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This is called "shareholder primacy" and it's more of an ideology than an actual legal requirement. It's going to be true to the extent that the company leaders

This is called "shareholder primacy" and it's more of an ideology than an actual legal requirement. It's going to be true to the extent that the company leadership believes it's true, and a lot of different strategies could be justified as serving the shareholders in the long run. Matt Levine has written a few columns about how this works out in practice, or doesn't.

ROTMetro 4y ago
Costco seems to do a pretty good job at saying no and they have not had repercussions.
lazide 4y ago
Unless the bylaws and structure are explicitly setup to be different, the shareholders elect the board, and the board appoints the corporate officers. So any board that doesn’t get the shareholders what they want doesn’t last long. And any corporate officers that don’t get the board what they want don’t last long either. Of course, many opportunities for ‘capture’, owner/agent issues, market perception and ‘fog of war’, etc. It’s an ideology for a reason, it’s the naive truth.
insane_dreamer 4y ago
But the company leadership either has to be able to convince shareholders to stay the course (as Amazon famously did for years without generating profits as it grew), or has to have enough power to ward off the investors (bearing in mind that most investors are institutional not retail) because of the way the company is structured that he's not in danger of being ousted if the board (which represents the shareholders, not the company) doesn't like the company's performance.
- skybrian 4y ago
  Yes, shareholders can sometimes exercise power over a company via its board, but it doesn’t follow that shareholders necessarily want to maximize the value of that company’s shares, or at least not right away. Shareholders often have other interests. For example, they usually own shares in other companies. Also, ESG is big these days. This can make deciding what a company should do a messy political process when there’s disagreement about what shareholders want or should want. Like, some shareholders may decide to buy a coal plant to shut it down, others to keep it running as long as possible.

ROTMetro 4y ago

Costco seems to do a pretty good job at saying no and they have not had repercussions.

lazide 4y ago

Unless the bylaws and structure are explicitly setup to be different, the shareholders elect the board, and the board appoints the corporate officers. So any board that doesn’t get the shareholders what they want doesn’t last long. And any corporate officers that don’t get the board what they want don’t last long either. Of course, many opportunities for ‘capture’, owner/agent issues, market perception and ‘fog of war’, etc. It’s an ideology for a reason, it’s the naive truth.

insane_dreamer 4y ago

But the company leadership either has to be able to convince shareholders to stay the course (as Amazon famously did for years without generating profits as it grew), or has to have enough power to ward off the investors (bearing in mind that most investors are institutional not retail) because of the way the company is structured that he's not in danger of being ousted if the board (which represents the shareholders, not the company) doesn't like the company's performance.

skybrian 4y ago
Yes, shareholders can sometimes exercise power over a company via its board, but it doesn’t follow that shareholders necessarily want to maximize the value of that company’s shares, or at least not right away. Shareholders often have other interests. For example, they usually own shares in other companies. Also, ESG is big these days. This can make deciding what a company should do a messy political process when there’s disagreement about what shareholders want or should want. Like, some shareholders may decide to buy a coal plant to shut it down, others to keep it running as long as possible.