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A lot of people tend to not accept this plain fact that for-profits must maximize profit. It's literally illegal not to do so. https://www.wakeforestlawreview.
by jampekka 3y ago
A lot of people tend to not accept this plain fact that for-profits must maximize profit. It's literally illegal not to do so.
https://www.wakeforestlawreview.com/2012/04/our-continuing-struggle-with-the-idea-that-for-profit-corporations-seek-profit/ https://www.wakeforestlawreview.com/2012/04/our-continuing-s...
- juped 3y agoIt's complicated, actually. Usually when you hear this it's about something management or the board or whoever wanted to do anyway.
- Bootvis 3y agoYour link is really hard to read imo and it doesn’t present an indisputed legal fact. From a quick Googling: https://insight.kellogg.northwestern.edu/article/shareholder-value-purpose-corporation#:~:text=Just%20to%20be%20very%20clear,as%20serving%20shareholders'%20best%20interest https://insight.kellogg.northwestern.edu/article/shareholder....
- duxup 3y agoI know..?
- toyg 3y agoIf it were "illegal", the State would be actively prosecuting any executive not making money. That's obviously absurd. Not maximizing shareholder value (which in itself doesn't necessarily mean profit, btw) is, at best, a breach of contract, a civil matter between private parties. Losing a civil trial doesn't mean having done something illegal. You know how people say things like "I wish the fundamentals of coding/math/financial accounting/music/whatever were actually taught in school, everyone should know them"? I wish people also got a basic understanding of legal terms.
- p_l 3y agoHowever, the stockholders could make a civil case that, as majority owners,they wanted to go that way, and with high enough offer and social perception that CEO must work to do so, they could make it a very bad time in courts - or possibly just replace the CEO with someone willing to burn the ckmpany for their profits.
- newsclues 3y agoNo, the is a duty not to defraud investors but there is not legal requirement to maximize profits. Ford vs Dodge is often misinterpreted
- triceratops 3y agoFor-profits must act in the shareholders' best interests. Shareholders want profit, but they also care about other things. Matt Levine has been banging this drum of late in his column. To paraphrase: Shareholders are people who breathe air. A car company could oppose particulate emissions regulations to maximize profits for shareholders. But if they supported regulations instead, this is equally justifiable to any court in the land, even though it reduces profits. Cleaner air to breathe is very obviously in their shareholders' best interests.
- jampekka 3y agoIf there's a single shareholder that wants profit instead of clean air from their share, they have grounds to sue (and win). LLCs aren't dictatorships of the majority, and definitely not of the CEO. If every single shareholder agrees, then yes.
- triceratops 3y agoMinority shareholders who want clean air instead of more profit can also sue and win. Courts don't interpret fiduciary duty as literally profit; this is a common misconception. Management has to show they are acting in their their shareholders' reasonable best interests. In my made up example, clean air and profit are both in shareholders' best interests, and no reasonable court will rule against the company for going with either option. Profit is an easy, objective metric. Optimizing it enriches the management personally because they're paid in stock. Most people, thanks to generations of propaganda, have come to believe they're legally required to optimize solely for profit. Consequently there is little risk in doing that instead of something else.