4 ms·

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.

by topaz0 7mo ago

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.
        tptacek 7mo ago
        Ok, but "Everything is securities fraud" (pace Matt Levine) isn't really what we're talking about here. E.I.S.F. cuts against the Chicago School "shareholder value" thing as often as not.
  - 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]

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.

by 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.
        tptacek 7mo ago
        Ok, but "Everything is securities fraud" (pace Matt Levine) isn't really what we're talking about here. E.I.S.F. cuts against the Chicago School "shareholder value" thing as often as not.
- 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]