3 ms·

"Under current law, shareholders can sue corporate boards for not maximizing profits" Wow, I never new that. Granted I know very little of the legal implicatio

"Under current law, shareholders can sue corporate boards for not maximizing profits" Wow, I never new that. Granted I know very little of the legal implications of incorporating, but still. I wasn't expecting it to be so plain. Corporations have a legal obligation to not care about anything but money. Explains a lot.

damoncali 15y ago
It's not that simple. Boards have certain duties to act on behalf of the corporations, and not their own personal interests. Since concepts like "the good of humanity" are so vague, and can be interpreted in mutually exclusive ways, the theory is that those decisions should be made by shareholders with their own money, not with the company's. Take a "sweat shop", for example. There is one view that they are exploitative and that low wages overseas should not be tolerated. There is another view that those wages generate income in areas of the world where it is greatly needed. How is a board of directors to decide which view to take? Which shareholders should they listen to? So boards have been defined as the people who watch the business for the good of the business. And they're given great leeway in doing so. (You can't sue them for making bad business decions, for example - only fraudulent or grossly negligent ones). Bundling charity with business is an interesting idea, but I'm not sure it's better than separating them, or if there isn't an inherent contradiction in the two when you apply it to large public companies. After all, profits can always be used to better humanity without the conflicts I've described after they've been given to the shareholders. I'm a little skeptical that it will change much, but we'll see. It will be interesting to watch.
- yew 15y ago
  > I'm a little skeptical that it will change much, but we'll see. It will be interesting to watch. Likewise, on both counts. Though I think it's important to remember, even if this enterprise fails the state of California is a big enough experimental setting to provide all sorts of interesting (and possibly even useful) new data.
ghaff 15y ago
It would probably be more accurate to say maximize shareholder value but, that aside, you're reading a bit too much into that statement. It is, in fact true, that the board of a company incorporated as a for-profit has a fiduciary duty to shareholders which does, yes, translate into trying to make money for them. And there have been (rare) cases that this has come up an issue. It factored into a lawsuit Ebay brought against Craigslist at one point. If Apple's Board of Directors suddenly decides that they're going to donate all of Apple's profits to the Save the Whales Foundation, they would doubtless be sued. (I'm assuming for purposes of argument the BoD would even have the legal authority to do so.) That said, boards are not required to maximize short-term profit. They can make modest philanthropic contributions. They can do things for their local communities. They can pay their employees well and give them lots of time off. And so forth. The argument, in the context of fiduciary responsibilities, would be that all these things can contribute to the long-term value of the firm. If, however, you honestly don't care much about making money and want to give most of your profits back to the local community of whatever, you really shouldn't be incorporating as a for profit.

damoncali 15y ago

It's not that simple. Boards have certain duties to act on behalf of the corporations, and not their own personal interests. Since concepts like "the good of humanity" are so vague, and can be interpreted in mutually exclusive ways, the theory is that those decisions should be made by shareholders with their own money, not with the company's. Take a "sweat shop", for example. There is one view that they are exploitative and that low wages overseas should not be tolerated. There is another view that those wages generate income in areas of the world where it is greatly needed. How is a board of directors to decide which view to take? Which shareholders should they listen to? So boards have been defined as the people who watch the business for the good of the business. And they're given great leeway in doing so. (You can't sue them for making bad business decions, for example - only fraudulent or grossly negligent ones). Bundling charity with business is an interesting idea, but I'm not sure it's better than separating them, or if there isn't an inherent contradiction in the two when you apply it to large public companies. After all, profits can always be used to better humanity without the conflicts I've described after they've been given to the shareholders. I'm a little skeptical that it will change much, but we'll see. It will be interesting to watch.

yew 15y ago
> I'm a little skeptical that it will change much, but we'll see. It will be interesting to watch. Likewise, on both counts. Though I think it's important to remember, even if this enterprise fails the state of California is a big enough experimental setting to provide all sorts of interesting (and possibly even useful) new data.

ghaff 15y ago

It would probably be more accurate to say maximize shareholder value but, that aside, you're reading a bit too much into that statement. It is, in fact true, that the board of a company incorporated as a for-profit has a fiduciary duty to shareholders which does, yes, translate into trying to make money for them. And there have been (rare) cases that this has come up an issue. It factored into a lawsuit Ebay brought against Craigslist at one point. If Apple's Board of Directors suddenly decides that they're going to donate all of Apple's profits to the Save the Whales Foundation, they would doubtless be sued. (I'm assuming for purposes of argument the BoD would even have the legal authority to do so.) That said, boards are not required to maximize short-term profit. They can make modest philanthropic contributions. They can do things for their local communities. They can pay their employees well and give them lots of time off. And so forth. The argument, in the context of fiduciary responsibilities, would be that all these things can contribute to the long-term value of the firm. If, however, you honestly don't care much about making money and want to give most of your profits back to the local community of whatever, you really shouldn't be incorporating as a for profit.