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It's actually a myth that a company has to maximize shareholdervalue. There is no corporate law even remotely suggesting it and it is generally a horrible idea

It's actually a myth that a company has to maximize shareholdervalue. There is no corporate law even remotely suggesting it and it is generally a horrible idea. http://www.washingtonpost.com/opinions/harold-meyerson-the-myth-of-maximizing-shareholder-value/2014/02/11/00cdfb14-9336-11e3-84e1-27626c5ef5fb_story.html http://www.washingtonpost.com/opinions/harold-meyerson-the-m...

MWil 13y ago
I'm sorry but that article neglects any mention of court opinions (many of which I have read, as has any law student) which interpret the law and say otherwise.
- jvvlimme 13y ago
  Lynn Stout, a Cornell Corporate Law Professor, seems to disagree with you: http://www.amazon.com/Shareholder-Value-Myth-Shareholders-Corporations/dp/1459638697/ref=sr_1_4?s=books&ie=UTF8&qid=1393680047&sr=1-4 http://www.amazon.com/Shareholder-Value-Myth-Shareholders-Co...
  - bmelton 13y ago
    Having never heard of Lynn Stout, her claim to fame on Wikipedia is that Supreme Court Justice John Paul Stevens cited her work in Citizens United v Federal Exchange Commission... in the dissent. I could believe that oxygen doesn't exist, and I could probably find somebody else to agree with that, perhaps even an author or something, but if there exists a body of law that is on the books and that will punish you for violating it, the idea of shareholder primacy is very much not a myth. Dodge v. Ford 1953: > The Court held that a business corporation is organized primarily for the profit > of the stockholders, as opposed to the community or its employees. The discretion > of the directors is to be exercised in the choice of means to attain that end, and > does not extend to the reduction of profits or the nondistribution of profits among > stockholders in order to benefit the public, making the profits of the stockholders > incidental thereto. This all extends on precedent set way back in 1896 (though there may be earlier) in Steinway v Steinway & Sons, though in the case of Steinway, the philanthropic behavior was excused as having had pecuniary value. It's been cited since, and punishments are being levied in spite of the myth. While it may be true that there is no law codified to speak expressly on the duties of shareholder primacy, stare decisis specifically disagrees with that, and that's really all that matters. In the real world, of course there is no duty to maximize value at all costs, and the board elects a CEO who will do a good job of balancing short-term value against long-term value, and while actions such as Cook's are likely debatable either way, if we took a more extreme example, and Cook were to give 80% of Apple's assets away to charity, he would very certainly be sued, and he would very certainly lose. If, as in Steinway, the charitable actions could be argued to lead to longer term profits, the case gets blurrier, but the idea that shareholder primacy is a myth that does not exist is simply too unqualified a statement, and too counter to the facts to be regarded with much weight.
    - judk 13y ago
      Saying that "primacy" equals "short term profits" is also too unqualified and counter to the facts.
      - bmelton 13y ago
        Which is why I didn't suggest that it was. The claim I was responding to was this > "It's actually a myth that a company has to maximize shareholdervalue." There's plenty of evidence that, myth or not, the courts certainly think that it's real, and if the courts think that it is, then it cannot be a myth.
chalst 13y ago
I think I said that, with the caveat that different jurisdictions have varying stipulations about what the fiduciary obligations of companies are, and there has been some legal controversy about the idea over the years. There has been, unfortunately, case law that takes the idea seriously [see esp. 1]. Today, I think, it is hard to find people who think it is good for companies to be obliged to maximise shareholder value. John Kay, a British economist, journalist and author of the excellent Kay Review [2], has written very well about the problems of expansive readings of fiduciary responsibility. [1]: Katz v. Oak Indus., Inc., 508 A.2d 873, 879 (Del. Ch. 1986) judged “It is the obligation of directors to attempt, within the law, to maximize the long-run interests of the corporation’s stockholders." In Long v. Norwood Hills Corp., 380 S.W.2d 451 (Mo. Ct. App. 1964), the court observed: “Plaintiff cites many authorities [including Dodge] to show that the ultimate object of every ordinary trading corporation is the pecuniary gain of its stockholders and that it is for this purpose the capital has been advanced.” - via http://www.professorbainbridge.com/professorbainbridgecom/2012/05/case-law-on-the-fiduciary-duty-of-directors-to-maximize-the-wealth-of-corporate-shareholders.html#_ftn8 http://www.professorbainbridge.com/professorbainbridgecom/20... [2]: https://www.gov.uk/government/consultations/the-kay-review-of-uk-equity-markets-and-long-term-decision-making https://www.gov.uk/government/consultations/the-kay-review-o...

MWil 13y ago

I'm sorry but that article neglects any mention of court opinions (many of which I have read, as has any law student) which interpret the law and say otherwise.

jvvlimme 13y ago
Lynn Stout, a Cornell Corporate Law Professor, seems to disagree with you: http://www.amazon.com/Shareholder-Value-Myth-Shareholders-Corporations/dp/1459638697/ref=sr_1_4?s=books&ie=UTF8&qid=1393680047&sr=1-4 http://www.amazon.com/Shareholder-Value-Myth-Shareholders-Co...
- bmelton 13y ago
  Having never heard of Lynn Stout, her claim to fame on Wikipedia is that Supreme Court Justice John Paul Stevens cited her work in Citizens United v Federal Exchange Commission... in the dissent. I could believe that oxygen doesn't exist, and I could probably find somebody else to agree with that, perhaps even an author or something, but if there exists a body of law that is on the books and that will punish you for violating it, the idea of shareholder primacy is very much not a myth. Dodge v. Ford 1953: > The Court held that a business corporation is organized primarily for the profit > of the stockholders, as opposed to the community or its employees. The discretion > of the directors is to be exercised in the choice of means to attain that end, and > does not extend to the reduction of profits or the nondistribution of profits among > stockholders in order to benefit the public, making the profits of the stockholders > incidental thereto. This all extends on precedent set way back in 1896 (though there may be earlier) in Steinway v Steinway & Sons, though in the case of Steinway, the philanthropic behavior was excused as having had pecuniary value. It's been cited since, and punishments are being levied in spite of the myth. While it may be true that there is no law codified to speak expressly on the duties of shareholder primacy, stare decisis specifically disagrees with that, and that's really all that matters. In the real world, of course there is no duty to maximize value at all costs, and the board elects a CEO who will do a good job of balancing short-term value against long-term value, and while actions such as Cook's are likely debatable either way, if we took a more extreme example, and Cook were to give 80% of Apple's assets away to charity, he would very certainly be sued, and he would very certainly lose. If, as in Steinway, the charitable actions could be argued to lead to longer term profits, the case gets blurrier, but the idea that shareholder primacy is a myth that does not exist is simply too unqualified a statement, and too counter to the facts to be regarded with much weight.
  - judk 13y ago
    Saying that "primacy" equals "short term profits" is also too unqualified and counter to the facts.
    - bmelton 13y ago
      Which is why I didn't suggest that it was. The claim I was responding to was this > "It's actually a myth that a company has to maximize shareholdervalue." There's plenty of evidence that, myth or not, the courts certainly think that it's real, and if the courts think that it is, then it cannot be a myth.

chalst 13y ago

I think I said that, with the caveat that different jurisdictions have varying stipulations about what the fiduciary obligations of companies are, and there has been some legal controversy about the idea over the years. There has been, unfortunately, case law that takes the idea seriously [see esp. 1]. Today, I think, it is hard to find people who think it is good for companies to be obliged to maximise shareholder value. John Kay, a British economist, journalist and author of the excellent Kay Review [2], has written very well about the problems of expansive readings of fiduciary responsibility. [1]: Katz v. Oak Indus., Inc., 508 A.2d 873, 879 (Del. Ch. 1986) judged “It is the obligation of directors to attempt, within the law, to maximize the long-run interests of the corporation’s stockholders." In Long v. Norwood Hills Corp., 380 S.W.2d 451 (Mo. Ct. App. 1964), the court observed: “Plaintiff cites many authorities [including Dodge] to show that the ultimate object of every ordinary trading corporation is the pecuniary gain of its stockholders and that it is for this purpose the capital has been advanced.” - via http://www.professorbainbridge.com/professorbainbridgecom/2012/05/case-law-on-the-fiduciary-duty-of-directors-to-maximize-the-wealth-of-corporate-shareholders.html#_ftn8 http://www.professorbainbridge.com/professorbainbridgecom/20... [2]: https://www.gov.uk/government/consultations/the-kay-review-of-uk-equity-markets-and-long-term-decision-making https://www.gov.uk/government/consultations/the-kay-review-o...