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From a previous thread[1] where this came up: ---- Is maximizing shareholder value really law now ? Just trying to understand if CEOs are legally responsible

From a previous thread[1] where this came up: ---- Is maximizing shareholder value really law now ? Just trying to understand if CEOs are legally responsible to return maximum share of profits to shareholders. Well... that's a slightly complicated question. It's definitely not quite as simple as "companies must maximize profit to the exclusion of all other concerns". But while directors and executives are given wide latitude to run the company according to their judgment, they don't have carte blanche to do "whatever they want" either. More to the point, while a company as a whole can do more than simply "maximize profit to the exclusion of all else", the caveat seems to be that they can do so if the owners (eg the shareholders) agree. From the SCOTUS decision in the Hobby Lobby case: While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives. Many examples come readily to mind. So long as its owners agree, a for-profit corporation may take costly pollution-control and energy-conservation measures that go beyond what the law requires. A for-profit corporation that operates facilities in other countries may exceed the requirements of local law regarding working conditions and benefits. If for-profit corporations may pursue such worthy objectives, there is no apparent reason why they may not further religious objectives as well. The question I see then, is how much influence a single shareholder can truly yield based on this principle. That is, of course, assuming they don't single-handedly hold a controlling share of the company to the point that they can simply replace the board with whoever they want and enforce any arbitrary edict. Given a publicly traded company, it seems clear that some shareholders are going to want the "maximize my stock value at any expense" while others are going to go for more of a "do the humanitarian thing and treat (employees|the environment|whatever) well" or such-like. See: https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co... https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3943559 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3943559 https://corpgov.law.harvard.edu/2021/12/01/dodge-v-ford-what https://corpgov.law.harvard.edu/2021/12/01/dodge-v-ford-what... https://caselaw.findlaw.com/us-supreme-court/13-354.html https://caselaw.findlaw.com/us-supreme-court/13-354.html https://web.archive.org/web/20130603013056/https://www.brook https://web.archive.org/web/20130603013056/https://www.brook... https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co. https://en.wikipedia.org/wiki/Shareholder_primacy https://en.wikipedia.org/wiki/Shareholder_primacy [1]: https://news.ycombinator.com/item?id=34513015 https://news.ycombinator.com/item?id=34513015

foobarian 4y ago
I suppose this could also become highly personal, say if a super-charismatic shareholder can convince the rest to do something despite being in the minority.
ncallaway 4y ago
I think the wide latitude for judgement thing also has more impact that people realize. An executive needs to have a reason to believe their actions we’re maximizing, but that’s all they really need. So, if an executive can article a plausible case that, in their judgment the PR benefit from operating above the environment standards would bring more long term value than the cash expenditure to do so, they’re probably pretty well insulated from a shareholder lawsuit over it. They can obviously be fired by the board/shareholders over such decisions at any time, but they would probably not lose a shareholder brought lawsuit. You really need to be able to convincingly argue that you genuinely believed the course of action you took was in the interest of the shareholders. As long as that’s true (an email in discovery that says “this isn’t in the interest of the shareholders, but I think it’s important for the planet” would be awful for the executive, but internal communications or reports demonstrating the long term benefits of the strategy would help a lot).

foobarian 4y ago

I suppose this could also become highly personal, say if a super-charismatic shareholder can convince the rest to do something despite being in the minority.

ncallaway 4y ago

I think the wide latitude for judgement thing also has more impact that people realize. An executive needs to have a reason to believe their actions we’re maximizing, but that’s all they really need. So, if an executive can article a plausible case that, in their judgment the PR benefit from operating above the environment standards would bring more long term value than the cash expenditure to do so, they’re probably pretty well insulated from a shareholder lawsuit over it. They can obviously be fired by the board/shareholders over such decisions at any time, but they would probably not lose a shareholder brought lawsuit. You really need to be able to convincingly argue that you genuinely believed the course of action you took was in the interest of the shareholders. As long as that’s true (an email in discovery that says “this isn’t in the interest of the shareholders, but I think it’s important for the planet” would be awful for the executive, but internal communications or reports demonstrating the long term benefits of the strategy would help a lot).