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US companies aren't legally obligated to maximize profits. Managers are at risk of losing their jobs if shareholders decide to vote them out via a proxy battle
by boh 4y ago
US companies aren't legally obligated to maximize profits.
Managers are at risk of losing their jobs if shareholders decide to vote them out via a proxy battle due to poor profitability, so there are incentives to max profits, but there's no legal statutes that demand profit maximization. If there was, it'd be impossible to prove since all activity is subject to risk.
- HDThoreaun 4y agoExecutives are legally required to run the company in a way they believe is in the shareholders best interests. That doesn't necessarily mean maximize profits, as shareholders could have different values, but 9 times out of 10 it does.
- eropple 4y agoMaximize profits over what time horizon?
- HDThoreaun 4y agoWhatever shareholders decide. Sometimes that’s this quarter, others it’s the full discounted long term profits.
- boh 4y agoThey actually don't. If there's any regulatory statute you wish to cite free to share it. Shareholder primacy was a 20th century marketing campaign to get investors more comfortable with investing their money. There's actually very little legal protections for investors in this regard. If there even was, it'd be impossible to prove "maximization" since all activity is subject to risk.
- HDThoreaun 4y agohttps://www.mhtlegal.com/blog/2021/september/ceo-must-uphold-fiduciary-duty-to-shareholders/#:~:text=The%20specific%20types%20of%20fiduciary,the%20company%20and%20its%20owners https://www.mhtlegal.com/blog/2021/september/ceo-must-uphold... CEO and board has a fiduciary duty to act in the company's best interest, which means the shareholders best interests.
- boh 4y agoIf this blog post helps you sleep at night knowing your investments have the solid protection of "fiduciary duties", then so be it. Laws tend to be specific to foster enforcement. Notice the lack of congressional hearings for companies failing to "maximize profits". Lying and stealing are of course still illegal.
- HDThoreaun 4y agoJust because a law isn't enforced doesn't mean it doesn't exist. Top executives at companies have a legal obligation to carry out shareholder wishes to the best of their ability. It really is that simple.
- boh 4y agoThere's no legal requirement for profit maximization, it's that simple. That's why it's not enforceable, it doesn't exist.