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I don't think the question is well formed. What is meant by "maximize profits for shareholders?" That doesn't even make sense. Shareholders don't take profits.

I don't think the question is well formed. What is meant by "maximize profits for shareholders?" That doesn't even make sense. Shareholders don't take profits. There's no definition for "maximizing" any sort of gain as the ceiling isn't known. A better question would be "are corporate executives accountable to shareholders for stock value?" 1000% they are accountable to the shareholders and if the executives do not act in their best interests, there could be repercussions. This may even include legal liability, depending on the situation.

ceejayoz 4y ago
> A better question would be "are corporate executives accountable to shareholders for stock value?" This has the same issues, though. Over what timeframe? How do you prove a certain action helped/hurt share value independent of other variables? How do you account for intangibles? Wall Street has encouraged a very short-term view of the question, but that's not legally required. Some companies have pushed back on this; Apple has a few times said "no, we're not doing that, because short-term gains would hurt long-term ones".
- deelowe 4y ago
  Ford v. Dodge (cited above by another commenter). Ford was seeing massive profits and struggling to keep up with orders and retain staff. Henry Ford decided to end special dividends in order to allocate these profits to the expansion of the company. The Dodge Brothers, who were shareholders at the time, sued and won claiming damages from them not getting special dividends when Ford was seeing record profits. Ford's defense was that this decision was what was right for the company and his workers. This case is viewed as one of the seminal examples of workers vs shareholders. While there is considerable debate over the topic, I'm not convinced by the detractors. If the executives of a company deliberately sacrificed shareholder wealth for the benefit of the workers, the shareholders would almost certainly sue and I have no doubt they would win.
  - ceejayoz 4y ago
    Ford v. Dodge had antitrust complexities to it, and there's been substantial jurisprudence since then. Burwell v. Hobby Lobby Stores, Inc., https://caselaw.findlaw.com/us-supreme-court/13-354.html https://caselaw.findlaw.com/us-supreme-court/13-354.html > 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.
    - deelowe 4y ago
      I feel like this is nitpicking. There is nothing codified in law, because it's not required to be. The fundamental question should be "if the executives of a company acted in the best interests of employees in such a way that it negatively impacted shareholder value, would this be grounds for a civil suit?" I think so. The shareholders are ultimately the owners of the company. Now, would this ever happen? Probably not. The first thing that would happen is that the board would remove the executives. So basically, this would take both the executives and the board acting against the interests of the shareholders. Given that the board is almost always made up of the majority shareholders, it would take a really extreme case for something like this to happen. Having said that, there are plenty of examples of shareholders taking action against the board when the board acts against their best interests.
      - ceejayoz 4y ago
        > The fundamental question should be "if the executives of a company acted in the best interests of employees in such a way that it negatively impacted shareholder value, would this be grounds for a civil suit?" Sure; the point is that "did this negatively impact shareholder value" is a more complicated question than the "short term profit at all costs" folks would have you believe. For example: what's the impact on shareholder value of a reputation as an ethical company who pays their workers above-market salaries? How do you balance that versus "it ate into our profits by 10% this year"?
pfortuny 4y ago
What is the best interest of the shareholders though? Is it “now” (this quarter) or is it “the future” (say 5 years’ time). Or is it a several variables problem in which there is no “optimum”?
- deelowe 4y ago
  I think this is more easily answered in the negative. What would happen if an executive acted in a way that NEGATIVELY impacted shareholder value? For example, they decided to not issue dividends and gave everyone above a certain level a huge bonus instead.
  - pfortuny 4y ago
    Probably right, that is something I had not thought about.
wadadadad 4y ago
Maximize here is not "to find the largest value", but "to increase or make as great as possible". The question formation seems fine to me. What are "best interests"? That gets back to the heart of the question here.
- deelowe 4y ago
  As stated above, I think this is best answered in the negative similar to how other agencies are held to certain standards according to the law (e.g. lawyers or real estate agents). What would happen if an executive team decided to specifically act against the interests of shareholders in the interests of the company itself? For example, suddenly stopping dividends and instead issuing huge bonuses to the employees?
runarberg 4y ago
> Shareholders don't take profits This is some Orwellian level doublespeak. For all intents and purposes the only reason to buy shares is to rake in profits. There are some huge levels of misdirection that happens which ultimately lead to workers not getting the profits they produce, and this profits going to shareholders that don’t contribute anything.
- deelowe 4y ago
  Profits influence share price, but outside of dividends and buybacks, shareholders do not take profits from the company. My point was that the question isn't well formed, because it would not make sense for shareholders to sue over poor profits. Shareholders are not directly harmed by profits/losses. Instead, shareholders would need to (and have successfully) sue(d) over executive actions which negatively and negligently impacted shareholder value (stock price).
  - runarberg 4y ago
    But they still take profits, just through indirect means. They’re not harmed, but they sure feel entitled to profits. When the stock raises in value, and shareholders make their money from it, they are taking profits (what else could you call it). That profit was created by somebody that worked for it but didn’t get it.
bell-cot 4y ago
> ...for stock value?" 1000% they are accountable... No, more like 40%. Look at (say) the huge swings in P/E ratios for the US stock market over the past ~century. Even Tim Cook at Apple has no control over whether large-cap tech stocks are being valued at 6X vs. 100X.
javcasas 4y ago
I'm going to randomly say that executive's objective is effectively maximizing executives' compensation. It should be the shareholders' objective to put the bonus schema to align maximization of executive compensation to maximization of shareholder wealth.

ceejayoz 4y ago

> A better question would be "are corporate executives accountable to shareholders for stock value?" This has the same issues, though. Over what timeframe? How do you prove a certain action helped/hurt share value independent of other variables? How do you account for intangibles? Wall Street has encouraged a very short-term view of the question, but that's not legally required. Some companies have pushed back on this; Apple has a few times said "no, we're not doing that, because short-term gains would hurt long-term ones".

deelowe 4y ago
Ford v. Dodge (cited above by another commenter). Ford was seeing massive profits and struggling to keep up with orders and retain staff. Henry Ford decided to end special dividends in order to allocate these profits to the expansion of the company. The Dodge Brothers, who were shareholders at the time, sued and won claiming damages from them not getting special dividends when Ford was seeing record profits. Ford's defense was that this decision was what was right for the company and his workers. This case is viewed as one of the seminal examples of workers vs shareholders. While there is considerable debate over the topic, I'm not convinced by the detractors. If the executives of a company deliberately sacrificed shareholder wealth for the benefit of the workers, the shareholders would almost certainly sue and I have no doubt they would win.
- ceejayoz 4y ago
  Ford v. Dodge had antitrust complexities to it, and there's been substantial jurisprudence since then. Burwell v. Hobby Lobby Stores, Inc., https://caselaw.findlaw.com/us-supreme-court/13-354.html https://caselaw.findlaw.com/us-supreme-court/13-354.html > 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.
  - deelowe 4y ago
    I feel like this is nitpicking. There is nothing codified in law, because it's not required to be. The fundamental question should be "if the executives of a company acted in the best interests of employees in such a way that it negatively impacted shareholder value, would this be grounds for a civil suit?" I think so. The shareholders are ultimately the owners of the company. Now, would this ever happen? Probably not. The first thing that would happen is that the board would remove the executives. So basically, this would take both the executives and the board acting against the interests of the shareholders. Given that the board is almost always made up of the majority shareholders, it would take a really extreme case for something like this to happen. Having said that, there are plenty of examples of shareholders taking action against the board when the board acts against their best interests.
    - ceejayoz 4y ago
      > The fundamental question should be "if the executives of a company acted in the best interests of employees in such a way that it negatively impacted shareholder value, would this be grounds for a civil suit?" Sure; the point is that "did this negatively impact shareholder value" is a more complicated question than the "short term profit at all costs" folks would have you believe. For example: what's the impact on shareholder value of a reputation as an ethical company who pays their workers above-market salaries? How do you balance that versus "it ate into our profits by 10% this year"?

pfortuny 4y ago

What is the best interest of the shareholders though? Is it “now” (this quarter) or is it “the future” (say 5 years’ time). Or is it a several variables problem in which there is no “optimum”?

deelowe 4y ago
I think this is more easily answered in the negative. What would happen if an executive acted in a way that NEGATIVELY impacted shareholder value? For example, they decided to not issue dividends and gave everyone above a certain level a huge bonus instead.
- pfortuny 4y ago
  Probably right, that is something I had not thought about.

wadadadad 4y ago

Maximize here is not "to find the largest value", but "to increase or make as great as possible". The question formation seems fine to me. What are "best interests"? That gets back to the heart of the question here.

deelowe 4y ago
As stated above, I think this is best answered in the negative similar to how other agencies are held to certain standards according to the law (e.g. lawyers or real estate agents). What would happen if an executive team decided to specifically act against the interests of shareholders in the interests of the company itself? For example, suddenly stopping dividends and instead issuing huge bonuses to the employees?

runarberg 4y ago

> Shareholders don't take profits This is some Orwellian level doublespeak. For all intents and purposes the only reason to buy shares is to rake in profits. There are some huge levels of misdirection that happens which ultimately lead to workers not getting the profits they produce, and this profits going to shareholders that don’t contribute anything.

deelowe 4y ago
Profits influence share price, but outside of dividends and buybacks, shareholders do not take profits from the company. My point was that the question isn't well formed, because it would not make sense for shareholders to sue over poor profits. Shareholders are not directly harmed by profits/losses. Instead, shareholders would need to (and have successfully) sue(d) over executive actions which negatively and negligently impacted shareholder value (stock price).
- runarberg 4y ago
  But they still take profits, just through indirect means. They’re not harmed, but they sure feel entitled to profits. When the stock raises in value, and shareholders make their money from it, they are taking profits (what else could you call it). That profit was created by somebody that worked for it but didn’t get it.

bell-cot 4y ago

> ...for stock value?" 1000% they are accountable... No, more like 40%. Look at (say) the huge swings in P/E ratios for the US stock market over the past ~century. Even Tim Cook at Apple has no control over whether large-cap tech stocks are being valued at 6X vs. 100X.

javcasas 4y ago

I'm going to randomly say that executive's objective is effectively maximizing executives' compensation. It should be the shareholders' objective to put the bonus schema to align maximization of executive compensation to maximization of shareholder wealth.