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For-profits must act in the shareholders' best interests. Shareholders want profit, but they also care about other things. Matt Levine has been banging this dru
by triceratops 3y ago
For-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.