense drives user engagement and therefore ad revenue. There's no credible threat of boycott. It's pretty clear executives made this decision in the interest of democracy rather than maximizing shareholder returns. Facebook has never disclosed this consideration on its SEC filings. Therefore under American corporate law, that opens up management to liability. I'm not taking a stance whether this is good or bad. But I do think that politically motivated security fraud lawsuits against Twitter and Facebook are eventually inevitable. Not least because political opponents will heavily subsidize the plaintiffs, even if the case doesn't look likely to win.

mden 6y ago
"Corporate executives have a fiduciary duty to maximize shareholder returns" My understanding is that that's an oft repeated myth - 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...
vel0city 6y ago
Corporate executives do not have a fiduciary due to maximize shareholder returns. If the shareholders and board of a public corporation want to quit making money and just throw massive parties all the time until the corporation runs out of money, there's nothing stopping them from doing so. 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...
- dcolkitt 6y ago
  They don't have an absolute duty to maximize returns. But if they're taking deliberate and material actions that go against shareholder interests, they are required to publicly disclose that. For example there are non-profit corporations, and of course that's perfectly legal, but they're not allowed to masquerade as if they aren't. The key test for securities fraud is advance and public disclosure. It's funny you bring up the party example, because that's exactly what Tyco did. And it resulted in a $3 billion securities fraud payout. https://www.nbcnews.com/id/wbna18677004 https://www.nbcnews.com/id/wbna18677004
  - vel0city 6y ago
    The Tyco executives were sued by the SEC because they didn't disclose the loans and acted in a way the shareholders didn't approve of in a massive way. Note I stated "If the shareholders and board..." in my comment, so that's totally a different scenario from the one I mentioned. In my example, everyone knows there's a party happening and the majority of shareholders agree with it. So long as everyone knows what's happening and the majority agrees with it, they don't have to bother trying to make a profit. They don't have to bother to make returns. If the shareholders decide buying Maseratis for everyone is what the company wants to do, there's nothing inherently wrong with that. Corporations don't have to maximize shareholder value. Corporate actors need to be beholden to the interests of the shareholders, but that does not mean they need to bother to make a profit. Most publicly traded companies do focus on making a profit, and most people buy shares in companies with the expectation they generate returns. Nothing says this has to be the goal.

mden 6y ago

"Corporate executives have a fiduciary duty to maximize shareholder returns" My understanding is that that's an oft repeated myth - 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...

vel0city 6y ago

Corporate executives do not have a fiduciary due to maximize shareholder returns. If the shareholders and board of a public corporation want to quit making money and just throw massive parties all the time until the corporation runs out of money, there's nothing stopping them from doing so. 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...

dcolkitt 6y ago
They don't have an absolute duty to maximize returns. But if they're taking deliberate and material actions that go against shareholder interests, they are required to publicly disclose that. For example there are non-profit corporations, and of course that's perfectly legal, but they're not allowed to masquerade as if they aren't. The key test for securities fraud is advance and public disclosure. It's funny you bring up the party example, because that's exactly what Tyco did. And it resulted in a $3 billion securities fraud payout. https://www.nbcnews.com/id/wbna18677004 https://www.nbcnews.com/id/wbna18677004
- vel0city 6y ago
  The Tyco executives were sued by the SEC because they didn't disclose the loans and acted in a way the shareholders didn't approve of in a massive way. Note I stated "If the shareholders and board..." in my comment, so that's totally a different scenario from the one I mentioned. In my example, everyone knows there's a party happening and the majority of shareholders agree with it. So long as everyone knows what's happening and the majority agrees with it, they don't have to bother trying to make a profit. They don't have to bother to make returns. If the shareholders decide buying Maseratis for everyone is what the company wants to do, there's nothing inherently wrong with that. Corporations don't have to maximize shareholder value. Corporate actors need to be beholden to the interests of the shareholders, but that does not mean they need to bother to make a profit. Most publicly traded companies do focus on making a profit, and most people buy shares in companies with the expectation they generate returns. Nothing says this has to be the goal.