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Breach of fiduciary duty is a real thing, can get you sued, and can cost an executive or board member their position. Fiduciary duty is the legal responsibility

Breach of fiduciary duty is a real thing, can get you sued, and can cost an executive or board member their position. Fiduciary duty is the legal responsibility to act solely in the best interests of another party - shareholders in this case. So if shareholders want profits to be maximized, and that is their definition of your duty and their definition of success, then if you act counter to these interests, you may be in breach. However in 2023 many organizations take an ESG approach to strategy and governance which often encompasses taking into account environmental impact, social impact and other factors that acknowledge that a business isn’t sustainable without the environment and society within which it operates. To take the recent Ohio train derailment as an example, it appears that Norfolk Southern’s execs may have made decisions that were good for business but catastrophic for the environment and society. In the 1980s one may speculate that not acting purely in the interests of profitability may have gotten them sued. In the modern era they may be sued from an ESG perspective for making decisions that put the sustainability of their business at risk by risking the sustainability of the environment and the society within which it operates. Not legal advice as I am not a lawyer.

gilbetron 4y ago
"Nor does the law require, as many believe, that executives and directors owe a special fiduciary duty to shareholders. The fiduciary duty, in fact, is owed simply to the corporation, which is owned by no one, just as you and I are owned by no one — we are all “persons” in the eyes of the law. Shareholders, however, have a contractual claim to the “residual value” of the corporation once all its other obligations have been satisfied — and even then directors are given wide latitude to make whatever use of that residual value they choose, as long they’re not stealing it for themselves."
- throwawayapples 4y ago
  "the corporation, which is owned by no one" Conflating the legal fiction of the personhood of a corporation with the fact that it cannot be owned, or worse, has no owners, is not something I'd expect to hear from a WaPo journalist. (Upon further research, the author was neither an attorney or an economist, but did win the Pulitzer, and has since passed on: https://en.wikipedia.org/wiki/Steven_Pearlstein https://en.wikipedia.org/wiki/Steven_Pearlstein ) However, I still take issue with the statement that a corporation is not "owned" by the shareholders. As a matter of law, a corporation is owned by the shareholders.
  - bell-cot 4y ago
    The 13th Amendment begs to disagree. /s
  - throw0101c 4y ago
    > However, I still take issue with the statement that a corporation is not "owned" by the shareholders. As a matter of law, a corporation is owned by the shareholders. As a matter of law a corporation is not: > Simply and clearly, the corporation owns its own assets. In the simplest terms, a private company became a public company when the original owners gave up ownership. In turn, they received a stock certificate outlining certain rights to profits and other privileges. What they got, again, was a stock certificate not a certificate of ownership. The word “ownership” does not appear in that document. Additionally, while the shareholders are entitled to a portion of profits, as shareholders, they are no longer exposed to liabilities of the companies in which they hold shares. * https://www.forbes.com/sites/petergeorgescu/2021/07/21/the-shareholders-are-not-the-owners-of-a-corporation/ https://www.forbes.com/sites/petergeorgescu/2021/07/21/the-s... > This paper demonstrates that shareholder ownership, a sacred cow of business, is a myth. According to our legal system, shareholders do not own the Modern Corporation itself, nor do they own the corporate assets or profits. […] * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1464148 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1464148 See also: Paddy Ireland (1999), 'Company Law and the Myth of Shareholder Ownership', Modern Law Review, 62, pp. 32-57.
Longlius 4y ago
The linked answers actively counteract this. Fiduciary duty is to the corporation, not the shareholders. The shareholders have certain limited rights but you don't have any duty to maximize their returns.
- rcme 4y ago
  That’s a meaningless distinction. Failure to meet fiduciary obligations in a way that causes provable damages to shareholders gives shareholders grounds to sue the fiduciary.

gilbetron 4y ago

"Nor does the law require, as many believe, that executives and directors owe a special fiduciary duty to shareholders. The fiduciary duty, in fact, is owed simply to the corporation, which is owned by no one, just as you and I are owned by no one — we are all “persons” in the eyes of the law. Shareholders, however, have a contractual claim to the “residual value” of the corporation once all its other obligations have been satisfied — and even then directors are given wide latitude to make whatever use of that residual value they choose, as long they’re not stealing it for themselves."

throwawayapples 4y ago
"the corporation, which is owned by no one" Conflating the legal fiction of the personhood of a corporation with the fact that it cannot be owned, or worse, has no owners, is not something I'd expect to hear from a WaPo journalist. (Upon further research, the author was neither an attorney or an economist, but did win the Pulitzer, and has since passed on: https://en.wikipedia.org/wiki/Steven_Pearlstein https://en.wikipedia.org/wiki/Steven_Pearlstein ) However, I still take issue with the statement that a corporation is not "owned" by the shareholders. As a matter of law, a corporation is owned by the shareholders.
- bell-cot 4y ago
  The 13th Amendment begs to disagree. /s
- throw0101c 4y ago
  > However, I still take issue with the statement that a corporation is not "owned" by the shareholders. As a matter of law, a corporation is owned by the shareholders. As a matter of law a corporation is not: > Simply and clearly, the corporation owns its own assets. In the simplest terms, a private company became a public company when the original owners gave up ownership. In turn, they received a stock certificate outlining certain rights to profits and other privileges. What they got, again, was a stock certificate not a certificate of ownership. The word “ownership” does not appear in that document. Additionally, while the shareholders are entitled to a portion of profits, as shareholders, they are no longer exposed to liabilities of the companies in which they hold shares. * https://www.forbes.com/sites/petergeorgescu/2021/07/21/the-shareholders-are-not-the-owners-of-a-corporation/ https://www.forbes.com/sites/petergeorgescu/2021/07/21/the-s... > This paper demonstrates that shareholder ownership, a sacred cow of business, is a myth. According to our legal system, shareholders do not own the Modern Corporation itself, nor do they own the corporate assets or profits. […] * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1464148 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1464148 See also: Paddy Ireland (1999), 'Company Law and the Myth of Shareholder Ownership', Modern Law Review, 62, pp. 32-57.

Longlius 4y ago

The linked answers actively counteract this. Fiduciary duty is to the corporation, not the shareholders. The shareholders have certain limited rights but you don't have any duty to maximize their returns.

rcme 4y ago
That’s a meaningless distinction. Failure to meet fiduciary obligations in a way that causes provable damages to shareholders gives shareholders grounds to sue the fiduciary.