4 ms·

"Further more, Tim is bound by law to do what is best for the shareholders." This stupid meme needs to die already. There is no such obligation, he only has a

"Further more, Tim is bound by law to do what is best for the shareholders." This stupid meme needs to die already. There is no such obligation, he only has a fiduciary duty to not trash the company and spend the earnings on cocaine. "companies are legally forced to maximise profit" has never been true and this piece of misinformation has been going around for ages now.

re-thc 3y ago
> "companies are legally forced to maximise profit" has never been true It's more like too hard to be proven in any way. Unless you live in an simulator it's really hard to say which set of decisions is better than another. People often say it is obvious or in hindsight but fact is there are no such hard proofs.
vel0city 3y ago
Even then, if the shareholders approve of trashing the company with ice cream parties (had to get rid of the illegality of cocaine for this point) there's nothing inherently wrong or illegal with that. As long as the executives are behaving generally how the shareholders want, it's not a problem.
sambeau 3y ago
There's still argument about this. The oft mentioned Dodge v. Ford Motor Company 1919 covers much the argument for and against. But it's clearly not straightforward. My (IANAL) reading of it is that maximising shareholder value is probably the law, but it's practically unenforcible. Being practically unenforcible doesn't stop CEOs and boards from using it as a guiding principle. https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.
- WillPostForFood 3y ago
  Dodge v. Ford Motor Company was a Michigan State decision, so even if one thinks it means maximizing shareholder value is the law (it really didn't say that, broadly), it only applies in Michigan.
ToucanLoucan 3y ago
Cook isn't bound by that true enough, because he remains the majority stakeholder, but that is increasingly not the case as it becomes more and more regular that companies bring in new CEOs from entirely different companies if not entirely different industries, who do not own that much stake. In those cases, the board and shareholders can and do exert a lot of influence, up to and including firing them if they do not do their jobs correctly, which to shareholders is invariably some form of "make line go up." And that's just civil influence, there are legal mechanisms indeed in place if a CEO "trashes a company" and what that means is different depending on the company.
- jacquesm 3y ago
  There is no way that Tim Cook is majority stakeholder in Apple.
pdpi 3y ago
> There is no such obligation And, insofar as such an obligation to “maximise shareholder value” might exist, that obligation doesn’t necessarily translate into “maximise profit”. The shareholders of a theatre company might care more about breaking even while getting an interesting assortment of plays produced with a great cast than they do about making a bunch of money out of the venture, so an executive who makes a bunch of money by running productions of uninspired cash grab shows won’t actually be maximising value. Likewise, I’m sure that Rob McElhenney and Ryan Reynolds care more about Wrexham AFC’s managers getting good athletic results than they do about making a bunch of money.
- fauigerzigerk 3y ago
  >And, insofar as such an obligation to “maximise shareholder value” might exist, that obligation doesn’t necessarily translate into “maximise profit”. And even where it does translate into "maximise profit" because it's what shareholders of a particular company may want, there is no timeframe for it, and there is no way to tell whether any particular decision by the CEO runs contrary to the goal of eventually maximising profits. Companies can spend all their revenues plus a constant stream of new capital on growing market share or revenue, on charitable activities or the happiness of employees, on huge research and development projects or on restructuring after restructuring and still credibly claim that all of it is ultimately meant to maximise profits. The point where CEOs and CFOs have to be careful is when the company faces solvency issues. That's where legal limits of freewheeling decision making kick in, because it's where it's no longer about shareholders but about creditors.
HardlyCognizant 3y ago
They are liable and there is precedent, as I understand it. eBay v Newmark https://h2o.law.harvard.edu/cases/3472 https://h2o.law.harvard.edu/cases/3472 https://onlinelibrary.wiley.com/doi/abs/10.1111/basr.12108 https://onlinelibrary.wiley.com/doi/abs/10.1111/basr.12108

re-thc 3y ago

> "companies are legally forced to maximise profit" has never been true It's more like too hard to be proven in any way. Unless you live in an simulator it's really hard to say which set of decisions is better than another. People often say it is obvious or in hindsight but fact is there are no such hard proofs.

vel0city 3y ago

Even then, if the shareholders approve of trashing the company with ice cream parties (had to get rid of the illegality of cocaine for this point) there's nothing inherently wrong or illegal with that. As long as the executives are behaving generally how the shareholders want, it's not a problem.

sambeau 3y ago

There's still argument about this. The oft mentioned Dodge v. Ford Motor Company 1919 covers much the argument for and against. But it's clearly not straightforward. My (IANAL) reading of it is that maximising shareholder value is probably the law, but it's practically unenforcible. Being practically unenforcible doesn't stop CEOs and boards from using it as a guiding principle. https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

WillPostForFood 3y ago
Dodge v. Ford Motor Company was a Michigan State decision, so even if one thinks it means maximizing shareholder value is the law (it really didn't say that, broadly), it only applies in Michigan.

ToucanLoucan 3y ago

Cook isn't bound by that true enough, because he remains the majority stakeholder, but that is increasingly not the case as it becomes more and more regular that companies bring in new CEOs from entirely different companies if not entirely different industries, who do not own that much stake. In those cases, the board and shareholders can and do exert a lot of influence, up to and including firing them if they do not do their jobs correctly, which to shareholders is invariably some form of "make line go up." And that's just civil influence, there are legal mechanisms indeed in place if a CEO "trashes a company" and what that means is different depending on the company.

jacquesm 3y ago
There is no way that Tim Cook is majority stakeholder in Apple.

pdpi 3y ago

> There is no such obligation And, insofar as such an obligation to “maximise shareholder value” might exist, that obligation doesn’t necessarily translate into “maximise profit”. The shareholders of a theatre company might care more about breaking even while getting an interesting assortment of plays produced with a great cast than they do about making a bunch of money out of the venture, so an executive who makes a bunch of money by running productions of uninspired cash grab shows won’t actually be maximising value. Likewise, I’m sure that Rob McElhenney and Ryan Reynolds care more about Wrexham AFC’s managers getting good athletic results than they do about making a bunch of money.

fauigerzigerk 3y ago
>And, insofar as such an obligation to “maximise shareholder value” might exist, that obligation doesn’t necessarily translate into “maximise profit”. And even where it does translate into "maximise profit" because it's what shareholders of a particular company may want, there is no timeframe for it, and there is no way to tell whether any particular decision by the CEO runs contrary to the goal of eventually maximising profits. Companies can spend all their revenues plus a constant stream of new capital on growing market share or revenue, on charitable activities or the happiness of employees, on huge research and development projects or on restructuring after restructuring and still credibly claim that all of it is ultimately meant to maximise profits. The point where CEOs and CFOs have to be careful is when the company faces solvency issues. That's where legal limits of freewheeling decision making kick in, because it's where it's no longer about shareholders but about creditors.

HardlyCognizant 3y ago

They are liable and there is precedent, as I understand it. eBay v Newmark https://h2o.law.harvard.edu/cases/3472 https://h2o.law.harvard.edu/cases/3472 https://onlinelibrary.wiley.com/doi/abs/10.1111/basr.12108 https://onlinelibrary.wiley.com/doi/abs/10.1111/basr.12108