4 ms·

"...Google execs all work for their shareholders, in a psychotic "market system" in which the myth of "fiduciary duty" is said to require companies to hurt us r

by krunck 7mo ago

"...Google execs all work for their shareholders, in a psychotic "market system" in which the myth of "fiduciary duty" is said to require companies to hurt us right up to the point where the harms they inflict on the world cost them more than the additional profits those harms deliver" Nailed it.

tptacek 7mo ago
Not really. The idea that "fiduciary duty" requires companies to maximize shareholder value is a pernicious Internet myth.
- fsflover 7mo ago
  And yet this is exactly how every single megacorp works.
- topaz0 7mo ago
  That myth long predates the internet version of it I think. Pernicious, yes. But note that the quote does call it out as a myth.
  - tptacek 7mo ago
    Fiduciary duty isn't a myth! It just doesn't mean what people claim it means.
    - fsflover 7mo ago
      Will you enlighten us?
      - kasey_junk 7mo ago
        There is no legal requirement to maximize shareholder value. The very idea is an economic theory popularized by Friedman and his students. It gained popularity in corporate governance since then but it’s not a legal requirement it’s a shareholder preference. But that preference is violated all the time. People often cite a 1919 era case from Henry ford because it has a pithy statement but the court in that case explicitly upheld many of the decisions Ford made that violated the principle. That is, there is no law or precedent that requires corporate officers to only consider shareholders.
        ethbr1 7mo ago
        I was under the impression the application was more akin to 'fiduciary duty provides an executive shield for morally reprehensible corporate choices' rather than 'it provides an ability to sue someone for not following it.' Legal defense instead of offense. IANAL, correct me please.
        kasey_junk 7mo ago
        I don’t think “morally reprehensible” is a legal standard (but i’m not a lawyer either). But to the point of this thread, there is no legal requirement that makes it so a boards fiduciary duty is in conflict with broader moral decisions, nor one that requires them to forget about their humanity when applying their duties as corporate officers. If they are assholes, its because they are assholes, not because they are required to do so by their obligations to the corporation.
        ethbr1 7mo ago
        I mean in the sense that if there's a morally distasteful business choice, but corporate officers pursue it, then are sued, a solid defense is claiming fiduciary duty. To wit, they thought it would make the company money.
        akerl_ 7mo ago
        Assuming fiduciary duty didn’t exist, what would the claim be in the lawsuit about morally distasteful business choices? Generally I’m not aware of any civil claim that would let shareholders sue over bad morals.
        likpok 7mo ago
        Modern shareholder law is definitely a strange business. People have successfully brought suits for a variety of bad-but-not-illegal causes. There were a lot of lawsuits about sexual harassment and climate change, I believe the theory being that “bad thing will make the stock go down, and the company didn’t disclose that they might do the bad thing”. Then more recently a lawsuit against target proceeded (I don’t see whether it’s completed yet) despite target having disclosed the risk (in this case of their DEI activity). The claim in the suit is notably that the company failed to disclose the behavior, not that they did the behavior (Target notwithstanding), which mostly agrees with your line of questioning.
      - forgotTheLast 7mo ago
        It depends on your legal jurisdiction but it means COs need to act in the corporation's best interest and not their own. In some places, that requires them to take shareholders' interests into account (especially for mergers or takeovers) but also the employees, consumers or creditors. In the US and notably Delaware, courts generally value shareholder value over anything else. Considering the vast majority of US corporations are incorporated in Delaware, I think it's accurate to say most US companies only aim to maximize shareholder value.
        tptacek 7mo ago
        No, Delaware does not in fact require corporations to "maximize shareholder value". That simply isn't a real thing. "Fiduciary duty" is a duty to operate in good faith, without self-dealing, in whatever (1) you believe to be (2) the best interests of the company. Both (1) and (2) are totally subjective. You can believe the best interests of your company reside with employee welfare, or with customer satisfaction. You will not find a Delaware case that says otherwise. So far as I know, the only time the actual value of a company's equity comes into the picture is if there are multiple competing offers to acquire the company.
        forgotTheLast 7mo ago
        It definitely is a thing in the eyes of Delaware courts: In eBay vs Newmark: >Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. The “Inc.” after the company name has to mean at least that. Thus, I cannot accept as valid for the purposes of implementing the Rights Plan a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders—no matter whether those stockholders are individuals of modest means or a corporate titan of online commerce. https://courts.delaware.gov/Opinions/Download.aspx?id=143440 https://courts.delaware.gov/Opinions/Download.aspx?id=143440 In the Trados case: >It is, of course, accepted that a corporation may take steps, such as giving charitable contributions or paying higher wages, that do not maximize profits currently. They may do so, however, because such activities are rationalized as producing greater profits over the long-term. Decisions of this nature benefit the corporation as a whole, and by increasing the value of the corporation, the directors increase the share of value available for the residual claimants. Judicial opinions therefore often refer to directors owing fiduciary duties ―to the corporation and its shareholders. This formulation captures the foundational relationship in which directors owe duties to the corporation for the ultimate benefit of the entity‘s residual claimants. Nevertheless, ―stockholders‘ best interest must always, within legal limits, be the end. Other constituencies may be considered only instrumentally to advance that end. https://courts.delaware.gov/opinions/download.aspx?ID=193520 https://courts.delaware.gov/opinions/download.aspx?ID=193520
    - deleted 7mo ago
      [deleted]
- text0404 7mo ago
  Citation needed because all evidence to the contrary.
- mindslight 7mo ago
  Legally, sure. (there's a citation, a case between craigslist and a minority shareholder (ebay I think?), that backs up your argument about the common trope). But when stock valuations are completely disconnected from fundamentals like earnings, then regardless of the legality we're kind of circling back to the market pushing that dynamic, aren't we? It's like the market is no longer even optimizing for short term gains per se (eg quarterly earnings), but rather for whatever memes might boost their meme stock. Sometimes this is [still] quarterly earnings, and sometimes it's about the perceived size of the market or how they're cozying up to the fascists in power. So for public companies, it's not like major shareholders, the board, or management really have the ability to work towards longer term plans that go against this dynamic.
- deleted 7mo ago
  [deleted]

by krunck 7mo ago

tptacek 7mo ago

Not really. The idea that "fiduciary duty" requires companies to maximize shareholder value is a pernicious Internet myth.

fsflover 7mo ago
And yet this is exactly how every single megacorp works.
topaz0 7mo ago
That myth long predates the internet version of it I think. Pernicious, yes. But note that the quote does call it out as a myth.
- tptacek 7mo ago
  Fiduciary duty isn't a myth! It just doesn't mean what people claim it means.
  - fsflover 7mo ago
    Will you enlighten us?
    - kasey_junk 7mo ago
      There is no legal requirement to maximize shareholder value. The very idea is an economic theory popularized by Friedman and his students. It gained popularity in corporate governance since then but it’s not a legal requirement it’s a shareholder preference. But that preference is violated all the time. People often cite a 1919 era case from Henry ford because it has a pithy statement but the court in that case explicitly upheld many of the decisions Ford made that violated the principle. That is, there is no law or precedent that requires corporate officers to only consider shareholders.
      - ethbr1 7mo ago
        I was under the impression the application was more akin to 'fiduciary duty provides an executive shield for morally reprehensible corporate choices' rather than 'it provides an ability to sue someone for not following it.' Legal defense instead of offense. IANAL, correct me please.
        kasey_junk 7mo ago
        I don’t think “morally reprehensible” is a legal standard (but i’m not a lawyer either). But to the point of this thread, there is no legal requirement that makes it so a boards fiduciary duty is in conflict with broader moral decisions, nor one that requires them to forget about their humanity when applying their duties as corporate officers. If they are assholes, its because they are assholes, not because they are required to do so by their obligations to the corporation.
        ethbr1 7mo ago
        I mean in the sense that if there's a morally distasteful business choice, but corporate officers pursue it, then are sued, a solid defense is claiming fiduciary duty. To wit, they thought it would make the company money.
        akerl_ 7mo ago
        Assuming fiduciary duty didn’t exist, what would the claim be in the lawsuit about morally distasteful business choices? Generally I’m not aware of any civil claim that would let shareholders sue over bad morals.
        likpok 7mo ago
        Modern shareholder law is definitely a strange business. People have successfully brought suits for a variety of bad-but-not-illegal causes. There were a lot of lawsuits about sexual harassment and climate change, I believe the theory being that “bad thing will make the stock go down, and the company didn’t disclose that they might do the bad thing”. Then more recently a lawsuit against target proceeded (I don’t see whether it’s completed yet) despite target having disclosed the risk (in this case of their DEI activity). The claim in the suit is notably that the company failed to disclose the behavior, not that they did the behavior (Target notwithstanding), which mostly agrees with your line of questioning.
    - forgotTheLast 7mo ago
      It depends on your legal jurisdiction but it means COs need to act in the corporation's best interest and not their own. In some places, that requires them to take shareholders' interests into account (especially for mergers or takeovers) but also the employees, consumers or creditors. In the US and notably Delaware, courts generally value shareholder value over anything else. Considering the vast majority of US corporations are incorporated in Delaware, I think it's accurate to say most US companies only aim to maximize shareholder value.
      - tptacek 7mo ago
        No, Delaware does not in fact require corporations to "maximize shareholder value". That simply isn't a real thing. "Fiduciary duty" is a duty to operate in good faith, without self-dealing, in whatever (1) you believe to be (2) the best interests of the company. Both (1) and (2) are totally subjective. You can believe the best interests of your company reside with employee welfare, or with customer satisfaction. You will not find a Delaware case that says otherwise. So far as I know, the only time the actual value of a company's equity comes into the picture is if there are multiple competing offers to acquire the company.
        forgotTheLast 7mo ago
        It definitely is a thing in the eyes of Delaware courts: In eBay vs Newmark: >Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. The “Inc.” after the company name has to mean at least that. Thus, I cannot accept as valid for the purposes of implementing the Rights Plan a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders—no matter whether those stockholders are individuals of modest means or a corporate titan of online commerce. https://courts.delaware.gov/Opinions/Download.aspx?id=143440 https://courts.delaware.gov/Opinions/Download.aspx?id=143440 In the Trados case: >It is, of course, accepted that a corporation may take steps, such as giving charitable contributions or paying higher wages, that do not maximize profits currently. They may do so, however, because such activities are rationalized as producing greater profits over the long-term. Decisions of this nature benefit the corporation as a whole, and by increasing the value of the corporation, the directors increase the share of value available for the residual claimants. Judicial opinions therefore often refer to directors owing fiduciary duties ―to the corporation and its shareholders. This formulation captures the foundational relationship in which directors owe duties to the corporation for the ultimate benefit of the entity‘s residual claimants. Nevertheless, ―stockholders‘ best interest must always, within legal limits, be the end. Other constituencies may be considered only instrumentally to advance that end. https://courts.delaware.gov/opinions/download.aspx?ID=193520 https://courts.delaware.gov/opinions/download.aspx?ID=193520
  - deleted 7mo ago
    [deleted]
text0404 7mo ago
Citation needed because all evidence to the contrary.
mindslight 7mo ago
Legally, sure. (there's a citation, a case between craigslist and a minority shareholder (ebay I think?), that backs up your argument about the common trope). But when stock valuations are completely disconnected from fundamentals like earnings, then regardless of the legality we're kind of circling back to the market pushing that dynamic, aren't we? It's like the market is no longer even optimizing for short term gains per se (eg quarterly earnings), but rather for whatever memes might boost their meme stock. Sometimes this is [still] quarterly earnings, and sometimes it's about the perceived size of the market or how they're cozying up to the fascists in power. So for public companies, it's not like major shareholders, the board, or management really have the ability to work towards longer term plans that go against this dynamic.
deleted 7mo ago
[deleted]